Tax Refund Loans: Don't Mortgage Your Future

These loans make even less sense as the IRS introduces services such as e-file and direct deposit that cut the time it takes to get a refund after filing to between nine and 16 days.

However, to counter the bad publicity surrounding refund loans, some companies have begun offering RALs at more competitive rates. H&R Block(HRB Quote), for example, has slashed the cost of these loans by 40% this year for some borrowers. A RAL on a $2,800 refund now costs a little less than $60 when deposited to an Emerald Card account.

Other kinds of borrowing decisions made with tax refunds in mind can also be questionable. Some people might enter into zero-interest or no-payment financing plans to buy expensive items such as furniture or flat-screen TVs.

They may intend to use their IRS check to pay off the balance before the promotional period ends, but what happens if the refund is smaller than expected? They could end up paying off the debt late and getting hit with big charges. Warner says it can be dangerous to "get into a situation where the money is spent before you receive it."

Strategies for Using Your Refund

MMI has developed an online forum called SaveOrSpend.com where consumers can share strategies for how to use their refund. Warner says the goal isn't to endorse any particular course of action but merely to encourage people to "give this whole process some thought before going out and getting into debt."