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6 Smart Ways to Use Your Tax Refund

Last Updated: February 14, 2024
4 min read

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Key points about: ways to use an 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.

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 expenses during an unplanned event, like 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.

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. It’s important to choose the best credit card for your unique circumstances.

Explore more credit card options

Pay off (or down) debt

If you have any debt hanging over your head that you’ve been planning to address, 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 credit card debt, you could lower your credit usage—a key factor in calculating your credit score. You generally want to keep your credit use below 30%. Using your tax refund to pay down debt (especially high-interest credit card debt) often reduces future interest charges, saving you more money.

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 rebuild your credit with responsible use.1

A secured credit card works 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 for 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 your credit history.1 And 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

 

Learn more

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

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 or license, which may increase your paycheck, on average, by as much as $400 weekly, according to 2022 data from the Bureau of Labor Statistics.

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.

Amplify your purchasing power

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

See if you’re pre-approved

With no harm to your credit score*

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. You can make your dollars stretch further with a travel credit card, so you can earn rewards while you have fun.

Your tax refund check might 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 stretching your funds as far as they can go. However you choose to use your refund this tax year, an investment in yourself is usually a good idea.

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