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You prepped early and thoroughly for tax season and beat the rush to submit your paperwork to the IRS. Now it’s just a matter of waiting for that “free money” to show up in your account.

But taxpayers should be aware that the latest data from the IRS shows that tax refund totals are, on average, down 17% from refunds received in 2018. This is in part due to an increased standard deduction as a result of The Tax Cuts and Jobs Act. Only time will tell the numbers by the end of tax season, but this decreased refund average gives Americans an even bigger reason than usual to use those funds wisely.

If you’re inclined to buy a new toy or splurge on a vacation with your tax return, that might end up being a fantastic choice. But before you let the money burn a hole in your pocket, consider a range of ideas to make your money work smarter for you—and positively impact your overall financial health now and in the future.

Make a Dent in Your Debt

It might not be the most exciting use of your refund, but the relief that comes from freedom from debt is indescribable. So take the baby steps necessary to put yourself on the path to financial freedom!

Come up with a plan to pay off your debts by accurately identifying debts with a free credit report card from Credit.com, determining your eligibility for a debt consolidation loan or lower interest rates based on your credit score, and creating a strategy based on your total payoff number.

The suggestion to make an extra mortgage payment is repeated often because it’s tried and true and makes financial sense in most situations. The long-term interest savings can benefit you even if you’re not sticking around for the full extent of the loan. But communicate with your lender first to ensure you’re not charged a prepayment penalty.

Keep in mind that order matters when it comes to making debt payments. Non-housing, high-interest debts should generally be paid off before making additional mortgage payments. And sufficient emergency savings should always be set aside for urgent and unexpected expenses.

Save for Rainy—and Sunny—Days

An alarming recent survey revealed that only 39% of Americans have enough savings to cover a $1,000 emergency. The other 61% of respondents say they would pay for an emergency by financing with a credit card, reducing spending on other things, borrowing from family or friends, or taking out a personal loan.

Considering 34% of Americans reported an unexpected emergency in the past year, it’s a no-brainer to make saving a priority, as difficult as it may sometimes feel. But receiving a tax refund is the perfect opportunity to save—if you file online you can have the money sent straight to your savings account so you won’t be tempted to spend it.

Perhaps you’ve been putting off setting up your investment portfolio or you’re waiting until you get a higher-paying job to contribute substantially to your retirement. Stop waiting and examine your options for growing your nest egg with your return.

If you’re not yet a homeowner, you can use your refund to prepare to become one by saving the money for a down payment, closing costs to bolster an offer or points to buy down the rate on your mortgage. Your FICO score influences your APR, so checking your credit score and taking action to bolster it will benefit you when it’s time to mortgage shop.

Invest in Your Home and Experiences

A new year is a perfect time to tackle a home improvement project like upgrading lighting, cabinetry or an inefficient appliance. These are things you can feel guilt-free about spending money on because your investment will return in both your enjoyment of the home and resale value.

Consider putting your refund towards education in the form of a certification that moves you closer to a career goal or even a small-scale entrepreneurial endeavor.

And if you do decide to spend your money on travel, after all, maximize every penny by taking advantage of credit cards with optimal traveling perks like airline miles, hotel discounts, cash-back rewards, and other bonuses not available with regular credit cards.

The top travel credit cards require an excellent or good credit score to qualify, so before you set your travel plans in stone:

  • Check your credit score for free on Credit.com
  • Pay down high credit card balances, dispute errors on your credit reports, and address delinquent items
  • Apply for your travel credit card of choice and thoroughly read all terms and conditions

About the Author

BestCompany.com Home Loans Content Manager Rebecca GrahamRebecca Graham is the home loans content manager at Best Company, an independent review site where companies don’t “pay to play” and consumers can access real customer reviews and educational materials. In her free time, Rebecca enjoys hiking with her family and sampling flavors of the week at the local cookie shop.

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