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Read this before you spend your tax refund

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News | by — January 14, 2015

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If you Google “how do Americans spend their tax refund”, you will find some interesting data. More than 40% of Americans surveyed will use their tax refunds to pay down debt, with another 25% or so using their refund for everyday necessities such as clothes or repairs. Indeed, with so many working households living check to check, it is no surprise that the annual bonus from Uncle Sam is used to cover the shortfalls, albeit incompletely.

The issue of income equality and the question this behavior begs is a larger discussion for another day, however utilizing a tax refund in this manner is a subject that bears immediate attention.

The bottom line is that unless this tax refund is paying off all your debt or taking care of all the necessities that the paycheck cannot cover, it is a deeply flawed strategy. With anything less than complete payoff, the debt will continue to grow and the paycheck will continue to fall short.

This is particularly acute for individuals and families whose debts are already behind. Which debt to pay on or settle can be tricky. A Creditor may still seek garnishment or not be willing to negotiate. Paying back family members could become an issue if a bankruptcy is in fact filed later on. Catching up on a mortgage or car loan that is simply not affordable may only be delaying the inevitable. Paying a debt management company that advertises on TV might only make matters worse.

Before taking another spin on this cycle, a larger strategy must be devised. A lawyer experienced in debt resolution and bankruptcy is a good place to start.

If you find yourself in this situation, do not hesitate to contact us for a free, no obligation consultation to assess your situation and identify your options.

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