©  1998 K.C. Knouse

Income tax withholding refunds are chunks of money that give you an opportunity to change your financial life—if you take advantage of it. Instead of spending the refund, or worse, applying it as a down payment to leverage even more debt, you can use that tax refund money as a first step to becoming debt-free.

Here are some suggestions for using your tax refund to break the cycle of debt:

• Apply part of it to the outstanding principal of an existing installment loan and put the rest into savings. You will save the interest charges on the amount of principal you prepay, and you will reduce the amount of time it will take to pay off the debt.
• Put it into savings and use it to pay cash for unexpected expenses instead of borrowing to pay for them.
• Use part of it to pay off a high-interest credit card balance and save the rest. Then add the monthly payment you were making on that credit card to savings.
• Use it to open a minimum balance, no-fee checking account. Your money will earn interest and you will save on bank fees.

To achieve the most effective use of your tax withholding refund, balance debt payment with savings.

K.C. Knouse is the author of True Prosperity: Your Guide to a Cash-Based Lifestyle, Double-Dome Publications, 224 pages, $ 13.95.

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