The average tax refund is $2,852 this year, about $75 more than in 2023, the Internal Revenue Service (IRS) revealed.
Experts suggest that the two most financially beneficial ways to use your return is to use it to pay off any outstanding debt and use the rest to build savings.
One financial advisor suggests that people should do both simultaneously, rather than choosing between the two.
‘If you pay down your debt to zero and have no savings, all that happens is that the next time you have an emergency expense, like a flat tire or taking your dog to the vet, that expense will simply go back onto your credit. card and you’ll go back into debt,” said Matt Schulz, chief credit analyst at LendingTree.
This year’s IRS data shows an average tax refund of $2,852, up $75 from 2023.
“If you can save a little while paying off loans, you can break that cycle of debt that so many people find themselves in.”
A tax refund is often “the biggest windfall of the year,” said Courtney Alev, consumer financial advocate for Credit Karma.
‘One thing we do see is a propensity to view tax refunds as something to splurge on. “One in four taxpayers see it as free money and plan to spend it on something they wouldn’t otherwise do,” he said.
“While this behavior is completely understandable, considering how struggling people are, with the rising cost of living and high interest rates, the best thing you can do is use it as an opportunity to advance your financial goals,” Alev continued.
‘Life is short, we want to reward ourselves. And we see a diverse set of responses regarding tax refunds. Our best advice is to use that refund to get your financial life back on track. In the treetops, that’s what we see and advise.’
It is recommended to focus on financial goals to achieve long-term stability.
Financial experts advise using repayments to pay off debt and build savings
Emily Garcia, 30, who works in marketing for a medical imaging software company in Toledo, Ohio, said she and her husband, with whom she filed jointly, were reimbursed about $1,000 and spent the money on garden furniture.
‘We wanted to dress the backyard to make it look nice, and the furniture isn’t cheap. “It was nice to have the refund check so we could buy what we were looking at,” he said.
Although García and her husband bought a house two years ago, which they are still in the process of paying off, they decided not to put the refund toward their mortgage.
“The debt is not going anywhere,” Garcia said. ‘A thousand dollars is not going to make a dent. But it is a good amount to buy something like furniture.
Megan McClelland, 38, who works as a high school head counselor in Petaluma, California, is spending her refund of just over $1,000 on travel, including trips to a bachelorette party and a wedding.
In October, McClelland had the last of her outstanding student loans canceled through the Public Service Loan Forgiveness program, making her debt-free for the first time in years.
As of last month, the IRS had processed about 141 million returns and refunded about $261 billion to taxpayers, up 2.2 percent from that time in 2023.
He said the $500 he had budgeted for his monthly student loan payments is now going into his savings account, so he sees the refund as an opportunity to spend on “things I probably couldn’t otherwise afford, or that would put me in debt.” .
In the past, McClelland said, he typically would have had to work extra shifts, moonlighting at a warehouse or as a caterer, to make a trip, or charge the trip on a credit card. You can now use the tax refund.
“In my opinion, the tax refund works as if I could use it more for ‘fun money,'” he said.
As of last month, the IRS had processed about 141 million returns and refunded about $261 billion to taxpayers, up 2.2 percent from that time in 2023.