Life changing ways to use a tax refund

Recent data from the Internal Revenue Service shows that the average individual tax refund in 2016 was about $3,050 and, depending on how the recipient chooses to spend the money, it could have a dramatic effect on their finances.

Buying a new dining table is one thing — and it might solve a family’s needs — but using a refund on a down payment for a car or boat puts the family in debt.

Paying off high-interest debt is one of the most effective ways to use a refund because the benefits are two-fold: getting rid of a monthly payment and avoiding future interest payments. Eliminating a credit card with a $3,050 balance all at once will remove $76.25 from the budget each month while preventing $1,210 in interest charges when making only the minimum payment, according to the Simple Dollar.

If a high-interest debt isn’t an issue, then the best long-term move is to put the money into an emergency fund in a high-interest savings account, a Roth IRA, or even a Health Savings Account.

For those with access to an HSA through a high-deductible health care plan, they allow the contributions to reduce taxable income, pay for medical expenses such as doctor visits and medication, and act like a traditional retirement account after the age of 65 making it the most flexible option.

Once savings are at target, using the rebate to invest is an excellent choice to let the money grow over time. Opening an account with a stock brokerage or peer-to-peer lending platform is the most logical choice, but don’t discount the impact investing in oneself can make in the future. Going back to college, pursuing an advanced certification, or even starting a side business can lead to higher pay and higher fulfillment over time.

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