Financial Experts Advise Strategic Use of Tax Refunds Amid Rising Debt and Inflation

As Americans receive their tax refunds, financial experts are urging them to use the money wisely to improve their financial health. With the average tax refund reaching $3,011 in 2024, up from $2,878 the previous year, this influx of cash presents an opportunity to tackle high-interest debt, replenish emergency savings, and consider investing for the future.

Rising inflation and soaring credit card debt have put many households in a precarious financial position. Experts recommend using tax refunds to address these pressing concerns. "The ideal approach is to first use the refund to tackle any outstanding debt, especially revolving debt like credit cards," advises financial planner Sarah Thompson. "Paying off high-interest debt can save you money in the long run and free up more cash in your budget."

Why this matters: With Americans facing increasing financial pressures, strategic use of tax refunds can provide much-needed relief and help build a more stable financial future. Addressing high-interest debt and building emergency savings can improve financial resilience and reduce stress during uncertain economic times.

After addressing debt, experts suggest replenishing emergency savings. The benchmark is to have 6-9 months' worth of expenses saved. "The COVID-19 pandemic has shown us that unexpected events can quickly drain our savings," notes financial analyst Mark Johnson. "Putting away even half of your tax refund can help build a financial safety net."

For those who have their debt and savings under control, investing the refund is another option to consider. However, experts caution against investing without a solid understanding of the risks involved. "If you're new to investing, using a robo-advisor like Betterment can provide guidance and help reduce the risk of costly mistakes," suggests investment expert Lisa Chen.

Financial experts emphasize the importance of treating any unexpected influx of cash, whether a tax refund or other source, in a similar manner. "The best approach is to balance saving, paying off debt, and strategic investing to maximize the long-term benefits of your tax refund," advises Thompson. By using their refunds wisely, Americans can take steps towards improving their financial health and building a more secure future in the face of economic challenges.

Key Takeaways

• Average 2024 tax refund is $3,011, up from $2,878 in 2023.
• Experts recommend using refunds to pay off high-interest debt first.
• Building 6-9 months' emergency savings is the next priority.
• Investing refunds requires understanding risks, e.g., using robo-advisors.
• Balancing debt, savings, and strategic investing maximizes refund benefits.