Man sitting at a desk smiles and pumps his fist as he reads his tax return.

9 Smart Ways to Use Your Tax Refund

8 min read

Last Updated: February 10, 2026

Table of contents

Key Takeaways

You could use your tax refund to pay down high-interest credit card debt.
Other smart uses for your refund include contributing to emergency, college, or retirement savings to protect your future financial security.
If you use the extra cash to make a big purchase instead of saving, consider using a rewards credit card to add value.

Are you eagerly anticipating an income tax refund this year? You’re in good company. The Internal Revenue Service (IRS) reported that more than 93 million income tax refunds were issued by May 2025, with an average refund of $2,939.

If you have a big refund on the way this tax season, you might be considering a spending spree. There’s nothing wrong with treating yourself to something special. But if you’re more interested in laying the groundwork for a strong financial future, your tax refund may give you the boost you need to tackle credit card debt, increase your savings, or meet financial goals you may have put on the back burner.

Best ways to improve credit history

If you don’t have a strong credit score, you may have trouble qualifying for certain credit cards, home loans, or even apartments. Fortunately, your tax refund may help. Consider the following strategies for using your refund to build your credit history.

Pay off (or down) debt

You might use your tax refund to pay down debts that have been piling up—or even pay them off completely, depending on your refund amount.

While managing credit card debt may not seem like the most glamorous application of your tax refund, it may have a lasting impact. Lowering your credit card balance (or balances) may save you a lot of money on interest charges, especially if you’re able to pay off high-interest debt completely.

Paying down your debts may also boost your credit score by bringing down your revolving credit usage, which is the portion of your available credit in use at one time. When it comes to your credit score, the less credit you’re using, the better.

Beyond credit cards, making an extra payment on your home loan, personal loan, or car loan may reduce the amount of interest you’ll pay over time.

Rebuild your credit

If your credit score isn’t as high as you’d like, or you don’t have one, your tax refund may provide an opportunity to build credit history with a secured credit card.

A secured credit card works like a traditional credit card, with one major difference: you back the credit limit with a refundable deposit. Opening a secured credit card may be a smart way to strengthen your credit history with your refund.

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Lenders may consider you to be a risky borrower if you have a limited credit history or a low credit score. However, the deposit on a secured card cushions the credit card company’s risk, so it may be easier for you to open an account.

Positive habits on your secured card may help you build credit history and establish a strong credit score. With the Discover it^® Secured Card, you earn rewards on every purchase and build a credit history with responsible use.¹

A stronger credit score may help you qualify for a wider range of cards in the future.

Best ways to plan for the future

Using your tax refund to increase your savings or invest in education may help you overcome challenges and reach your financial goals, no matter what the future holds.

Build an emergency fund

Starting a robust emergency fund with your tax refund may be one smart way to protect your financial future. A single unexpected expense, like a trip with your pet to the emergency veterinarian or an urgent home repair, may affect your financial stability for months or more. Tapping into your emergency savings might save you a lot of stress in a difficult situation.

You may also use emergency savings to help cover living expenses while you navigate a longer-term challenge, like illness, job loss, or an economic recession.

If you don’t have an emergency fund, you may start one by depositing your tax refund into a savings account instead of your checking account, where you might accidentally spend it.

Improve your job marketability

You might also use your tax refund to improve your long-term financial stability by investing in your professional development. A professional certification or license may give you a competitive edge in the job market.

A certification or license in your field may increase your weekly earnings. According to 2024 data from the Bureau of Labor Statistics, the median weekly earnings for a person with a certification or license in their field is $1422, compared to $1081 for someone without one.

Depending on the industry and role, certification or licensure may require you to take a course, pass a test, complete a number of practical hours, or all three. Your tax refund may help you cover the cost of registration, testing, or supplies.

Save for a home down payment

Your tax refund may help you make a down payment on your future home. Making a big deposit up front may lower your monthly mortgage payments or help you pay off your home loan in less time. Plus, according to the Consumer Financial Protection Bureau, you may avoid paying for private mortgage insurance if you make a down payment of at least 20% of your mortgage.

If you put your refund in a high-yield savings account, your money will gradually grow as it earns interest. So, even smaller tax refunds may eventually go a long way to increase your down payment for a home loan.

Invest or save for retirement

Whether you’ve just begun your career or you’re a few years from transitioning out of the workforce, it’s always a good time to save for retirement.

You may use your tax refund to increase your retirement savings by making a contribution to your individual retirement arrangement (IRA) account or another tax-advantaged retirement account, as long as you haven’t already met the annual contribution limit.

Save for a college fund

You might also use your tax refund to support a child, grandchild, or another loved one by contributing to their college fund. If your loved one doesn’t already have a college fund, you may consider setting up a 529 plan.

According to the IRS, a 529 plan is a savings plan for educational expenses that offers some tax advantages and other benefits, depending on the provider. Anyone may start a 529 plan for anyone else—you don’t have to be a parent or guardian. Before you open a 529 plan, you may want to speak with a trusted professional, like a financial advisor, to make sure you understand all the financial implications.

Did you know?

When your loved one enters college, they may benefit from a student credit card. Student cards usually offer a low credit limit and features designed to help people enrolled in college build strong personal finance skills.

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Best ways to make large purchases

While building positive credit and saving for the future are both smart ways to use your tax refund, sometimes spending the extra cash is the best move, especially if you’ve been putting off a big expense.

Home improvements

Maybe you’ve been wanting to upgrade your kitchen countertops or pull up dated carpeting for years, but you haven’t had room in your budget. Your tax refund may be just what you need to get the job done. Making your home feel more comfortable may be well worth the money.

Plus, if you use the right rewards credit card for the transaction and pay off the balance with your refund, you may earn cash back on your home improvement project. For example, with the Discover it^® Cash Back Credit Card, you earn 5% cash back on everyday purchases at different places you shop each quarter, up to the quarterly maximum when you activate. Discover automatically matches the cash back you’ve earned on your credit card at the end of your first year², so your rewards could go even further.

Travel

Sometimes, spending your money on an exciting adventure or relaxing getaway may reinvigorate you and promote strong mental health. Using your refund to get a little time in the sun or on the slopes may also go a long way toward building healthy connections with friends and family. If you book your trip with a travel credit card and repay the balance using your refund, you may even earn rewards for future adventures.

The bottom line

Your tax refund check might be on its way to your mailbox or checking account before you know it. Why not invest in yourself this tax year? You may make the most of your tax refund by seeking smart uses that maximize its value, whether that’s by building your credit score, preparing for the future, or taking a break from the daily grind.

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