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How To Use Your Tax Refund Strategically For Debt Repayment

Tax refunds can speed up your debt repayment progress if you use them right, and Auto Cash USA will show you how! This quick guide will demonstrate 5 direct and indirect ways to put your tax refund to good use and speed up your debt repayments.

Be sure to read it in its entirety so you can learn how to use one or more of the strategies below!

Why Do People Get Tax Refunds?

Let’s begin by getting on the same page about what tax refunds are and why people get them from the government.

First, you must understand that a tax refund isn’t ‘free money’. Instead, it’s your hard-earned cash being given back to you. That happens because you’ve overpaid the taxes you owe the government.

Understanding that your tax refund isn’t a generous bonus or gift will help you appreciate it much more.

People who understand that use the money they receive wisely by increasing their savings or investments.

But suppose you owe out a lot of money. In that case, a tax refund could be the strategic tool that helps you get the upper hand on your debt!

The following section below will show you precisely how to do that.

use tax refund for debt repayment

5 Smart Ways To Use Tax Refund For Debt Repayment

Here are 5 ways to use tax refunds strategically to overcome your debt:

1. Make A Lump-Sum Payment

Some debts cause more stress than others. For example, you might have fallen behind on one of your debts and constantly get reminders about it.

One way to use your refund is to make a lump-sum repayment towards that debt.

Doing so will help you wipe out some or all of that debt, giving you an instant sense of progress and relief!

2. Start A Debt Snowball

Some people tackle their debt with the Debt Snowball method. That’s the one where you focus on paying your smallest debt first before moving on to larger ones.

The money you get from your refund could help you start the Debt Snowball process.

For instance, you could take the money to pay off one or more of your smallest debts. Firstly, that will help you score some quick wins and motivate you to keep going.

Better yet, wiping out one or more small debts frees up more of your regular income. That enables you to make larger repayments to others, i.e., creating a bigger snowball to tackle your larger debts.

3. Speed Up A Debt Avalanche

Another popular debt repayment approach is the Debt Avalanche. That one prioritizes the debt with the highest interest rate first.

While this approach is effective, paying off the first (and most expensive) debt can take much longer.

That’s where your government refund can come in. You can use that lump sum of money to speed up the Debt Avalanche process by helping to wipe out the most expensive debt.

Getting that out of the way will give you a sense of progress. But more importantly, you’ll free up much of your regular income to go through the Debt Avalanche process much faster.

4. Make Payments In Advance

Regardless of the approach you take to repay your debt, you could also use a tax refund to make advance payments towards your debt.

Even if you can’t repay it all at once, you’ll still feel relief knowing you’ve covered one or more of your future payments.

tax refund debt repayment plan

5. Add It To Your Emergency Fund

Financial emergencies and unplanned costs are two things that can derail your debt-repayment progress. That’s why another excellent strategy is to save your tax refund in an emergency fund.

Suppose you experience a financial crisis. In that case, you can tap into your emergency fund to pay for it. Doing so will solve your financial emergency without interrupting your regular debt repayments.

You can even borrow money to top up your emergency fund if it’s not enough. For instance, you can qualify for up to $15,000 through a title loan.

All you’ll need to qualify is your car for an inspection, its lien-free title, and your driver’s license or a state-issued ID. 

If all goes well and you’re approved, you’ll get to keep your car and get the money you need as early as the same day or the next business day!

Combine your title loan money with the tax refund you’ve saved, and you could cover some or all of your emergency costs without stopping your regular debt repayments!

Get Started Now!

Remember that your tax refund is the government’s way of returning your hard-earned money. Put it to good use through debt repayment with one or more of the strategies above.

In the meantime, contact Auto Cash USA through the secure inquiry form for help connecting to a title loan lender, if you need urgent money to overcome a financial hurdle. Doing this will help you stay on track when repaying your debt!

Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.

Mason Roberts

Mason Roberts is a seasoned economics writer and blogger with a knack for breaking down and simply communicating the ever-changing world of finance. He is philosophically committed to the premise that financial knowledge equals financial freedom.