Excited man receiving his tax refund check

6 Smart Ways to Use Your Tax Refund Check

Last Updated: March 14, 2023
4 min read

Key Points About: Smart Ways to Use Your Income Tax Refund

  1. Tax refund money can help build a cash cushion for you during times of emergency and unplanned expenses.

  2. If you have any debt that needs to be paid off, funds from your tax refund can help cover those bills and may have the added benefit of boosting your credit score as well.

  3. You can increase your purchasing power by using your tax refund to fund a secured credit card.

Is the money from your tax refund burning a hole in your pocket? You may be tempted to go on a spending spree, but if you’re looking for long-term benefits for you and your family, there are a few options that you can look at.

1. Build an emergency savings

One way that you can put your tax refund into good use is by creating a cushion or emergency fund with the extra cash. An emergency fund savings account can help you cover for expenses during an unplanned event (for example a car repair or hospital stay). In general, it’s a good idea to have at least six months of expenses set aside in a savings account. You can start your fund or add to it with your tax refund.  

Did you know?

Emergency and unplanned expenses are just a part of life. A credit card can help you cover costs in the event of an unplanned event. Still, you should be careful to only use your credit card for these expenses sparingly.

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2. Pay off (or down) debt

If you have any debt hanging over your head that you were planning to get to, you can potentially use your tax return to pay down (or even pay off) some debt, depending on your refund amount. Plus, you may be able to improve your credit utilization and boost your credit score if you pay off your credit card debt. 

How? With less money owed on your credit card debt, you will have a lower credit usage—a key factor in calculating your credit score. You generally want to keep your credit use below 30%. And, when you use your tax refund to pay down debt (especially high interest credit card debt) it will save you from incurring future interest charges, so you’ll save money too.

3. Rebuild your credit

If you don’t have good or excellent credit, getting a loan or even applying for an apartment can be difficult. Fortunately, your tax refund could be an opportunity to get a Discover it ® Secured Credit Card that can help you build or rebuild your credit, with responsible use.1

A secured credit card looks and acts like a regular credit card, with one major difference: you must provide a security deposit for your credit card account. Your security deposit is usually equal to the amount of your credit line. If you don’t have extra money for this deposit, your tax refund could be one way to fund your account. 

Did you know?

By using your tax refund to fund your security deposit, and then using your Discover it® Secured card responsibly (by paying your bill on time and in full every time) you may build credit. On top of that, you can earn cash back on all your purchases, and Discover will automatically match all the cash back you’ve earned at the end of your first year.2

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When you use your secured credit card responsibly for everyday expenses, you can enjoy rewards and build your credit history with the 3 major credit reporting bureaus—a benefit you can’t get from a prepaid and debit card.

4. Improve your marketability

One way to make your tax refund work for you is by putting it toward furthering your education. You can get a certification which may increase your paycheck, on average, by as much as $324 weekly, according to the Bureau of Labor Statistics. Licenses from a government agency can increase a paycheck by an average $261 weekly, based on the same data.

You may be able to use a secured credit card to pay for these professional development certifications, which may in turn help you improve your financial future.

5. Amplify your purchasing power

While saving can be essential to improving your finances, finding smarter ways to spend your money is equally as important. For instance, a Discover it ® Secured Credit Card comes with up to 2% cash back at restaurants and gas stations on up to $1,000 in combined purchases each quarter and 1% on all other credit card purchases.3 This way, you can earn cash rewards as you shop!

6. Recharge your batteries

It’s a great idea to use your tax refund to save or invest. However, sometimes spending your money on experiences can be more impactful. Your tax refund can also be used for taking a much-needed vacation. A little time in the sun or on the slopes can go a long way toward building a better year. Again, you can make your dollars stretch further with a rewards travel credit card, so you can earn points or rewards while you have fun too.

Your tax refund check will be on its way to your mailbox or direct deposit before you know it. Why not invest in yourself? You can make the most of your tax refund by having a plan to maximize its value, whether that’s by building your credit score, taking a break from the daily grind, or by stretching your funds as far as they can go. However you choose to use your refund this tax year, any investment in yourself in always a good idea.

Q: What is the best way to pay off debt with a tax refund?

A: If you have a 0 APR card (a card that has zero interest for a set period of time), you can move your high interest balances from your old credit card to your new 0 APR card.  Moving your high interest balance to a low or zero interest card and then using your tax return to pay off the balance may help you save money on interest versus paying it over time, and possibly missing the interest-free period. This is especially true if your 0 APR promo period is almost up.

Q: Can paying down my debt improve my credit score?

A: Debt reduction has a major impact on your credit score. If the amount of debt you owe is at or near your credit limit, your credit utilization may be high. This is important because your credit utilization makes up 30% of your credit score. So, paying off even some of your debt will help lower your credit usage and may boost your credit score as well.


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