FARMERS BRANCH, Texas (2/20/13)--Roughly 65.6% of Texans surveyed by the Texas Credit Union League plan to use their tax refund to pay off debt, while another 45.9% plan to use the refund to jump start their savings.
About 7.3% of those surveyed plan to make large purchases with the refund, and 4.3% have designated the funds for a vacation, said the league (LoneStar Leaguer Feb. 19).
Consumers who don't already have investment options can make the most of their tax refund by using it to establish an "emergency fund," said Courtney Moran, executive director of the Texas Credit Union Foundation.
"While it's important to save for those short- and long-term financial goals, it's equally important to have a savings account that is used exclusively for those unexpected emergencies," she said. "Keeping these funds separate from a regular checking account will discourage spending."
Moran pointed out that the Internal Revenue Service has made it easier for consumers to save their tax refund for a rainy day by allowing recipients to have the refund deposited in up to three accounts. This provides an option for consumers to earmark their refund for spending and/or saving.
Her advice to consumers: Save as much of the refund as possible. "If you don't need the money in the near future, consider putting it away for retirement or in an individual retirement account fund. For shorter-term savings, look into a certificate of deposit," she added.
For some consumers, however, paying off debt may be better. "Tax returns are a great way to get rid of high interest credit card debt or a short-term personal loan," Moran said. "Credit cards tend to carry a highest interest rate, so keeping this debt to a minimum is beneficial."
In a national study, by Northbrook, Ill.-based Allstate Financial, of the 51% of respondents expecting a tax return, 45% said they intended to pay off debt with the refund. (See related News Now story, "CUs Help As Study Says Nation Struggles To Save.")