Are you expecting a big tax return and dreaming of spending it on a sunny tropical vacation or a new wardrobe? Think twice. Although it may not be as glamorous as a week on the beach, using your return to pay down your credit card debt will do far more to contribute to your long-term dreams.
A survey conducted by Capitol One revealed that 33 percent of Americans planned to spend part or all of their tax refund this year.
“Most people are not factoring their annual return into their overall financial plan and long-term objectives,” says Mickey Konson, Managing Vice President for Retail Banking at Capital One Bank. “A tax refund is often seen as free money, which makes it very tempting to spend it right away, but it’s important to remember that the refund you’re getting back is your own money. Tax season is a good opportunity for people to plan ahead, with an eye toward their future goals and financial health.”
The long-term benefits of paying down your credit card debt will have a profound impact on your future, including your ability to get the best rates for auto loans and mortgages. Although a shopping spree may have immediate gratification, think of the huge walk-in closet or rec room in the new home you plan to buy a few years down the road.
Another great use for that return: invest in the myFICO Score Watch to keep an active eye on your FICO score, and get access to tools and simulators that will monitor your long-term credit health.