Six reasons tax season is the best time to break up with debt

 

Tax time is a great time of year to do a lot of fun things (except commit tax evasion…definitely not a good time to commit tax evasion). It’s a great time to buy some new pencils, brush up on current tax laws and spend a little quality time with a few of your favorite receipts from the past year.

It also happens to be a great time to break up with debt!

Now, you’re likely thinking, “My debt is way bigger than my tax refund is going to be!” Well, that’s probably quite true, but breaking up with debt doesn’t mean becoming instantly debt-free; it means breaking free from the bad financial habits and circumstances that have kept you locked in a destructive relationship. It means making the changes necessary to find a better path for yourself.

And tax time is absolutely a great time to start making those changes! Consider this:

  1. Your calculator is already warmed up. That might sound like a joke, but it’s true. Most people would rather do just about anything other than deal with their finances. According to an online consumer poll conducted last year, 69% of respondents never balance their checkbook.  But now it’s tax time and if you want your refund you have to at least spend enough time with your finances to complete your return. Why not go a step further? Why not take this opportunity to really look at your finances and see what’s been holding you back? Because you know as soon as that calculator goes back into the junk drawer you won’t see it again until next year.
  2. You won’t have to guess what your budget is. One of the most invaluable tools you can have in the fight against debt is a good, thorough, accurate budget. And if you don’t like paying attention to what’s happening with your money those can be hard to come by. Well, now you’ve got a lot of that information out in front of you. Use it! Simply spending an extra hour of your time putting together a realistic budget will go a long way towards helping you reach your financial goals.
  3. Behold! Your emergency savings have arrived! One of the biggest deterrents to breaking out of the debt cycle is the lack of an emergency savings fund. Think about it: making a concerted effort to shed your debt usually means living on an extremely tight budget and what destroys a tight budget faster than an unexpected emergency? But now you can use your tax refund as a savings cushion and the next time disaster strikes you’ll be able to weather the storm and resume your regularly scheduled debt-busting ways.
  4. You can clear away a few of those pesky smaller bills. There are a lot of different theories on the best ways to pay down debt and they all have their good points. In a lot of cases, whatever your bills may be, most of them will be pretty consistent from month to month. If you have a few that are relatively low you might consider using your tax return to pay them off, which can help create a little breathing room in your monthly budget.
  5. You can pay down your biggest debt/highest APR and save a little on monthly interest charges. If you’re thinking of using your refund to pay down debt, you should also consider which debt is costing you the most each month. You might not be able to pay off one of your bigger debts with your tax refund, but reducing the debt significantly could save you a lot in interest charges over the long run. You should also consider putting the money towards whichever account is charging you the highest interest rate for the same reason.
  6. If you need it badly enough, you can buy it – with cash. Of course, you can always just spend your tax refund, but that wouldn’t seem to help you out too much in your struggle against debt. Unless, that is, you’re buying something that you absolutely need – something that’s getting purchased no matter what. In that case, don’t just think about right now, but also consider any significant needs coming up on the horizon. If you can use your tax refund to prevent a future opportunity to fall deeper in debt, then spending your windfall might be in your best interests.

But what about you? What are your big plans for this year’s return? Are you reducing debt? Building savings? Buying a hovercraft??? We love to hear from you! Leave us a comment below and have a happy tax season!

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.