This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

How to Get the Most Out of Your Tax Refund

NEW YORK ( -- Millions of American households will soon get tax refunds. According to the IRS, the average tax refund last year was nearly $2,800.

It will be tempting to use the refund to buy some big-ticket items on your wish list or go on a much-needed vacation, but you may want to resist the urge to splurge and use that refund to pay down high-interest debt or to get ahead in savings.

Here are a few ways to get the most benefit from your tax refund:

  • Pay off credit card debt. Paying a large amount of your debt on a high-interest rate credit card helps you in several ways. You will reduce the amount of interest penalties, but also decrease the number of monthly payments that you will have to make. Paying down your debt will also help you improve your credit score gradually. If you have several cards, be sure to first pay off the card with the highest APR.
  • Pay off other high-interest debt, such as payday loans or other loans in collection. Many people who have payday loans can't afford to pay them, and fees roll over until interest payments cost much more than the loan. It is also a good time to pay off late bills and get credit collectors off your back.
  • Build up savings. This is a good time to build up your emergency savings or save for a car, the down payment on a house or even an eventual vacation. Set up a separate savings account for your refund and add to it when you get extra money from gifts, bonuses and next year's refund. An emergency fund will keep you from using a credit card during a crisis and protect you from going into debt from unexpected expenses.
  • Make a contribution to your IRA. If you have low to moderate income, you could be eligible for a tax credit or a tax deduction. With a $2,000 IRA contribution, you could get $1,300 in tax refunds.
  • Save for college in a 529 College Savings Plan. The contributions can grow, and there is no tax when the money is withdrawn for education expenses. You may get a deduction on your state income tax if you use your own state's savings plan.
  • If you have borrowed from your 401(k) loan, use your refund to pay it back. If you leave a job, these unpaid loans are taxable when you leave your job.
  • If all other debts are paid, make an extra payment on your mortgage. This additional payment may save thousands of dollars in interest and pay off your mortgage faster.

This is also the time to analyze your tax withholdings. A refund means that too much was withheld from your paycheck and you are giving the government a free loan. If you get a large refund but struggle to pay the bills every month and keep adding to your debt, it could be time to reduce the taxes withheld from your pay. This will result in more income each month to pay your bills and avoid more debt. If your refund is $3,000 a year, that is $250 a month you could use to pay on bills or decrease your debt.

Bill Hardekopf is chief executive of, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs