According to MSN Money, approximately 75% of Americans are receiving an income tax refund. The IRS states that the average refund is $3129, which is a much higher average than even a decade ago.
So what is the average American doing with all that extra cash? Surveys conducted by the banking industry indicate a good share of Americans plan to save their tax refund while a smaller percentage will use their refund to pay off debt. The majority of Americans, however, tend to view their income tax refund checks as a sort of windfall and plan on spending the cash.
Considering the depressed, or a least extremely recessed, economy of the last few years, it’s not surprising that many Americans are contemplating sticking a little cash away for a rainy day. In fact, many financial gurus suggest that every family should establish an emergency fund with enough easily accessible cash to cover at least three to six months of living expenses. Investing in short term CDs or a money market account would make the funds available should an emergency arise. A refund check for over $3000 would be a good beginning to establishing an emergency fund and significant peace of mind just in case the economy is not out of the woods yet.
Some Americans aren’t ready to put their refund checks into savings just yet. Having been hit hard by job loss or job reduction or other economy driven factors, a sizable percent of the American population has racked up more consumer debt than any previous time in history. The banking industry survey indicates that 19% of Americans intend to use their tax refunds to address debt. A loud cheer went up from financial advisors across the country at this news!
Financial counseling centers suggest one of the best approaches to establishing or re-establishing firm financial footing is a systematic approach to paying off debt. Although people may be tempted to spread that tax refund out to pay part of the doctor bills, part of a loan, and part of a couple credit card bills, many advisors, say the most effective way to get out of debt is to focus all of your additional payments on paying off your smallest bill first. Then take the normal monthly payment from that paid debt and add it to the normal monthly payment of the next smallest debt, continuing in that pattern until you are debt free. Addressing the smallest outstanding balances with a 2010 income tax refund is a great way to get a jump start on being debt free!
Surprisingly, a large number of people electing to spend their refund rather than save it or use it to pay bills have also cited the recent economic conditions as the motivation behind their decision. Tired of the tightening the belt posture, these Americans tend to view the refund check as a kind of bonus money. Projects that have been put on hold until times are better or larger purchases that have been too expensive for the normal budget are likely targets on which to use the cash returned by the IRS. Other Americans are tempted to take a break on a vacation that they otherwise wouldn’t be able to take.
If you are one of the majority of Americans planning on spending that nice refund check, a little research could help that money go a bit farther. Now might be the time to consider applying for a rewards card that will stretch your refund. Whether you are a do-it-yourselfer or plan to hire a contractor to start that remodel, add on a new deck, construct a shed, or build a pergola in the backyard, check out credit card offers that have a additional cash back on special categories that rotate throughout the year. Discover® Card, Citi® Platinum Select® Dividend MasterCard®, and Citi ThankYou℠ Card are all offering 5% cashback on purchases from home improvement or lawn and garden stores through the end of June.
In addition, many card companies offer from 5 to 20% additional cash back incentives when you connect to retailers through the card’s website. For instance, Chase Freedom® Visa does as do some cards offered by Discover Card or by Citi. Most card companies offering online shopping have over 600 participating retailers. Not only can you order home improvement materials, this is a great way to purchase new computers or other electronic equipment or upgrade the systems you already own.
If you’re planning to use your 2010 income tax refund to get away on a much deserved and needed vacation, Delta has teamed up with American Express to offer new customers some pretty enticing incentives. Along with other benefits, the Gold Delta SkyMiles® Credit Card from American Express® gives customers the opportunity to earn 15,000 bonus points within the first three months of opening an account, and with the Delta Reserve Credit Card, you can earn 10,000 Medallion® Qualification Miles with your first purchase. Delta SkyMiles can be used to purchase airline tickets, hotel rooms, car rentals and more, allowing you to play just a little longer!
Perhaps the biggest ‘between the lines’ news in America’s response to the question, “What do you plan to do with your refund?” is that, in general, people are beginning to feel more positive and hopeful about the economy both now and in the months ahead. So go ahead and enjoy that “bonus money” whether you decide to save a little, pay a little debt, or spend a little!
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