Budget Basics
Be rational with your tax refund
Experts advise paying off that credit-card debt
By Dave Burge
Thursday, June 16, 2005
Millions of Americans may be tempted to splurge and spend their tax-refund check on a plasma television or a Caribbean vacation.
Financial planners and other experts, however, recommend a more pragmatic approach to spending any money you get back from the Internal Revenue Service.
"My advice is to pay down your credit-card debt," El Paso certified public accountant and financial planner Carolyn Mora said. "That's not what people want to hear."
The IRS estimates that 102.6 million Americans will receive tax refunds this year.
In El Paso County, 246,400 taxpayers are expected to receive refunds, IRS spokesman Ken Vargas said.
Westsider Mike Hernandez said he would spend his tax refund on "some electronics."
"Maybe a new TV. Maybe buy a new monitor for my computer," he said. "I also spent some of it on repairing one of my cars."
Erin Freeman, who was visiting El Paso from Raleigh, N.C., said she planned to use her refund to save for retirement.
"I'm young and in debt, and don't want to be like that when I retire," she said.
As of April 1, the average refund check was $2,210, up from $2,100 at the same time in 2004, Vargas said.
"In my 19 years at the IRS, I've never seen the refund rates as high as they are now in terms of dollars and number of people getting them," Vargas said.
If you don't have a credit card to pay off, financial experts say, the second-best use of a tax-refund check is to get a jump-start on creating an emergency savings fund.
Experts recommend that you keep a short-term savings account that's the equivalent of three to six months of living expenses.
"I really like that three- to six-month buffer," El Paso CPA Kym Anderson said. "People don't really do that. They think they can borrow money when they get in trouble, but that can get you into more trouble."
According to a recent survey commissioned by TrueCredit.com, the consumer division of credit bureau TransUnion, 49 percent of Americans planned to use their tax refund to make a payment on their credit card, mortgage or other bills.
