Before spending your tax refund, experts say do these things first
With the average tax refund topping more than $3,300 this filing season, many Americans are facing the same question: What's the smartest way to spend it?
A big splurge or shopping spree may sound tempting, but financial experts say treating that check as a tool rather than a bonus can pay off long after the money is spent.
"It's a great opportunity to hit the financial reset button," said Bruce McClary of the National Foundation for Credit Counseling, noting that even a few thousand dollars can make a meaningful difference for households feeling squeezed by higher prices and interest rates.
Pay down high‑interest debt first
McClary recommends starting with high‑interest debt, especially credit cards, which can carry interest rates well above 20%.
If balances are growing and only minimum payments are being made, interest can stretch repayment for years, or even decades, costing thousands more over time. Using a refund to pay down or eliminate that debt can immediately ease pressure on a monthly budget and reduce how much interest accrues going forward.
Build an emergency cushion
After tackling expensive debt, the next priority should be savings.
Many households have little or no emergency fund, leaving them vulnerable when unexpected expenses like medical bills or car repairs pop up, McClary said. Without savings, those costs often end up back on credit cards, restarting the debt cycle.
McClary says where you save matters almost as much as saving itself.
High‑yield savings accounts earn far more interest than traditional checking or savings accounts, sometimes around 4% compared with nearly zero at a typical bank. Many popular options, from American Express to Marcus Goldman Sachs, are free to open and don't require a minimum balance.
Consider other debts
If you already have a solid emergency fund, McClary says a refund can help tackle other financial goals.
That could mean making an extra payment on student loans, paying down an auto loan, or investing in your future by contributing to a retirement account.
Don't forget to enjoy some of it
Being responsible doesn't mean being miserable.
McClary suggests the 80/20 rule: Use 80% of your refund for necessities like debt and savings, and allow yourself to spend the remaining 20% guilt‑free on something you enjoy.
When a refund isn't enough
For people who are overwhelmed by debt or falling behind despite a refund, nonprofit credit counseling agencies can help. Counselors may be able to negotiate lower interest rates, consolidate payments or build a manageable plan — often at little or no cost.
As tempting as it may be to treat a refund like found money, experts say a little planning now can turn a once‑a‑year check into lasting financial relief.
The National Foundation for Credit Counseling, the nation's largest nonprofit financial counseling organization, can help you find a certified credit counselor.
You can also seek help through the Financial Counseling Association of America, a national association representing financial counseling companies.
Do you have a money question, a consumer issue, or a scam story you want to share? Email InYourCorner@cbs.com.