Many Florida residents may be among the estimated 70 percent of taxpayers who will receive a refund from their 2016 tax filing. For those receiving a refund, financial experts have offered some advice on what to do with those funds. One of their suggestions is to pay down credit card debt. Roughly 39 percent of the country’s adults plan to pay down their debt with their tax refunds, according to a survey by the National Retail Federation.
Financial advisors note that situations vary for different people, and a refund might be better utilized elsewhere. They recommend that consumers establish a $500 emergency fund if they do not have one before using the money to pay down their debt. Also, if someone has an interest-free credit card, they would benefit putting the money toward something else. For those with debt levels of more than half their income, bankruptcy relief may be an appropriate option.
However, for those wishing to reduce their level of credit card debt, experts explain why using a tax refund is a wise choice. Since interest charges can add up quickly, paying off a credit card saves a considerable amount of money. When consumers pay only the minimum amount due, they often carry a debt a long period of time. Experts recommend transferring a high-interest credit card balance to a zero percent APR credit card, if possible.
Paying down credit card debt can also boost credit scores. A lower balance would have a positive effect on someone’s credit utilization ratio, which is the percent of credit available. Higher credit scores often result in better interest rates or greater savings on some products and services.
High credit card balances may be overwhelming for Florida residents. Many in this situation seek the advice of experienced legal counsel. An attorney familiar with bankruptcy laws can provide assistance to consumers wishing to gain control of their financial situation.
Source: palmbeachpost.com, “Why Your Tax Refund Is Ideal for Paying Credit Card Debt”, Claire Tsosie, Feb. 24, 2017