There are a number of advantages to using the money to reduce your debt, and it doesn't mean you have to sacrifice fun.
So you’re expecting a tax refund this year. With inflation driving up the price of gas, food and nearly everything else, that extra money can’t come soon enough. The hard part is deciding how to spend it. Should you invest the money? Book a trip?
Issuers do charge higher rates, often well past 20%, depending on the type of card or the user’s credit score. What if you have multiple debts? Accelerating payments on the account with the highest interest rate first, then moving on to the next highest , is generally the quickest and cheapest way to become debt-free. You can use a debt payoff calculator to estimate how different rates and payment strategies will impact how much you owe.You can build your credit score Your credit utilization, or the percentage of your credit limits you’re using, is a big factor in your credit score.
A drastic change in credit won’t happen overnight, and there are other factors that shape your score. But paying down high-rate debt is an important step in the right direction. And having lower debt compared to your income can improve your odds of qualifying for new credit.It can motivate you Debt can be “a hurdle that people mentally need to overcome before they can potentially go on to the next phase, to start saving for goals,” Mock says.
You don’t have to sacrifice fun Using your refund for debt repayment doesn’t mean there’s no room for fun purchases. In fact, by reducing debt you’ll have more funds available to do with what you please. Once you’ve paid off your bills, you can take the amount you were spending on payments and put it toward something that brings you joy. Boost your entertainment budget or start a vacation fund, for example.
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