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Recent estimates suggest that the average tax refund in 2022 will be about 11.5% higher than last year’s average return for most citizens. This increase is, in part, due to extended child care credits and increased earned income tax credits.
Since you’ll be getting more of a return this year, you might be considering whether using a tax return to pay off debt is a good idea in your situation. While every person’s debt situation is unique, it’s often a very good idea to use a portion of your tax return to pay off debts if you can afford it. Are you not convinced? Learn the top five reasons why you should use tax return to pay off debt below.
1. Save Money on Interest
If you’re asking yourself – “should I use tax return to pay off debt?,” then there’s a good chance that you own credit card debt. It may not be your only source of debt, but it is one of the most common types of debt held by Americans. The bad part about credit card debt is that interest rates and deceptive monthly minimums can leave you paying off a seemingly small debt for years. Even worse, the only way out of an interest-based debt cycle is to pay more each month.
Save yourself hundreds of dollars in interest payments by simply paying it off in a lump sum with your tax return.
If you’re currently struggling in a debt cycle like the one described above, consider contacting our experts about our credit card debt relief programs.
2. Free Yourself From the Tax Burden
There’s no better way to invest in yourself than to free yourself from the chains of debt. That’s one of the biggest reasons to use your tax refund on a debt – to eliminate it completely!
Of course, this advantage will only work on debts that are fairly small to begin with. If you have debt that is in the thousands of dollars range, then you’ll have to weigh out the pros and cons of a lump sum payment. You will save some money, but you won’t be freeing yourself from the burden completely. Instead of using your tax return to pay off debt in this situation, consider investigating loan consolidation for student loans and other options that can help you manage your debt load.
3. Improve Your Credit Score (and Future Opportunities)
Paying off your debt (even in small amounts) helps improve your credit score, which also helps open up new doors for you in the future. That’s because a more favorable credit score means you’ll get offered credit or loans at lower interest rates.
If you feel like your future opportunities have been limited for years due to your debt, then it might be time to get debt relief you can rely on to actually help change your future.
4. You’ll Reduce Your Monthly Expenses
As you pay off your debts, you’ll soon notice that the monthly payments you’re used to making have gone away. That little bit of extra money in your pocket each month will make a major difference for you, especially as prices continue to tick upwards throughout 2022.
5. It Will be a Genius Move as Interest Rates Increase Over the Next Year
Finally, there’s a huge possibility that interest rates will increase over the next year to offset rising inflation. As interest rates go up, it becomes more expensive to hold debt. In other words, you’ll be paying even more to get out of that debt you’re in right now. If you pay off your debt now, then you’ll be making a genius move by investing in your future self.
Depending on the type of debt you pay off, you may even get a tax deduction for paying off debt when you file your return next year.
The Best Benefits of Using a Tax Return to Pay off Debt
Have you considered using a tax return to pay off debt in the past? If not, then now is the best year to consider it. After all, you’ll be getting more of a return (unless you’re among the top 20% of earners in the US), so that money can go to good use.
You should only take this advice if you can afford it, though. Since inflation has gone up about 8.5%, that 11.5% increase doesn’t seem as substantial as you’d think. You may need that extra money to offset increasing prices and the rising cost of living. Don’t make the mistake of thinking your debt situation is hopeless, though.
Here at United Debt Settlement, we specialize in helping people just like you overcome their debt burdens. Contact us now to discuss your financial situation in more detail and learn more about your debt relief options.
Gabriel Gorelik paves the way for customer service and operations at United Settlement. He is passionate about numbers and holds a strong belief in helping anyone with their debt. Before United Settlement, Gabriel received his BS in Finance & Economics from Brooklyn College. After graduation, Gabriel went on to build his first financial services company where he managed thousands of accounts for business and consumer clients. He understands the importance of client satisfaction, professionalism, and exceeding expectations.