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You got your income tax refund back and deposited it “for a rainy day”. Be strategic with how you use the “extra” funds. Below you’ll find suggestions about how to use the money, from the most responsible option to the least. You can’t really go wrong with any of them, though.

Pay Off Debt

Use your tax refund to pay down a credit card, student loans, a car note, or your mortgage. The extra payment saves you interest in the long run, maximizing your refund without pulling money away from other budgeted line items.

Save By Putting It Into An Emergency Fund

How does your savings account look these days? Generally speaking, it’s a good idea to keep up to six months’ salary in your savings account as an emergency fund. Most people set a little bit aside each month to build their savings. Why not put your tax refund into this virtual piggy bank, too? Even if you’ve already established the emergency fund, money from your savings account can be used for unexpected expenses like car repairs or medical bills. Having money on hand for those situations means you don’t add to your debt.


Savings accounts are great because the funds are easily accessible. However, interest rates are low so your money isn’t earning any additional money just sitting in that account. By investing your tax refund into an IRA or mutual fund, you’re saving for your future and earning passive income in the process.

You could also, potentially, invest in a new business venture. There is risk associated with starting a new business or investing in somebody else’s new business, but there is also the possibility of great reward in building something from the ground up.

Contribute To Your Kids’ College Fund

If you have children still living at home, you have probably thought about (maybe worried about) the cost of their college education. Start saving now to reduce the amount of college loan debt later. Add the tax refund money to what you’ve already set aside. Even small amounts add up over time.

Support Your Favorite Charity

You don’t have to spend the money on you. You’ve lived without the money for an entire year, so you won’t even miss it if you donate it to a good cause. Make a tax-deductible donation to your favorite charity and write off those funds again for another year.

Go On Vacation

Use your refund to make memories by taking a vacation. If you’ve managed your money well and have the time off to use, there’s nothing wrong with a little rest and relaxation. See the sights. Experience something new. Taste a different culture. Send Uncle Sam a postcard.

Make a Special Purchase

Have you been saving money to buy a non-essential recreation item like a paddleboard, a new camera, or a motorcycle? Add your refund money to the savings and see how close you are to reaching your goal. Nothing sweetens the pressures of tax season quite like the possibility of a new toy.