Paying your tax refund toward debt is one claim anyone can be proud to make.

Are you tempted to use your tax refund for a new car, nice clothes or any number of fun things that don’t have anything to do with paying off debt? Hey, I don’t judge you. I’m facing that same choice.

Recently, my $3,600 tax refund appeared via direct deposit in my bank account. I’ve spent the last few weeks waiting to get my hands on that money while thinking of all the ways I could use the funds. I know I should pay the full amount toward the principal on my $30,000 student loan debt. Still, it’s tempting to put the money to other uses.

I could go on a vacation and deposit the remainder in savings. Then I could use a third of that refund to buy paint for my home interior during my paint store’s 35 percent off sale. I also considered padding my emergency savings. At the same time, I want to get rid of my big debt.

It’s hard to let that chunk of money go, especially toward a debt where it will barely make a dent. So, I put together a list of reasons why paying my tax refund toward a big debt makes sense.

1. It’s time to get serious about this debt

I have only two debts: a mortgage and a student loan. The student loan has dogged me for nearly 20 years while I paid off credit card debt, bought a house and built an emergency savings. That loan will be paid off, with thousands of dollars of interest, in eight years if I make regular payments. If I want to pay this debt off by my two-year goal, I’ve got to get serious about it. And nothing says “serious” more than forking over more than $3,000 to knock it down.

2. I’ll end up spending the refund if I stick it in savings

This is a tough one, so use your best judgment when it comes to your own situation. I already have a decent emergency savings, which is important to me. Otherwise, I’d withdraw all that money to cut my student loan debt in half. But then I might run up my credit card balance again by charging emergencies I’d probably end up spending most of that $3,600 and be back to my current savings balance within a year. Once I pay the refund toward debt, the money is spent. The reward: My debt is smaller.

3. Vacations come and go

If you’ve worked hard all year, you probably need a vacation. Still, a vacation is fleeting, which means that once you return home, any debt is still hanging over your head. On the other hand, a debt payment sticks. Remember, you can use your tax refund for debt and still take a vacation if you save for several months. Start a side hustle. Take a shorter, less expensive vacation. Find your vacation funds from another source.

4. I can improve my home in affordable projects

One year, I used my tax refund to have my house exterior painted. This year, I want to paint every room by summer, and I’ll do it myself to save money. Sure, it’s better to buy all the paint at once when it’s on sale. However, there will be other sales. I can always do paint projects here and there as I can afford it.

As painful as it is, I’ve decided to pay most of my refund toward my student loan. That way, I’ll reduce the principal by 10 percent, pay less interest and make that two-year goal more attainable. As a reward for my sacrifice, I’ll also spend 10 percent ($360) on some new clothes when they’re on sale. Then it’s back to every extra dollar going toward that pesky student loan.

If you’ve got a refund on the way, consider using that money to knock down or eliminate a debt. That way, maybe next time a tax refund rolls your way, you’ll have your choice of fun ways to spend or save it.

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Meet the Author

Deb Hipp

Deb Hipp


Hipp is a freelance writer based out of Missouri.

Credit & Debt

student loans, tax refund, Very Personal Finance

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Article last modified on April 24, 2018 Published by, LLC . Mobile users may also access the AMP Version: 4 Reasons to Use Your Tax Refund to Pay Down Debt - AMP.