Atlantic Blog

When you receive your tax refund, learning how to spend it wisely is your best bet. But you should also know some ways you shouldn't be using it. Below, we've provided ideas on how to use your IRS tax refund most effectively and some ways you should avoid using it.

Tips on What You Can Do with Your IRS Tax Refund

There are smarter ways to use your IRS tax refund, including:

1. Create an Emergency Fund

Not having any savings leaves you vulnerable if you were to lose your job, have a significant car or home repair, or have a medical emergency. You'd be forced to look towards short-term loans that have higher interest rates or rely on your credit cards and racking up your balances. It's a much smarter idea to start an emergency fund so you know you have money put aside in case you need it.

Aim to save three to six months of living expenses in your emergency fund. To help you avoid spending this money frivolously, put it into a separate savings account. See what Atlantic has to offer for savings accounts here!

2. Pay Down Debt

Along with saving for emergencies, you should also pay down debt. Begin by reviewing the interest rates on your current loan balances. Find the debts with the highest interest rates and start there. Every month you keep high-interest loans active is another month you're losing money by paying interest.

3. Pay Off High-Interest Credit Cards

If you have credit card balances, you should consider using your refund to pay them off or at least significantly lower the balance. Credit cards are some of the most expensive loans – especially from big banks and credit card companies.

It doesn't make a lot of financial sense to add your $3,000 tax refund into an account that yields 1% interest yet continues to maintain a $3,000 balance on a credit card with an 18% interest rate. For low rates on credit cards consider Atlantic’s Platinum credit card aimed for saving you money with a non-variable rate as low as 11.49% APR

What Should you Not do with Your IRS Tax Refund

Some ways you shouldn't be using your IRS tax refund include the following:

1. Don't Have Your Tax Refund just “sitting.”

The biggest issue with receiving your refund on a debit card is that, most of the time, you don't benefit from a higher balance. Debit cards sometimes come with transfer, withdrawal, or monthly maintenance fees. These fees can easily and unnecessarily take away from your tax refund. However, an account that benefits from having a higher balance is Atlantic's Kasasa Cash Checking account. With Kasasa Cash, you are actively accruing more money if you have a higher balance. With no maintenance fees, no minimum balance requirements, and refunds on ATM withdrawal fees, keeping your tax return in an Atlantic Kasasa account is a good idea.

2. Avoid Spending Your Refund Without a Plan

You should resist the urge to spend your tax refund frivolously, particularly with everything we've learned from the pandemic. You should instead be using some of it as an emergency fund, or if you want to splurge a little on yourself, split it. For instance, you could spend 30% of it as fun money and put 70% towards paying off debt or towards your savings.

It's understandable that you'll immediately start thinking about the different things you can buy with a tax refund. But, before spending the money, perhaps take a little time and plan out what you could do with it. Consider adding to your savings or retirement fund or paying for any necessary expenses like:

• Home repairs
• Car repairs
• Medical bills

3. Forget the Refund Anticipation Loan

Refund anticipation loans, at first glance, might seem like a good idea. You already know you have a return coming to you; why not receive it early and then pay it back once you receive your refund? But the biggest issue with refund anticipation loans is you typically need to use a tax preparation agency to file your taxes. These companies usually charge fees that can start around $48. They might also tack on fees to apply for the loan and costs for having the funds disbursed. So, basically, you'll be using a portion of your tax refund simply to get it a little quicker.

Instead, set up to receive your tax refund faster with direct deposit.

We’re Here to Help!

With a bit of discipline and planning, your tax refund could significantly impact your finances in a positive way. Whether it's paying off debt, boosting your savings, or combining both, tax time is the perfect opportunity to get your finances back on track. If Kasasa Cash Checking sounded interesting, you could tag it along with a Kasasa Saver to have a seamless emergency fund with your checking account. Kasasa Saver can help grow your money just like Kasasa Cash without modifying any of your current debit card uses. Find out the qualifications and see if it's right for you here.

If you're interested in setting up a savings account for your emergency fund or would like to work on paying down debt, we're ready to help. Please stop by any of our branch locations, give us a call, or try out our video banking.

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This publication is distributed for educational purposes with the understanding that the authors are not engaged in providing legal or financial advice. The authors assume no legal responsibility for the completeness or accuracy of the published contents.