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Use tax return to pay down debt, invest in future

Posted February 19, 2014 in Advice Column, Downtown

Using all or a portion of your income tax return to reduce current debt is an attractive option for many Americans. In fact, a survey by the Iowa Credit Union League found that 38.8 percent of Iowans plan to pay down their debt with their tax refund. Interestingly, a tax return represents the largest debt payment many people will make the entire year.

According to the IRS, the average 2012 tax year refund was $2,700. While it may not be “exciting” to use your refund to pay down debt, it’s something you’ll never regret doing. However, along with reducing debt, there are a number of other ways to use your return wisely.

When determining how to divvy up your return in order to make the most of your money, consider these options:
•    Open a special savings account and earmark it as a “rainy day” fund. Set aside some of your return for unexpected expenses such as home maintenance, health care costs and auto repairs.
•    Invest your refund long-term. Divert your tax return to a 401(k) or invest in an IRA (Individual Retirement Account). Also consider buying shares in a mutual fund or stock.
•    Invest it short term. If you’re considering making a major purchase within the next 12 months, short-term investments, such as share certificates of deposits can help your refund grow into a down payment.
•    Start a college savings plan. With the cost of higher education continually on the rise, saving for college is a wise investment. With a 529 account, you can use the money tax-free for college bills, and you could get a state income tax deduction for your contribution.
•    Pay down a credit card or loan balance. Consider using all or a portion of your return to lower your interest-accruing debt. Reducing your balance can minimize your payments and/or shorten the term of the loan.
•    Invest in yourself. Use your return to pay for a continuing education course, weekend conference or an online class to learn a new skill.
•    Buy life insurance. Consider purchasing a term life insurance policy in order to provide additional funds for your loved ones upon your death.
•    Tackle maintenance projects. Put your refund toward maintenance or upkeep on your home or vehicle that could cost you even more if you put it off.

Information  provided by Debbie White, CEO of Village Credit Union, 601 E. Court Ave., 243-4400,

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