7 Smart Ways to Spend Your Tax Refund

my tax refund

The average tax refund is over $3,000. For many families, it’s the biggest windfall they see all year and it can make a huge difference. But if you don’t have a plan in place before that refund check arrives, it’s all too easy to fritter it away on unnecessary things.

If you’re wondering, “what should I do with my tax refund?”, below are seven smart ways you can use your money to become more financially secure this year.

1. Treat yourself (wisely)

If you get a big check and only use it for something sensible and rational, like paying down debt, you can end up feeling deprived and burnt out. Budget a small percentage of your refund to splurge on yourself.

Set aside five to ten percent of your refund and do something fun with it. Get new clothes, buy a purse you’ve been eyeing for months, or book a reservation for a fancy dinner out. A relatively small reward will help you feel better about using the rest of your income tax refund for investing or debt repayment.

2. Pay down student loans

If you think “my tax refund isn’t big enough to make a difference,” think again. Putting your refund–no matter what its size is–towards your student loans can help you reduce your principal and save hundreds or even thousands in interest.

For example, let’s say you have $37,172 in students loans, the national average of loan debt. And let’s say you also got a tax refund of $3,000. Even if you spent ten percent of it on splurges, that would leave you with $2,700 for debt repayment.

Student Loan Prepayment Calculator

Student Loan Prepayment Calculator

Total current balance

Average interest rate

Current monthly payment

Please choose one:

How much extra do you want to pay on your monthly payment?

Student loan refinancing rates as low as % APR. Check your rate in 2 minutes.


If you made only the minimum payments on your loans, you would end up paying $11,681 in interest. But if you applied your $2,700 refund to your loans, you could cut your repayment term down by nearly a year and pay just $9,675 in interest.

Even if you have a much smaller refund, any little bit extra you apply to your loans can help you save money over time.

3. Reduce your credit card debt

Similarly, paying down your credit card debt can help you save money over the long-term. The average credit card has an interest rate of 15.07%, which can make your balance balloon quickly.

Using your tax refund to pay off your debt can save you money in interest payments, improve your debt-to-income ratio, and boost your credit score.

4. Set up an emergency fund

More than half of Americans cannot come up with $400 if there’s an emergency, such as an unexpected car repair or medical bill. If you fit into that group, that means if something comes up, you may need to rely on costly solutions, like payday loans or credit card debt, to get through a crisis.

Give yourself the gift of financial security and use your tax refund to start an emergency fund that is off limits except for the worst situations. Start with your refund and gradually add to it until you have six to eight months of living expenses saved.

5. Take care of any medical procedures you’ve been putting off

When you’re on a tight budget and struggling to keep up with your bills and debt payments, you may have put off medical or dental procedures. In fact, one in three Americans put off treatment due to cost, even for serious conditions.

Putting off treatments can lead to medical complications, expensive bills, and health emergencies. If you have delayed getting help, use your refund to take care of yourself and your health. Make an appointment to get that filling or schedule a physical to ensure you catch any issues early.

6. Invest in tools

If you’re looking to boost your earning potential, consider adding a side gig to increase your income. But it’s hard to be a professional and earn money if you’re working with outdated tools. There’s nothing more frustrating than working under a deadline and struggling with an old and slow computer.

If you’re still deciding, “what to do with my refund,” consider investing in new tools or devices to help you earn more money. You can upgrade to a new computer, get a new smartphone, or try software that helps make you more efficient.

7. Contribute to a retirement account

If you’re expecting a tax refund, consider putting a portion of it in a retirement account. About 36 percent of workers have less than $1,000 tucked away for their retirement. Saving now can help you build your nest egg and put you on the path to a secure future.

And setting aside some of your refund could make you eligible to claim a tax deduction next year. You can deposit your refund into an IRA and choose your investments to maximize your contribution.

Using your refund

When you get a windfall, it can be hard to hold onto it and use it wisely. If you’re wondering “what should I do with my tax refund?”, prepare in advance and come up with a concrete plan on what you’ll do with your money.

For more information on taxes, check out this article on why you should skip a tax refund loan.

Want to get started investing?

Here are the top investing options for 2018!
NameCommissionAccount Minimum 
$4 to $79 a month$0Visit Blooom
0.5%$0Visit Future Advisor
0.15% - 0.35%$0Visit Betterment
0.49% - 0.89%$25,000Visit Personal Capital
0.25%$500Visit Wealthfront
Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print, understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.