Question about debt and taxes

supanerdstef · **Question about debt and taxes**

Ok were going to be getting a decent tax return (probably anywhere from $3-$5000) and we owe around $12,000 in debt. what do you think is the best thing to do? take all of it and put it on the credit cards to help start paying them off, or put some of it in savings and pay some on the cards?

T-shell · 01-20-2008, 04:47 PM

If you don't have an emergency fund, then you need to set some aside for that (for example, $1-2K). The rest can be applied towards your debt. If you have enough in savings, then apply the full refund to your CCs. The reasoning behind the emergency fund (EF) is to cover any unexpected expenses without having to resort to the CCs. If you don't have an EF and apply the entire refund to your credit cards only, then something expensive most likely will happen within the next 12 mos. forcing you to increase the debt on your CC.

taylyn · 01-20-2008, 04:48 PM

I Am all about Saving AND having Money When you need it! I Feel Much better with a Big checking and savings account and Low Debt , than I Do when I Have NO debt and No money.

If you pay 3,000 on a CC - Will You need to Use the Card again in a Few Months when Funds run low?

Or Are you Ok financially That you don't Need any extra cushion in Checking?

It really Depends on your Situation.

supanerdstef · 01-20-2008, 05:04 PM

I guess I should have been specific with my situation lol.
Basically we were very careless with our credit cards-We bought a home 2 years ago and had to buy appliances and everything.
right now with us paying $400 a month on credit cards we are literally living paycheck to paycheck. there is no savings. well maybe $5-10 lol.
but I want the debt gone. because once its gone thats $400 a month we could put in savings.

rskmom · 01-20-2008, 05:06 PM

You might also want to think about changing your deductions so you get more $$ in your paycheck each week instead of letting Uncle Sam hold all that $$ for a year with no interest.

supanerdstef · 01-20-2008, 05:25 PM

i didnt even realize it was an option lol. I like that idea ALOT better!

taylyn · 01-20-2008, 05:41 PM

If you use 1/2 Your Return to Pay the Debt Down , your Payments will be less , Put the other Half in Savings.

Just the way I would Do it.

And Yes! go to Internal Revenue Service and check out the withholding calculator!

I redid ours this Yr. Cause our Return was way too much ...

Meaning we paid in WAY too Much...

Anyway - after Readjusting our withholdings - our Checks will be about 400.00 more EACH Paycheck ( thats 800.00 extra a month!!) AND next yr. we will get Back about a 500.00 Refund.

I DO Not want to have to pay in in April - so I was careful and Didn't Want to withhold too much!
Still, Most of that 800.00 will go into savings and If we owe- We will at Least Have it.

beautifulbabies · 01-20-2008, 05:46 PM

Changing your withholding is the first thing. Then I would use all of the refund to pay down debt. I image you are paying a high interest rate and money in savings accumulates hardly any interest. If something did arise where you needed money, you could use a credit card, but otherwise you will just be paying extra interest while the money sits in savings.

supanerdstef · 01-20-2008, 05:49 PM

it sounds liek we need to redo ours as well. when dh gets back into town im going to talk to him about changing it. we could have the credit card paid down faster if we had more coming in. I like that idea best.

aliadam · 01-20-2008, 08:12 PM

I would put a few hundred away for emergencies (BUT DON'T SPEND IT ON OTHER THINGS!!) and then I'd put all the rest of it immediately onto the credit cards. Do you have one you could pay off with that? That would be a great place to start.