From covering healthcare costs to paying off debt, there are wiser ways to spend your tax refund than vacations and luxury buys.

4 minute read

The government shutdown aftermath may have Americans questioning when they’ll get their tax refund this year – but they already know how they’ll spend it.

More than a quarter (27 percent) of all Americans who will receive a tax refund this year plan to use it to pay off debt, says a recent poll from GOBankingRates. [1] Still, that’s down from 36 percent last year.

The poll didn’t explore what caused that drop, but it’s certainly not because Americans are carrying less debt. They’re actually carrying more.

Experts advise using a refund to pay down debt that’s costing you interest, but there are plenty of other smart ways to spend your tax refund without regretting it.

How to spend your tax refund wisely

If you’re feeling the itch to spend, don’t scratch it. You can make a pretty big dent with your tax refund, which now averages $3,000. [2] Look at your priority list first to see if you’re meeting your own financial goals before looking around for a place to spend your cash.

Instead of spending your entire refund on short-term pleasures, use your tax refund to:

1. Pay off debt

Americans’ credit card balance payments hit an all-time high of $1.2 trillion in 2018, according to the Federal Reserve. [3] Because of the record numbers, it’s no surprise that the top way Americans are spending their tax refunds is on debt.

If you have a refund on the way, consider using that money to knock down or eliminate debt. Odds are, you’ll save more money from interest charges in the long run.

2. Build your savings

Because families aren’t prepared for emergencies like medical bills, some go into debt paying for them. Others rely heavily on tax refunds to cover the costs. Unfortunately, it doesn’t prepare those families for future emergencies.

Important financial investments like a savings account or an Independent Retirement Account don’t get much attention since there are bigger financial priorities.

Stashing away for emergencies means you’re less inclined to go into debt to cover these costs. The truth is, most Americans are not ready for financial emergencies. Most of us can’t handle medical bills, car problems, or job loss. But if you save your tax refund – which is $3,000 on average – we may have a chance.

3. Cover healthcare costs

Have you ever had to go into debt for medical care? Instead of having to owe a doctor or hospital, use your tax refund to cover the costs if you can’t currently afford them. Most broke families do.

Healthcare spending increases 60 percent the week after receiving a tax refund, says a 2018 survey from JP Morgan and Chase Institute. [4]

The bank analyzed data from 1.2 million checking accounts of customers who received tax refunds over the past several years. Out-of-pocket healthcare spending increases by 83 percent the week after people receive their refund checks.

Although credit card spending doesn’t change, some consumers need that extra cash to seek medical attention. Not surprisingly, the lower the checking account balance, the more likely the increases in healthcare spending.

Chase says families may have delayed medical treatment or paying a medical bill because they couldn’t afford them up front. This means financial health is inherently linked to medical health.

4. Spend on necessities

If your savings, healthcare, and emergency fund are up to par, it’s OK to spend the extra cash you have. However, there’s a difference between splurging blindly and spending wisely.

Another choice people are opting for this year (particularly 25-34-year-olds) is making a major purchase on necessities like a car or a home, GOBankingRates found. [5]

While the most popular choice among Americans is paying off debt with their tax refunds, the extra cash may give you the boost you need to make that vital purchase. Be wary that this option may be best for those with very little debt and stacked savings.

For more smart ways to spend your tax refund, check out’s how-to guide using your tax refund wisely.

Money management tips so you can keep your refund

If you can’t afford to save your refund, or you need it for healthcare costs, here are a few tips to consider for next year:

1. Budgeting

One sure-fire way to be able to live without your tax refund is sticking to a budget. If you have no savings and are living paycheck to paycheck, odds are you’re not going to have enough money to take care of yourself, and you may even go into debt.

You can start by tallying up your expenses, compared with your income, and see where you can cut your costs. That extra money left over can be used to build up a savings account.

For more budgeting tips, check out’s guide on how to create a budget.

2. Increase your income

If your budget is so tight that you can’t save any money, it may be possible to increase your income through a side hustle. It could be anything from babysitting to driving for a ride-sharing company. But either way, that extra income can help you save.

So, when an emergency happens, and eventually one will, you won’t have to wait until you get your refund to fix it.

3. Create an emergency fund

If you’re not being careful with your money, regardless of your income level, you probably aren’t ready for an emergency. You may think you’re too young to save (you aren’t), or you need to make more money first. But fret not: Your tax refund can serve as a foundation for an emergency fund.

Your emergency fund isn’t something to put on the back burner and only consider once you get your tax refund. If you establish one beforehand, you can afford to use your few thousand dollars for something more satisfying like paying off debt or putting it toward a new home.

Kristen Grau contributed to this report.

Dreaming of the day you actually get a return because you owe a lot to the IRS? If you fear you won’t get caught up? Take a look at our solutions.

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About the Author

Dori Zinn

Dori Zinn

Dori Zinn is a full-time freelance journalist based in Fort Lauderdale, Fla. She’s president of Blossomers Media, Inc., a web development and online media consulting company. Along with her work on, she’s been a longtime freelancer for Money Talks News — a personal and consumer finance website — and South Florida Gay News — the largest weekly LGBT newspaper in the South. Zinn has written for a variety of other publications, including Huffington Post, The Week, Quartz, Fort Lauderdale Magazine, Indulge, and

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