Don’t let debt linger when there’s a windfall coming.
- Persistent debt could hurt your credit and cause you to accrue a significant amount of interest.
- If you have a tax refund on your way, it pays to use it to get yourself out of debt fast.
It’s not uncommon to end up with a pile of credit card debt. Maybe you’ve lost track of your expenses and are a bit overwhelmed. Or maybe an emergency expense came up out of the blue and you didn’t have enough money in your savings account to fully cover it.
Many people have also become more dependent on credit cards in recent months due to rampant inflation. With the cost of living rising everywhere, it’s no surprise.
Either way, if you’re sitting on a pile of credit card debt, it pays to work on eliminating it as quickly as possible. For one thing, the longer you carry that debt, the more likely you are to accrue interest. Additionally, high levels of credit card debt could push your credit utilization ratio into unfavorable territory. Once that happens, your credit score could take a hit, making it difficult for you to borrow affordably when you need it.
Of course, the challenge of paying off debt is finding the money to do it. But if you’ve filed your taxes and are getting a refund, it could be a good solution to your debt problem.
Make good use of this tax refund
Your tax refund may be enough to cover all of your debt. Or maybe he can only cover part of it. But either way, it pays to use that money for debt repayment purposes, especially if you’re struggling to pay down your credit card balances.
If you can’t get rid of all your debt, you’ll want to use your limited funds strategically. Look at your various debts and determine which are the most expensive from an interest rate perspective. If you owe $500 on one credit card at 20% interest and $800 on another card at 16% interest, it makes sense to work through the $500 balance first.
Another option is to see if you qualify for a balance transfer. This way you can transfer your different balances to one card with a lower interest rate. Many balance transfer offers come with an introductory APR of 0%, giving you a reprieve from accrued interest for a period of time.
Try not to get into debt
You may be able to use your tax refund to get out of debt and move forward with a clean slate. But if that’s the case, you’ll also want to take steps to avoid getting into debt.
Establishing a budget could really help you control your expenses and identify ways to reduce your costs. If you’ve been struggling with inflation, this is a particularly good move.
You can also consider increasing your income by taking up a side business. The gig economy is full of options these days, so even if you’re faced with constraints such as not having access to a vehicle or childcare, you can still manage to find a side job that can be done remotely.
Credit card debt can wreck your finances and seriously hurt your credit. If you have a stack of money from the IRS, it could serve as your personal bailout and help you get rid of your debt once and for all.