In the last issue, I discussed places in the District to have your taxes prepared for free. If you have filed your return and received a refund, the next question is what to do with that money. For many people, their tax refund is the largest one-time payment they will receive all year. Let’s look at some different options for using the cash.
- Emergency fund for shutdown/recession relief. The 35-day shutdown earlier this year demonstrated very clearly the need to have money set aside. Many of the fears during the last shutdown (people not receiving SNAP benefits, Section 8 payments not made, etc.) could recur—and be realized—at the end of September, when it is likely another shutdown could happen. Another possibility to prepare for is a recession. There is not consensus as to when a recession may occur, but some economists have suggested it could happen in the near future. If your job is vulnerable to layoffs or a major reduction in hours from a shutdown or recession, you will want to keep a substantial portion of your refund saved to keep you going for several months.
- Housing. If you are looking to move to another place, it is a good idea to use your refund to help pay for any deposit or fees required for a new apartment. Those costs could include the first and last month’s rent, a security deposit or other fees.
- Credit. If your credit is in really bad shape (and if your credit score is below 600), then it would be a wise idea to invest some of your refund into rebuilding your credit. This can be accomplished by putting some of your money into a secured credit card. You can get one through Discover for only a minimum deposit of $200, or you can get a secured Visa or MasterCard issued by a bank for a minimum deposit of around $300. Try to stick to large, well-known banks such as Wells Fargo, US Bank, Citibank and Bank of America. While there are other lenders that are more aggressive with marketing secured credit cards, they may charge people with poor credit high interest rates and extra fees that make their cards much more expensive. Many of the banks I have listed charge a modest annual fee, have good reputations for customer service and also have branches so you can make payments and speak to someone in person. Your deposit will be returned after consistent payments over a period of time (usually around six months) so your money is not tied up long term.
- Debt repayment. You should immediately start negotiating with any creditors or collection agencies to try and settle your debt or, if possible, catch up on your payments. Ask that any agreements you reach be mailed to you in writing.
Hopefully these suggestions will help you map out a course to put most of your tax refund to good use and help put your future on a path to bring you closer to your goals. Any questions or comments can be sent to [email protected]
