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TAXES, ARE YOU GETTING A REFUND? - GET OUT OF DEBTGetting a Tax Refund – Get rid of Debt
In 2009 it is likely that three out of four individual taxpayers
will receive a tax refund. For these consumers the average refund will
be $2,423.00, an increase of over $200 from last year. If you are one
of the many to receive a refund you have probably been thinking about
what you should do with the money. I know many of you already have the
money spent before you get it, and this year it is probably a needed
relief. So, instead of spending your tax refund on some new CD’s, a
new computer, a vacation, or a new T.V. use this money to get ahead
financially. When you evaluate your financial situation you may find
better uses for the money than spending it on material items.
Although, most of you have the best intentions about using your
refund, the reality is most of you will spend a large chunk of your
refund before even considering your outstanding debts. This is
incredibly hard to understand since by the time you get a refund most
of you have fallen behind on monthly bills and/or other debt.
Here are some great tips that many financial planners recommend to start getting your tax refund to work for you.
#1. First and foremost you will want to reduce
high-interest debt. If you think about it logically: if you hold a
balance of $9,000.00 (the average amount of credit card debt carried by
a person in America) at an interest rate of 18% and you are making a
minimum payment of 4% (most Creditors are now charging 4-5% for your
minimum payment.) a month it will take you 174 months to pay off this
debt and you will also pay $5,315.67 in interest a total $14,315.67.
However if you were to take $2,000 of your refund and pay it toward
your debt now you will be able to pay the debt off in 164 (months
almost a year quicker) and you will save your self $1,200 in interest.
#2. Paying down your mortgage is another great way to
utilize your tax refund. If you reduce your mortgage balance it could
mean substantial long-term savings. Any extra mortgage payment you are
allowed to make goes directly toward your principal allowing you to pay
off your mortgage faster and will save you in interest. However, for
some, accelerating mortgage payments isn't always the wisest decision.
It depends on your current mortgage and rate as well as other
investment possibilities. I would suggest consulting a financial
advisor before making any extra payments.
#3. Another way to use your tax refund to help you get a
head is by putting it into a retirement plan. You could increase your
contribution to your 401(k). If your employer matches 50 cents to each
dollar you contribute up to a specified percentage of your paycheck you
could really see the benefits. If you do not currently have a 401(k)
or other retirement options offered by your employer, you could always
start an individual retirement account (IRA). If you have maxed out
your contributions on any of these accounts for the year, you could
look into tax-efficient mutual funds or possibly an annuity.
#4. Begin to establish an emergency savings fund. Almost
60% of American households, with children under 18yrs, live paycheck to
paycheck. It could possibly save you from having to put an emergency
car repair or doctor bill on your credit card, or having to rob from
Peter to pay Paul. Having an emergency fund could prove to be a
valuable asset.
#5. Another idea that would help you plan for the future
would be to start a college fund. By investing in a college account
for your children you will give them an advantage, and help take the
stress off of the thought of planning for their future. The younger
your children are when you start the fund the more it will be able to
grow. There are many options for college saving such as a Coverdell
education savings account, which is a trust or custodial account set up
solely for the purpose of paying qualified education expenses for the
designated beneficiary of the account. You could also consider
investing in the tax-free growth of a 529-college savings plan. This
plan is an education savings plan that is run by a state or educational
institution and is designed to help families save funds for future
college costs. As long as the 529-plan satisfies the basic
requirements, the federal tax law provides special tax benefits to you,
the plan participant. Any of these options are very significant in
being able to provide an education for your children with out the
stress of no planning.
On a going forward basis, if you find that you are still falling
behind, you may want to look into changing the amount of deductions
from your paycheck. Allow yourself more money throughout the month
rather than using the IRS as a no interest savings account. Rather
than using the IRS as a no interest savings account you should consider
adjusting your W-4 so that you are able to get the maximum amount due
to you every month.
However, you will want to seek the advice of
a tax professional before making this decision. If not enough money is
being withheld you may find yourself owing money to the IRS at the end
of the year.
If you have already spent your refund before
you have even gotten it please contact Professional Debt Advisors. Simply fill out
the form on the right and we will contact you with in one business
day. To receive immediate assistance please call 866-559-3328 now.
*Professional Debt Advisors is
not a Licensed Tax Agency and do not claim to be one. If you have
specific tax questions please consult a Tax Professional. |
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Professionaldebtadvisors.com - 2008
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Debt Settlement - Straight Talk