What should I do with this?
When you received your tax refund and decided to use it to dine at a fancy restaurant, did you used your tax refund wisely?
Depending on circumstances, perhaps, NO. because you did not use your tax refund in order to alleviate your financial problem and move forward to building your credit.
The tax refund is a great opportunity for wise spending.. It is a chance for you to fix some of your financial burdens causing you to stumble. Don't lose this chance to invest in repairing former financial decisions that are adversely affecting your credit score.
Here are some of the ways on how you can use the tax refund wisely:
Pay Your Credit Card Debt
Using your tax refund as a means to pay your credit card debts will improve your credit score. .
According to Shawn Lane, a consumer credit expert, if you owe $4,000 on a credit card with a $10,000 total credit limit, and your utilization percentage is 40%, and you receive a $2,000 tax refund and apply all of it toward this credit card debt, reducing your Utilization Percentage Index to decrease to 20%, it still will likely result in a better credit score.
Get a Secured Credit Card
According to Shawn Lane, a secured credit card deposit is the collateral for the card issuer, so you can not default on the card. When the amount deposited runs out the spending ends.
Open a secured card also known as a pre-paid card and make this as your card for paying your bills. The card requires monies to be deposited. The amount you deposit is the card limit. Keep it filled and use this card responsibly and your credit score will improve in no time.
Save for an Emergency Fund
In unforeseen circumstances, especially during this pandemic, it is important for us to have emergency funds. We need to at least put some of our money into this kind of fund so that we do not have any problem once we or at least, one of our family members, need it. Six months salary is recommended.
Instead of spending your tax refund on useless things, why not create an emergency fund and put the remaining amount of your tax refund back for a rainy day.