You have received a tax refund and now you are thinking about what to do with money. It could be a fair amount of cash – do you use it wisely?
If you have credit card debt, the answer is mostly to pay it back using a refund. largely.
In general, reducing the most expensive debt is the right course of action. This step will help you save on interest fees and direct this money towards something better.
But, like most things in life, personal finances are all about nuance. In certain circumstances, tax refunds may have better uses. To determine if you are in such a situation, ask yourself three questions to see if you are using your cash better:
Do you have emergency savings?
Emergency funds are essential to your financial health. This money is your safety net and will help you protect you from large medical expenses, unexpected expenses, or loss of income and avoid balloon balance.
Experts generally recommend having three to six months’ worth of base costs that are saved by emergency funds. Some experts even say we as consumers face so much economic uncertainty, and we need a 12-month emergency fund. A financial survey from June 2024 found that 59% of US adults were displeased with the level of emergency savings. Another survey from February 2025 found that about one in five (19%) had no emergency savings at all.
Tax refunds can provide a great boost to emergency funds if they can be associated with either or both groups. In this way, you don’t need to add more to your high profits in case something happens.
Keep your emergency funds in a savings account for a 2 year old. This type of account offers extremely high yields and helps you grow your money while it is accessible.
What is the interest rate on your credit card?
Credit card debt is expensive. According to the bank rate, the average credit card interest rate is currently 20.09%. Therefore, eliminating credit card balances should be a normal priority.
However, depending on the type of card you have, you may not pay that much. Your APR may be 0%.
For example, if you have a card that has an APR of 0% at the time of purchase, you will not pay interest on them while the promotion period continues. Alternatively, if you transfer your credit card balance to your balance transfer card, you will similarly not pay interest fees for that amount during the promotion period.
In either case, if you are on track to fully repay your balance while the introductory APR continues, it may be better to use a tax refund on something else. When you’re not paying interest, it’s time to focus on earning it. If your emergency funds are good, consider other savings goals. To promote retirement savings, consider investing or add it to your home down payment fund. Please work with your tax refund.
How much do you owe your credit card?
On the other hand, if you pay interest on your credit card and your card has a high balance, a tax refund may simply not make a big difference.
Credit card debt can be a real financial burden. If your tax refunds barely dent your balance, it could become a band-aid that covers bigger issues.
Take a good look at your situation. Are you struggling to pay all your bills and obligations each month? Do you feel like you live in your salary? In that case, I would like to be particularly careful and strategic about how to use this cash inflow as a tax refund.
Go through your budget and assess your expenses and see how you can reduce your spending. Once you have a clear picture of your finances, choose a card debt repayment strategy that you can stick to. This also gives you better ideas on how to use your tax refund, whether it’s helping with your daily expenses or starting an emergency fund.
If you are completely overwhelmed by debt and are unable to achieve your goals, you may need additional support. Consider contacting a non-profit credit counseling agency. A certified credit counselor will assess your financial situation and propose potential solutions, such as debt management plans.
Conclusion
If you are receiving a tax refund and are trying to decide on the best way to use it, credit card debt rewards are usually a safe bet. However, there is very little universal when it comes to personal funding.
Consider your card terms and overall financial situation to determine whether a tax refund is the best option if it applies to your credit card balance, or if there are other priorities that you need to focus on first.
