MARQUETTE - Counselors at the non-profit GreenPath Debt Solutions in Marquette are again offering their annual suggestions for ways to use your income tax return to improve your financial standing.
The counselors said that if you're like most people expecting a tax refund, you've probably already filed your income tax return and may even already have the refund.
GreenPath Counselor Stuart Baker suggests taking some time to put deep thought into the best thing to do with those refunds. Getting a big refund can also be an indication that you may need to change your exemptions.
"Here at GreenPath, we like to calculate how much a tax refund is if broken down into a per payday amount" Baker said. "If you get paid every two weeks, a $2,600 refund calculates to $100 per payday. When we break it down like that, people are really surprised and start to think about making changes."
Counselors also advise their clients to set aside some of the money, just in case.
"We advise everyone to base their budget on 90 percent of their take home pay with the other 10 percent going to savings. You'd be surprised how much peace-of-mind you can get by having $500-$1,000 in savings for emergencies," Baker said.
To be in the best possible position, having three to six months of your basic expenses in savings is the benchmark industry experts say you should aim for.
According to Visa and Mastercard, they had 437 million credit card accounts in circulation at the end of 2011, up from 412 million at the end of 2010.
Baker suggested that if you find yourself with more credit accounts this year than last year, or more outstanding credit card balances, instead of spending all your tax refund on a vacation, consider using it to pay down your debt. He said there are several ways this can be done.
If you want to have the biggest impact on your outgoing monthly bills, GreenPath advises to concentrate on the bills with the highest payment as a percentage of the debt. For example, if you have two, $1,000 balance cards and one has a minimum payment of $30 and the other has a minimum of $20, pay off the $30 per month account.
"This can lead to paying more in interest fees per month if the card you pay off has a lower interest rate than the one you keep," Baker said. "However, it is very rarely a bad thing to pay off debt."
Another plan is to pay the funds to the smallest balanced cards first, to try to get rid of as many of them as you can. If you have seven store credit cards with balances of $300 and bank card with a $3,000 balance, you could pay off the seven smaller accounts and only be left with one credit card payment each month.
"It is a lot less work to pay one account than it is to pay seven accounts," Baker said. "It will also save you on postage."
If you're saddled with high interest rate credit cards, GreenPath suggests focusing on the higher interest rate accounts first. Baker said that way you'll pay less interest over time.
"If you have two cards with $1,000 balances, one with a 24 percent interest rate and one with a 13 percent interest rate, you'd save over $900 in interest by paying the higher rate card off and paying the minimum on the smaller account than vice-versa," Baker said.
If you're not sure which of these options is the best for your situation, consider contacting a non-profit credit counseling agency. Agencies can be located via the National Foundation for Credit Counseling website at www.NFCC.org. GreenPath can be contacted at www.greenpath.com.
John Pepin can be reached at 906-228-2500, ext. 206.