If you’re one of the lucky American taxpayers expecting money back from the IRS instead of owing Uncle Sam, you need to read the following before you make plans to spend your federal tax refund check.
The average American family owes more than $8,000 in credit card debt, and pays more than $1,000 per year in interest payments alone. Paying only the minimum 2 to 4% each month can mean years before many will ever be debt-free and that’s assuming they don’t continue to put more on their cards each month. If you can relate to this typical American profile, then please stop and think before you view that refund check as “new found money” and make plans to spend it on food, fun, or luxury goods.
Stop – The money you are being refunded is NOT new-found money. It is money you earned that, instead of paying off those expenses you incurred or earning interest in a savings account, was “loaned” to the government in the form of overpaid taxes. It was yours all along; you’re just getting it back, and without interest I might add!
I am reminded of an episode of Everybody Loves Raymond where Raymond’s brother Robert was having financial difficulties, so Raymond, feeling sorry for his brother and wanting to help, loaned him $1,000. Robert was, needless to say, very touched and very grateful. But a couple days later, to Raymond’s shock and disbelief, Robert informed his family that he was headed to Vegas for a vacation. When Raymond asked him how this was possible given his financial woes, Robert basically told him that it was all thanks to the $1,000 Raymond had given him – money he said he wouldn’t otherwise have had. Robert’s warped logic was that, for a few days, he would feel free of his financial problems. Too many people view their debt in the same manner. It feels like it is always going to be there so why not take the money and have some fun, at least for as long as the tax refund lasts.
Think – Don’t be like Raymond’s brother Robert. If you were to pay only the minimum 4% each month at an average 18.9% APR, against a debt balance of $8,000, it would take you over 14 years to pay off that debt. But if you applied your $1,000 (or whatever amount you get back) refund check each year to your debt balance, you could cut years off the life of your debt and save thousands of dollars in interest, assuming you don’t continue to charge more than you can pay off each month. Don’t think short-term fun like Robert. Think long-term financial health. It’s not too late to make 2007 your year to become fiscally fit.
Act – Commit to a plan now before the refund check comes. Start with your highest interest credit card and plan to pay down that balance first. You can go to www.dinkytown.net and use one of their many financial calculators to evaluate your personal debt situation and how much of an impact this strategy can have over the life of your debt. Once you determine your plan, then stick with it! Sound a little hard to do? Okay, then take $50 of the refund and treat yourself to a nice dinner as your reward for doing the fiscally smart thing with your refund!
Drowning in Debt? If you are one of a growing group of Americans who are literally drowning in debt and feel that your tax refund would barely put a dent in the thousands of dollars you owe, then you may qualify for debt settlement. Your refund check can help you get started to actually negotiate down and then eliminate much of your unsecured debt. You can obtain a free debt consultation from Credit Card Relief™ by clicking here. They can help you determine the best solution for getting free of debt. To learn more about how such a program can help you get debt free, read my blog dated September 29, 2006.
