First off, thank you in advance for any assistance provided. Im currently working on making better financial decisions. I've completed my tax return and I'm expecting a tax refund of $2250. I have two credits cards my paying off and there is a major purchase I have to make.. I know $2250 is not going to solve all expense but I'm hoping to receive some feedback on how to best spend it. Details below..
1. I need to purchase a flight which costs somewhere between $1100 and $1500. Should I use my refund to make this purchase or money from my savings. In Saving I currently have 4k.
More importantly.. I have two credits cards I'm currently repaying.
CC #1 = Balance of $9,400 (APR 24.49).
CC #2 = Balance of $2,250 (APR 16.49)
So far I've been paying 500 a month on each. My questions are..
1. Should I post my tax refund towards CC#2 and pay it off?
2. Should I pay split my refund 50/50 and apply it towards both CCs?
3. Should I post my tax refund towards CC#1 since it has the higher interest rate?
Any advise on how to move forward is greatly appreciated!!
Sat Feb 04, 2017 6:41 pm
oldguy Senior Member
Cash: $ 715.40
Joined: 21 May 2006
quote: better financial decisions
First, why are you getting a refund? (If you had been receiving that $2250 since January a year ago, you wouldn't have that CC#2 loan, it would be paid-off.)
Note: But you are not alone, the average US tax refund is about $3000. It seems so silly, why do most people overpay their monthly taxes all year (by $3000) so that they will get $3000 of it refunded back to them 14 months later.? You can fill out a new W4 at your HR at work to get your withholding adjusted - I always try to owe some money on April 15. (Meanwhile my $3000 is in a fund earning 11%/yr .
Put the entire $2250 onto CC#1, (because it has the highest cost, 24.5%).
Quit putting $500 on each CC, instead, pay the minimum on CC#2, and put the rest on the 24.5% CC. (The interest on CC#1 is costing you over $2300 per yr - and for nothing - that is the one to focus on).
Sat Feb 04, 2017 9:11 pm
GardenCat Full Member
Cash: $ 11.60
Joined: 07 Dec 2014
Agree with oldguy, put your refund towards #1, then pay just the minimum on #2 and the rest each month towards #1. When #1 is paid off, then put the $1,000/month towards that card and get it paid off, it will go quickly.
Try your best to not put any more on the credit cards other than what amount you can pay off entirely each month, the goal is to not carry a balance month to month so that you pay no interest at all. Your savings is probably minimal for yourself if you want to have an emergency fund for car repairs or whatever, so when cc's are paid off, boost your savings.
Begin to invest your extra money into long-term investments such as IRA, using no-load mutual fund family such as Vanguard or Fidelity. Set up automatic monthly amount to invest and do not touch it.
Sun Feb 05, 2017 5:52 am
Lili_Rabbit New Member
Cash: $ 0.70
Joined: 04 Feb 2017
Oldguy and Gardencat.. thank you for this advise. I regret not asking these questions sooner.
1. I'm updating my W4 today.
2. Im following your advise in terms of CC#1 and CC#2. Hopefully I can be paid off by early next year.
Follow up question regarding my 401k.. In my new job, the company matches 6% for either 401k or 401k Roth. Currently I can only contribute up to 6% of my earnings (I wish I could do more but I can't until I get these credit cards off my back). Should I contribute 3% 401k and 3%401k Roth?
in my old job's 401k plan I have 30k. However, I was informed a couple of weeks ago that fidelity made a mistake and sent me a check for the full amount. Since it was an error they put the money back into the account (I never cashed the check). Does this mean that I lost the benefits of compounded interest? What should I do? Should I just rollover the amount to the new 401k?
Background - I've only been a new hire for a month with no gap between my old and new job.
Have a great day!!
Mon Feb 06, 2017 3:00 pm
christcorp Preferred Member
Cash: $ 38.85
Joined: 05 Mar 2015
Just wanted to chime in something to add to what oldguy said.
Definitely, you should NEVER get a tax "Refund" if you can help it. The best is to break even at the end of the year; or even owe money. (Assuming it's not to the extent that you have to pay a penalty).
But something that needs to be kept in mind; writing this mainly to others who are reading and in a similar situation with tax refunds; that additional $200 +/- you'll be getting back each month in your pay check doesn't do you any good at all, if you simply spend it. Being you're use to not having that $200 a month, I would put it into a separate savings account or similar to keep it out of your checking/debit account; so you don't spend it. Then, when you need or want to purchase something that you normally would have used a credit card for; take it from this account. This way you don't start building up credit card debt again.
I know some people who purposely make sure they are getting a tax refund. At least they are being honest with themselves and admit that they suck as saving and investing, and if it was in the bank, they'd spend it. So they use their tax refund each year to buy that big item they could save for, or to pay off debt. Stupid way to do it; but at least they aren't rationalizing the situation.
If you're going to correct your W4 so you don't have a refund; (Which is smart); be just as smart and don't spend it every month on things you don't need.
Wed Feb 15, 2017 6:20 pm
yotux New Member
Cash: $ 1.20
Joined: 25 Feb 2017
I would purchase the plan ticket for cash that you have in savings.
Then take the savings down to $1000. That leaves $1500 to put towards card two. Then when the refund comes put that towards card two and the remaining towards are 1.
Then I would close card two, when making payments you are not in control of your money your money is controlling you.
In regards to your 401k I would stop that until your out of debt. The reason that I would take card 2 out do the picture is that this show that you can make progress it an instant win, but you need to change your habits. Do you make a monthly budget? this is the path to freedom