How To Spend Your Rebate Check

By now, more than seven million Americans have received their tax rebates. The next round of checks and direct deposits goes out this week. So what's the best way to put that money to work for you? Kelli Grant, consumer reporter for SmartMoney.com offers some tips.

First, pay down your debt. Using your rebate to pay down high-rate debt is a great investment. The average household carries nearly $10,000 in credit card debt. Devoting your $600 rebate to that could easily save thousands in interest over the life of the loan for someone making the minimum monthly payment.

Also, pad your emergency fund. Everyone could use a little extra in his financial cushion. Financial advisors typically suggest we keep six months worth of living expenses in a cash account, like a money market or high-yield savings, for emergencies. That helps you handle anything from replacing the busted fridge to surviving a job loss.

It's also a good time to save up. If you're in good shape financially, consider socking away part of your windfall for another purpose. Contributing to a Roth IRA is a great way to increase savings for your retirement, because that contribution will grow tax-free. Or you might put a little extra into your kids 529 plans for college, where the tax-free compounding can help offset pricey tuition increases.

It is okay to spend your rebate, a little. Of course, the government would really like you to spend your rebate. If the cash is burning a hole in your pocket, don't feel bad about splurging a little. But if you have debt or other financial difficulties, try to limit your spending to 10% of the total rebate.

And finally, beware of rebate-check sales. Plenty of retailers are offering special deals for rebate spending. Both Sears and Kroger, for example, are adding a 10% bonus when you turn your entire rebate into store gift cards. That's a great deal IF you were already planning on a big-ticket purchase there. But be wary of tying up your entire rebate in one store.

by Kelli Grant
  • CBSNews

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