Tax time is a great opportunity to evaluate your current financial situation, helping enable you to start fresh in the new financial year.
1. Create a debt payment plan
Once you have your tax return in hand, make a list of your debts. Be sure to include your creditors name, balance you owe, minimum monthly repayment, and interest rate. Next, list the outstanding amount you need to pay in order to reach that ultimate zero balance.
It may not be achievable to pay off all your debts with your tax return, but getting on top of your payments and prioritising debts that have higher interest rates and/or the lowest balance is a good place to start. The more you can cut down the outstanding balance in the short term, the less interest you’ll pay in the long term.
2. Pay more back on your loans
Tax time provides a great opportunity to get a head start on your monthly repayments. Paying more than the minimum payment on your credit card or loan can reduce the total amount of interest over time. Payday loans, high-interest loans and general unsecured loans are a good place to start
However, ensure you double check that there’s no prepayment penalty before you do this.
3. Put your tax refund into a mortgage offset account
An offset account is basically a savings account that is linked to your home loan or mortgage account. If you have a mortgage, chances are your creditor will have mortgage offset options.
The account’s balance is offset over a varying frequency against your home loan balance. This means that instead of receiving interest on your savings, your account balance is subtracted from your outstanding mortgage balance. Basically, you’ll only pay interest on the difference between the total loan balance and the amount offset, leaving more money in your pocket.
4. Start or increase your ‘in case of emergency’ savings
Saving is still an important habit to start or maintain, even while paying off debt. Using your tax return to top up your savings account will increase your financial security in the long term, as well as helping to protect against another life event setting you back.
There are many things that you can choose to spend your tax refund on. You may have been putting off important dental work, or you may be in need of new car tyres or vital home maintenance work. If paying off debts isn’t at the top of your list, don’t beat yourself up about it.
There are other options for getting your finances back on track and consolidating your debts. If your financial history has been less than ideal but you’re eager to move forward, consider a consolidation loan with LoanU.
Check if you qualify for a loan with LoanU – without damaging your credit score by entering your details into our qualification calculator.