Now we all get excited when the tax return comes in because we think we should pay off bills and outstanding debt and until I had a talk with my dad a few years ago I thought the same thing, but I realized that in the end I was hurting myself while doing that. I was hurting myself because I was paying off my balances on my credit cards (which yes is a good thing) but at the same time I had no back up plan so each year was the same thing, we would use credit cards to get things if money was tight and then we would pay it off t tax time. So really it was just a circle each year paying off debt until my dad told me that I should be putting it into savings instead.
Here are the reasons it is better to put your tax return into savings then to pay off bills:
- You are already used to paying those bills and they are in your budget so continueing to pay them off like you have been will help your credit and it won’t feel like you now have extra money to spend
- You will earn interest on the money in your savings account – versus PAYING interest through out the year when you put money on your credit cards to pay for things
- You need to have a savings account and be prepared for that what ifs, like if someone loses a job
- You need to put yourself first, you already owe the credit cards and are paying on them but if you do not have a savings account then you are not putting yourself first .
- Being financially stable means having a savings account that can cover the bills if something were to happen and that is more important then paying the full balance on a credit card.
- You can not count on a credit card if a financial situation comes up, but if you have the cash you can rely on that because it is your money
- Sometimes when you pay off a credit card the company will close your account, so if you need that money and then do not have it you are left with nothing if you get stuck in a tight spot.
I was like most people and paid my credit cards off, now I just continue to pay the balance I have been paying and the tax return goes into savings. Which has helped us ALOT with hubby not working right now because last year things were VERY tight and because we put money into savings we did not have to put things we needed on to a credit card, we used the money we had in savings to cover the differences and at the same time we were paying off our debt with out adding money to it.
Tax time is also a good time to make sure you know what your credit Score is, CreditSesame.com is a good one that will give you your credit score and you can check your credit score each month for free and get tips to help you be financially successful.