Use Your Tax Return To Pay Off Credit Cards

Many people are dealing with money issues right now. Fortunately it is tax season which means that they can use their substantial return to help lower interest charges and pay them off sooner.

Most people in America have some kind of credit card balance. In fact, recent statistics show that approximately half of the country has credit cards. With interest rates on the rise and new regulations forcing credit card companies to make drastic changes in order to preserve their profits, it is not very difficult to see how easily anyone could get into a bind.

This is one of the major roadblocks that many people face when it comes to credit. In the past, credit cards have been difficult to understand, which sort of put a lot of people out; but even with the new regulations it can still be quite hard to truly know how best to use them.

For instance, many credit card users applied for their card because of the attractive low rate without understanding how quickly the introductory period would pass and how high the standard variable rate would be. Many people also still have trouble dealing with credit cards, probably because this economy is indeed very tough.

Whether you are going through a layoff or slow down or money is simply tight right now, you might try to lean on your credit cards to help get through. This can be a good idea but you will eventually have to start paying down your balances. If you are concerned, then, about the escalating balances, you should also take heart that it is tax season, which means you can use your tax refund to help pay down your credit cards.

There are several reasons why using your tax refund to pay down credit cards could be a good idea:

  • It is risk-free, extra money
  • It is convenient
  • Credit card interest is NOT tax deductible

Free Money

Although your tax refund is actually money that you have earned but just have not received, most people look at this payment as free, extra money that comes every year. Regardless of how you look at it, you still get this money if you file all of your paperwork properly. It is true, though, that this money is free to you, as it comes without the risk of penalties or charges that could be associated with other kinds of rewards or awards.

Convenience

Obviously, getting a tax return is always pretty convenient especially right now because you can get all kinds of help to file your return. This means that you don't even have to understand all of the forms; if you are filing a 1040 EZ or Schedule A and satisfy certain minimum requirements, the IRS will actually help you fill out your forms for free if you call them.

Of course, you can also utilize tax preparation software or professional companies to help you too. After just a few minutes you can submit your return and have your money in no time. If you file online you can even apply for direct deposit and get your return even quicker. Some companies will even prepare your return and write you an advance check for a small fee, of course.

Credit Card Interest is Not Tax Deductible

While the interest on your home loan or student loans is tax deductible, the interest on your credit cards is not. This means that the charges you have to pay every year will continue to stack up and are basically like money that is lost to you. Think of interest as a fee for carrying a balance on your card. Because of this, you should want to get rid of your credit cards as soon as you possibly can. Although you might want to use your tax return to buy something nice for your family or to take a vacation, it might be a good idea to reduce the total amount of debt that you owe on your credit cards.

Final Word

As you can see, using your tax return to pay down your credit cards is always a good idea. It’s not something that you have to do, but it can help you save money and reduce the stress that comes along with making ends meet.