What most Americans will — and should — do with their tax refunds

WASHINGTON — Are you thinking about tax time yet? It’s not too soon.

For most of us, it means a refund, and a dilemma often accompanies the windfall: Should I blow it on something fun or use it wisely?

Of course, you should do something responsible with the money, and most Americans responding to a Bankrate.com survey say just that: 84 percent said that they’ll use their tax refunds to pay down debt (30 percent), save or invest the money (28 percent) or use it for necessities (26 percent).

Only 7 percent say they’re going to splurge on a vacation or a shopping spree.

“I think it is a sign about how people feel about the economy and where we are going. There is still a lot of uncertainty out there,” Bryan Pukoff, a CPA at the Rehmann financial services firm, said to Bankrate. “The percentages actually surprise me.”

Other facts from the survey:

Three percent of those surveyed overall took out a refund anticipation loan. For people with incomes of less than $30,000, that number jumps to 6 percent.

Greg McBride, Bankrate’s senior financial analyst, says that’s a dangerous trap that you really need to stay out of.

“Here is what that really means: You gave your money to the government for free all year and now you need it back so quickly that you’re going to pay a high interest rate just to get your own money back that you could have had all year,” McBride said to Bankrate.

And 3 percent say that they’ll put their refund into multiple accounts, including an IRA.

“I find that troubling, considering how woefully under-saved for retirement our society is,” McBride said to Bankrate.

Financial advisor Eric Tom tells MainStreet that your fur best options are:

  • Pay down debt
  • Use your company’s 401(k) plan (if they have one — if they don’t set up an IRA)
  • Open up a money market account
  • Open a separate high-interest savings account separate from your everyday checking account.

Whatever you do, think it over,

“The tax refund is the biggest windfall people are going to get all year,” McBride said to Bankrate.

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