Tax Refund...What to Do?

[coffeegrl]

Hi everyone! So it looks like I will be getting back about $1200 in a federal tax refund this year. Some from what was taken out of my paychecks, some from the "making work pay" credit, and some from the "earned income credit."

My question is this. $1200 will completely pay off my MasterCard debt. It's a little over $1200, but I'm sure I could scrounge up the extra to just pay it off. My interest rate is around 17%. Current minimum monthly payments is usually $30. However, I have no savings. So....should I take the refund and pay off the credit card or should I put it into savings in case an emergency arises?

[Deleted]

You can use your CC in case of emergency. Get rid of that 17% interest! Yay coffeegrl!!!

[nalto]

Kill the debt and start saving like crazy! Like laterbloomer said, you could always use your CC in case of a REAL emergency.

[whispering17]

I concur! Pay off your debt then take that monthly payment you were making to someone else and make it to yourself, instead! Your EF will look great in no time!

[montanatransplant]

Pay off the CC, and you'll be saving 17% on your money (if you get my drift). I can't think of any other investment where you can earn that kind of interest.

Did you have fun charging that $1200!! or was it charged to pay hospital bills or some unexpected circumstance?

[coffeegrl]

Jan 19, 2011 22:21:59 GMT -5 @montanatransplant said:

Did you have fun charging that $1200!! or was it charged to pay hospital bills or some unexpected circumstance?

Well, I guess I had fun at the time...but it's sure not fun now trying to pay it off!

[Tiny]

You could also look ahead and see what expenses are coming up that you'll have to pay. It doesn't make too much sense to pay off the credit card (not have anything in savings) and then in a couple of months start using the card again to cover the expenses that you should have forsaw coming up. That just kinda gets you into a never ending cycle...
Might be better to stash some cash to cover the upcoming expenses and work on adjusting your budget and paying down the debt. Less bumps in the road that way - even though you pay for it in interest.

FWIW: my neice seems to do serial debt - charges up the cards, spends her savings and then is "rescued" by her tax return only to repeat the cycle each and every year - except now the tax return doesn't pay off the CC bill(s).

[montanatransplant]

Coffeegrl: Don't be too hard on yourself. We are all human and we don't always do that which we know is best for us. . . .sometimes we do that which is FUN.

I guess that's why we should save up for the fun things before we do them. But then we will find too many other things that need doing.

ATSiaRU: Now I know what it stands for. If you put on more weight you could be ABSiaRU!!

[coffeegrl]

Jan 19, 2011 23:13:28 GMT -5 Tiny said:

You could also look ahead and see what expenses are coming up that you'll have to pay. It doesn't make too much sense to pay off the credit card (not have anything in savings) and then in a couple of months start using the card again to cover the expenses that you should have forsaw coming up. That just kinda gets you into a never ending cycle...
Might be better to stash some cash to cover the upcoming expenses and work on adjusting your budget and paying down the debt. Less bumps in the road that way - even though you pay for it in interest.

See, this is what I was thinking would be better. I know I'm going to have a few expenses coming up that, even with getting on a budget, are going to be hard to make with my student loans, because I haven't been budgetting for them all year. I'm afraid I'll pay off the card then just have to use it again.

One of my friends constantly does this. Any extra money he gets, he pays off some debt, BUT never has enough income to then pay the extra curve balls that life throws your way and he's back to using the card again. So he was advocating to pay off the card.

It just makes me a little nervous to not have ANY savings and to know that the CC is the ONLY way I would have to pay those expenses.

[Tiny]

Jan 19, 2011 23:20:28 GMT -5 @montanatransplant said:

ATSiaRU: Now I know what it stands for. If you put on more weight you could be ABSiaRU!!

LOL! I don't want to be a Big Speck... I like being Tiny. I make up for the Tiny-ness by having Big Opinions! Hee hee hee...

[Tiny]

I know I'm going to have a few expenses coming up that, even with getting on a budget, are going to be hard to make with my student loans, because I haven't been budgetting for them all year. I'm afraid I'll pay off the card then just have to use it again.

Yeah, there's the rub when you don't have a game plan (aka a spending plan).
That 17% interest rate is sucky... You could always split the difference: 1/2 to the CC bill and the other 1/2 into savings with the intent to spend it later. You'll need to work out some sort of spending plan to keep the CC bill from growing and to be able to cover all your other expenses (basically to make it work to your advantage). I don't think there's away around it.

[coffeegrl]

I've spent a couple hours tonight running a variety of different options to see what would work out best for me. Haven't quite decided yet, but my brain is goo, so I'll look at it again with fresh eyes tomorrow.

I've also been working out a budget. Things are going to be tight and bare-bones the next few months. But I got myself into the financial mess I'm in and I'm the only one who can get myself out of it.

I did cancel cable yesterday, which will save me (maybe I should say "not cost me") $62/month. I never watched it. I'm not against tv. I don't say that tv is evil and people shouldn't watch it. I just could never find anything on that interested me. So, I'm making progress one little step at a time.

[Deleted]

Jan 19, 2011 23:13:28 GMT -5 Tiny said:

You could also look ahead and see what expenses are coming up that you'll have to pay. It doesn't make too much sense to pay off the credit card (not have anything in savings) and then in a couple of months start using the card again to cover the expenses that you should have forsaw coming up. That just kinda gets you into a never ending cycle...

Why do you assume she will have expenses she won't be prepared for? But even if she did, she is still better off to save the few months worth of interest. The trick is to save the money she would have used for debt payment.

[motherto2]

coffee, the expenses that you know are coming up but haven't budgeted for. How much are they and how far out are they? I think that would be a key piece in my decision about which way to go. If you have been paying $30/month and have just cancelled cable for $62/month, that's $93/month that you could start saving towards those expenses that you know are coming. If they are say, 6 or more months out, you should be able to save starting now and maybe have enough money to pay them. If it won't be enough between what you can save now and when they are due, is there anything else you could at least temporarily cut out/back on to make up the difference? I think if you can at all swing paying off the cc, then do it. If you can't totally pay it off, pay just as much as you can towards it, and save the rest somewhere in anticipation of those expenses coming (and remember, you are already saving the cable expense that will go towards those future expenses). I'm not sure if you have things you could sell in a yard sale, or maybe take on some temporary part time work to get some savings built up, but it would be totally worth it to be able to put the cc away.

And, BTW, congrats on starting on your road to paying down/off debt and working to anticipate future expenses. I'm probably quite a bit older than you and I didn't get this concept started until a few years ago.