There is nothing more tempting than the thought of a nice juicy tax refund, and the shopping spree that you could have the moment it arrives.
By using your refund to pay off even a small amount of debt or to invest in super can make a huge difference in the long run. Here are some ways you could use your tax refund to work for you:
1. Pay off credit card balances
Did you know that if you only pay the minimum amount off your credit card, it will take 11 years to pay off a $1,000 balance? Because your credit card probably has the highest interest rate of any of your loans, it makes sense to pay it off before anything else. Ideally, you would pay off your credit card in full every month. If you can't do that, then make a commitment to pay off more than the minimum amount each month.
2. Pay off part of your personal loans
This is usually the next highest rate of interest that you would be paying. Making extra repayments can greatly reduce the term of you loan.
3. Make an extra Home Loan Payment
1 extra monthly home loan payment at the start of a 30 year loan will reduce the term by 6 months!
4. Make extra contributions to your Super
If you make after tax contributions, you may even be eligible to receive a government co-contribution of up to $1,500!
5. Start a Savings Account
If you started a savings account with a $500 tax refund, and earned 5.25% interest, and reinvested your interest into the savings account, at the end of 20 years you would have $1,426.67 without adding to your initial savings! If you added your $500 tax refund every year for those 20 years, you would end up with almost $19,000!
Source - ASIC - fido, Financial Tips and Safety Checks.