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6 Smart Ways to Use Your Tax Refund contents
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6 Smart Ways to Use Your Tax Refund

Last Updated: January 8, 2025
5 min read
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Key Points:

  1. Tax refund money can help build a cash cushion if you have an emergency and unplanned expense.

  2. If you have debt, funds from your tax refund can help contribute towards paying down those bills—it might boost your credit score too.

  3. You can increase your purchase power by using your tax refund to fund a secured credit card.

Is the money from your tax refund giving grand ideas of spending? The Internal Revenue Service (IRS) reported more than 105 million individual income tax refunds were issued in 2023, with an average refund of $3,167.

 

If you’re expecting a refund, you may want to go on a spending spree. But, if you’re looking for long-term benefits for you and your family, there are a few options that you can look at.

Build an emergency savings

Unplanned expenses are just a part of life. One way that you can put your tax refund into good use is by creating a cushion or emergency fund with the extra cash. An emergency fund savings account can help you cover expenses during an unplanned event, like a car repair or hospital stay. In general, it’s a good idea to have at least six months of expenses set aside in a savings account. You can start your fund or add to it with your tax refund.

Emergency savings can also help if there are changes to the economy. A recession, higher tariffs, and inflation can all cause prices for big ticket items to increase. As an example, your extra savings might help you cover the gap between the price you expected to pay for a new appliance and the new higher cost.

A credit card can help you cover costs when you have an unexpected expense. Still, you should be careful to only use your credit card for these expenses sparingly. It’s important to choose the best credit card for your unique circumstances.

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Pay off (or down) debt

If you have any debt that you’ve been planning to address, you might use your tax return to pay down or even pay off some debt. Plus, you may be able to improve your credit utilization and boost your credit score if you pay off your credit card debt.

How? With less credit card debt, you could lower your credit usage—a key factor in calculating your credit score. You generally want to keep your credit use below 30%. Using your tax refund to pay down debt (especially high-interest credit card debt) often reduces future interest charges, saving you more money.

Beyond credit cards, making an extra payment on a mortgage, personal loan, or car loan can reduce the amount of interest you’ll pay over the life of the loan.

Rebuild your credit

If you don’t have good or excellent credit, getting a loan or even applying for an apartment can be difficult. Fortunately, your tax refund could be an opportunity to get a Discover it® Secured Credit Card that can help you rebuild your credit with responsible use.1

A secured credit card works like a traditional credit card, with one major difference: you must provide a security deposit for your credit card account. Your security deposit is usually equal to the amount of your credit line. If you don’t have extra money for this deposit, your tax refund could be one way to fund your account.

Did you know?

By using your tax refund for your security deposit and then using your Discover it® Secured Card responsibly you might build your credit history.1 Plus, you earn cash back on all your purchases, and Discover automatically doubles the cash back you’ve earned on your credit card at the end of your first year.2

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When you use your secured credit card responsibly for everyday expenses, you can enjoy rewards and build your credit history with the three major credit bureaus.

Improve your job marketability

One way to make your tax refund work for you is by putting it toward furthering your education. You can get a certification or license, which may increase your paycheck, on average, by as much as $400 weekly, according to 2023 data from the Bureau of Labor® Statistics.

Amplify your purchasing power

While saving can be essential to improving your finances, finding smarter ways to spend your money is equally important. For instance, a Discover it® Secured Credit Card lets you earn 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter, automatically. You’ll still earn unlimited 1% cash back on all other purchases.3 This way, you can earn cash rewards as you shop.

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With no harm to your credit score4

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Recharge your batteries

It’s a great idea to use your tax refund to save or invest. However, sometimes, spending your money on a fun or adventurous experience can better impact your mental health. A little time in the sun or on the slopes can go a long way toward building healthy connections with friends and family. You can make your dollars stretch further with a travel credit card, so you can earn rewards while you have fun.

Your tax refund check might be on its way to your mailbox or direct deposit before you know it. Why not invest in yourself? You can make the most of your tax refund by having a plan to maximize its value, whether that’s by building your credit score, taking a break from the daily grind, or stretching your funds as far as they can go. However you choose to use your refund this tax year, an investment in yourself is usually a good idea.

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  1. Build credit with responsible use(Secured): Discover reports your credit history to the three major credit bureaus so it can help build/rebuild your credit if used responsibly. Late payments, delinquencies or other derogatory activity with your credit card accounts and loans may adversely impact your ability to build/rebuild credit.

  2. Cashback Match: We’ll match all the cash back you’ve earned on your credit card from the day your new account is approved through your first 12 consecutive billing periods or 365 days, whichever is longer, and add it to your rewards account within two billing periods. You earn cash back only when they’re processed, which may be after the transaction date. We will not match: rewards that are processed after your match period ends; statement credits; rewards transfers from Discover checking or other deposit accounts; or rewards for accounts that are closed. This offer may not be available in the future and is exclusively for new cardmembers. No purchase minimums.

  3. 2% Cash Back at gas and restaurants: You earn a full 2% Cashback Bonus® on your first $1000 in combined purchases at Gas Stations (stand-alone), and Restaurants each calendar quarter. Calendar quarters begin January 1, April 1, July 1, and October 1. Purchases at Gas Stations and Restaurants over the quarterly cap, and all other purchases, earn 1% cash back. Gas Station purchases include those made at merchants classified as places that sell automotive gasoline that can be bought at the pump or inside the station, and some public electric vehicle charging stations. Gas Stations affiliated with supermarkets, supercenters, and wholesale clubs may not be eligible. Restaurant purchases include those made at merchants classified as full-service restaurants, cafes, cafeterias, fast-food locations, and restaurant delivery services. Purchases must be made with merchants in the U.S. To qualify for 2%, the purchase transaction date must be before or on the last day of the offer or promotion. For online purchases, the transaction date from the merchant may be the date when the item ships. Rewards are added to your account within two billing periods. Even if a purchase appears to fit in a 2% category, the merchant may not have a merchant category code (MCC) in that category. Merchants and payment processors are assigned an MCC based on their typical products and services. Discover Card does not assign MCCs to merchants. Certain third-party payment accounts and digital wallet transactions may not earn 2% if the technology does not provide sufficient transaction details or a qualifying MCC. Learn more at Discover.com/digitalwallets. See Cashback Bonus Program Terms and Conditions for more information.

  4. There is no hard inquiry to your credit report to check if you’re pre-approved. If you’re pre-approved, and you move forward with submitting an application for the credit card, it will result in a hard inquiry which may impact your credit score. Receiving a pre-approval offer does not guarantee approval. Applicants applying without a social security number are not eligible to receive pre-approval offers. Card applicants cannot be pre-approved for the NHL Discover Card.

  • Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.