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I’m Getting a Tax Refund … but I Have No Flippin’ Clue How to Spend It

The Penny Hoarder’s “Dear Penny” column
Kristy Gaunt / The Penny Hoarder
Dear Penny,

What should I do with my tax refund? Pay off a credit card? Pay down the balance of a card that’s maxed out? Save it for a rainy day?


This letter is low on social awkwardness, but high on personal fraught. You get the refund, you decide how to use it, and then as soon as you hit the first cash register, you’re second-guessing it.

Who knew it would be so hard to figure out what to do with money you are actually receiving? But here we are.

It’s been many years since I’ve gotten a tax refund, so I’ve spent a lot of time thinking about how I would use one. I even made a list!

Penny’s Hierarchy of Acceptable Tax Refund Uses:

  1. Overdue bills
  2. Credit card balances accruing interest
  3. Emergency fund
  4. Low-interest loans that would feel good to pay down a chunk of (car, student loan)
  5. Credit card with 0% interest rate
  6. Debts owed to regular humans whose names you know
  7. General savings

Don’t see spending anywhere on the list? That’s because there’s only one scenario where I’ll tell you to go ahead and spend your money: You have no debt. No student loans, no credit cards, not the $10 you borrowed for the parking garage downtown, not the $300 you still need to pony up for this year’s family reunion trip.

If you have no debt to your name, you can go ahead and spend that tax return money however you want. Have fun! I’m serious. Have a good time. Call me if you’re going to be out past midnight. You know I worry.

If you have debt, you’re going to get way more gratification from putting that refund toward your balance than you would from one night on the town, or at the salon, or on the golf course. You owe it to yourself to put that “found” money — no matter how little or how much — toward your bigger financial picture.

Sure, some people will scoff at your refund because you (get ready for these finger quotes) “let the government have an interest-free loan.” It’s true, but even adjusting your withholding doesn’t guarantee you’ll come out exactly even on tax day. So I say don’t sweat the refund. Just use it wisely.

Even my list is just a suggestion. Every time I come up with extra funds, I stick ’em on my car note. I like making visible dents in large debts, and since my car loan has a freakishly low interest rate, it’s easy to see the positive effect of my payment right away.

If you’re feeling similar in your own situation, put the money where you’re going to feel the most relief from doing so.

Have an awkward money dilemma? Send it to [email protected].

Disclaimer: Chosen questions and featured answers will appear in The Penny Hoarder’s “Dear Penny” column. I won’t be able to answer every single letter (I can only type so fast!). We reserve the right to edit and publish your questions. Don’t worry — your identity will remain anonymous. I don’t have a psychology, accounting, finance or legal degree, so my advice is for general informational purposes only. I do, however, promise to give you honest advice based on my own insights and real-life experiences.

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