In 2019 the IRS reported paying over $305 billion in tax refunds, with the average being $2500! So today we are going to look at some scenarios of what you can do to make the most of your tax refund. While many people enjoy the lump payment every year, remember that this is your money that you loaned the government with no interest. A $2500 tax return is $200/month, which may not seem like a lot, but let’s see how it adds up.
If you pay off debt: Average Student Loan balance is $35,000 with 6% interest rate. That’s a monthly payment of $400 for 10 years totaling $46,000! If you put your $2500 on your student loan, you’ll save $1800 in interest and pay your loan off 1 year sooner. That’s a savings of $6600! If you adjust your withholdings so that you get the $200 each month, you’ll save $5500 in interest and pay it off in 5 years! This will work with any debt you have.
If you roll into retirement: With an initial investment of $2500 and then adding the $200 each month, you could earn almost $789,000 in 30 years. That’s an investment of almost $75,000 on your part and growth of $714,000! This will help you reach your retirement goals.