Smart Borrower Center
Tools to help you borrow better
If you’re one of the millions of Americans who will receive a tax rebate check this spring and summer as part of President Bush’s economic stimulus package, you have a decision to make about what to do with this “found” money.
The administration’s hope is that you will spend the money on durable goods and give the lagging national economy a much-needed boost. But you should take into account your own economic situation as well when deciding what to do with your tax rebate.
Here are some things to consider before you spend that check:
1. Do you have outstanding debt?
Borrowed money is expensive money. Using the rebate to pay off debt could save you money in the long run. If you go this direction, apply your rebate dollars first to high-interest debt. For most people, that’s credit card debt. Paying off a debt also frees up money for day-to-day living expenses.
2. Have you set up an emergency fund to get you through an unexpected financial crisis?
Most experts say you should have enough cash to pay your mortgage/rent and other bills for six months. With the shaky economy translating into more layoffs and fewer hirings, putting the tax rebate money in an emergency fund can help buy peace of mind.
3. Are you considering a major purchase you would have to finance?
Putting the tax rebate toward a down payment on a car, to give one example, would save you money on interest by reducing the amount you need to borrow. Or you might be able to pay cash for something like a major appliance, saving you financing charges altogether.
4. Have you been delaying home improvements?
You’ll multiply the value of your tax rebate by using it to make your home more energy-efficient – with direct savings in utility costs -- or any other improvements that add resale value to your home.
5. How’s your retirement account looking? Depositing all or part of your tax rebate into an IRA or other retirement account could allow it to grow to many times its original value.
The beauty of the 2008 tax rebate is that the choice to spend, save or invest is yours.