The National Foundation for Credit Counseling® (NFCC) February online poll revealed that most taxpayers (68 percent) would prefer to pay down their debt with a tax refund this year instead of growing their personal savings.
“These poll results indicate that debt is still getting in the way of personal savings for many Americans,” says Bruce McClary, spokesperson for the NFCC.
While there are a number of good reasons to become less dependent on tax
refunds, it is wise to have a plan ready in case a check from the Internal Revenue Service (IRS) arrives this year. In 2014, the average tax refund for individual taxpayers was $3,034 according to the IRS. Compare that to the average credit card debt of $5,047 for adult consumers with credit cards in the previous year, according to a report by CreditCards.com. If the average refund amount were entirely committed to the repayment of the average credit card debt, it could pay it down by more than half.
The NFCC encourages people to consider the following tips when deciding how
to repay debt with their tax refund:
• If the debt is costing more than what is being earned from interest on savings, debt repayment should be considered as the top priority.
• If committing the entire tax refund to repay a debt does not completely erase the balance owed, a plan should be in place to accelerate the payoff
of the remaining balance.
• If using the refund to settle a debt for less than the balance owed, be prepared to pay income tax on the amount forgiven by the creditor.
• To pay less interest over time, focus on eliminating the higher interest debts first.
• Once a balance is repaid, avoid replacing it with new debt.
“The most important thing to consider is the impact that debt is having on quality of life,” continued McClary. “Being in a position where savings has to be put on hold while debt takes center stage is not where consumers should be. Placing debt repayment on a faster track while reducing reliance on credit cards and loans will bring people closer to resuming progress toward reaching their personal financial goals.”
The NFCC February poll question and results are as follows:
What would you do with a tax refund this year?
1. I would use the money to pay down debt – 68 percent
2. I would use the money for basic necessities – 15 percent
3. I would use the money to grow my savings – 11 percent
4. I don’t know how I would use the money – 4 percent
5. I would use the money to have fun shopping or take a vacation – 2 percent