The average tax refund so far this year is $3,125. Here's why you should use yours to pay off your credit card.
shows that American taxpayers thus far are seeing an average refund amount of $3,125. While you may feel inclined to spend what feels like "free money" splurging on a vacation or a luxury purchase for its instant gratification, you'll profit more in the long run if you use it wisely.
"Personal interest, including credit card interest, is not tax deductible," Steven Rossman, CPA and shareholder at Philadelphia-based accounting firm focusing on taxation Drucker & Scaccetti, tells CNBC Select. "Using your tax refund to pay the highest interest credit cards would be the most beneficial, as you would save on interest that is not tax deductible."
"It's probably costing the person 12% to 18% in non-deductible interest," Andy Byron, a certified financial planner and principal with HC Financial Advisors, tells CNBC Select. Putting extra cash towards high-interest debt is "like investing and getting a 12% to 18% return."2.
"The exception would be if the interest-free period is about to expire and there is a chance that the balance would begin accruing interest unless the tax refund is used to pay it off," Bruce McClary, a spokesman for the National Foundation for Credit Counseling , tells CNBC Select.An influx of cash in the form of a tax refund may be just enough to pay off an existing balance and free up your money for something more meaningful.
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