5 Great Ways to Invest Your Tax Refund

the word refund on stringsPreparing a tax return is no one's favorite task, but most people will have to submit one every year. Fortunately, if you are entitled to a tax refund, filing your tax return ends in an exciting reward. Although it may be tempting to use your tax refund to purchase something frivolous, such as a new flat screen or a weekend away from home, this may not be the best choice. Here are five smart ways you can spend your tax refund money this year.

  • Pay off credit cards.
    Credit cards carry high interest rates, and balances can add up quickly. When you receive your tax refund, consider using it to pay down some of these balances to save yourself some interest. In general, it's best to pay off the cards with the highest interest rates first.
  • Start a savings account.
    Saving money for the future is always a good idea. Instead of spending all of your tax refund money on things you may not need, put some or all of it into a savings account that earns interest. Alternatively, you could add the money to your investment portfolio.
  • Make an extra loan payment.
    If you have a mortgage, car loan or student loan, consider using the money from your tax refund to make an extra payment. Making extra payments lowers the balance of the loan faster and saves you money in interest. If you have multiple installment loans, it's usually best to make extra payments on the loan that charges you the greatest amount of interest.
  • Invest in your retirement.
    If you don't already have a retirement account, consider opening one with the money you receive after your tax return is processed. If you do have an account, deposit some of this money into it to boost the balance. In some cases, you may even be able to save some money on next year's tax return by contributing to a qualifying retirement plan.
  • Pay next year's taxes.
    If you own a small business or you have unpredictable income for another reason, it may be in your best interests to put your tax refund toward the next year's taxes. Doing so may prevent you from owing a balance at the end of the following year.

These are just a few of the ways you can put your tax refund to good use. Depending on the situation, you may even have enough money to use the refund for more than one purpose.

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