What to do with tax refund?

[dsaucone]

Last year we got about $4,000 in refunds. I'm guessing we're going to be somewhere in the area this year as well. We made a little more, but also added a family member.

We have absolutely NO savings. (Well in all honesty, the balance in the savings account is $60.)

We have quite a few CCs & small student loan (which I'm not too worried about).

CC1 - $20min payment - Discover $400 at 15.99%

CC2 - $0min payment - Lowes $770 at 0% until March 31st (then add about $120 in retroactive interest and 21.99%)

CC3 - $42min payment - Alienware $1350 at . . . you ready? . . . 29.74%

CC4 - $19min payment - Goodyear $800 at 0% until Nov 2009 (I have an $80rebate coming for the card so it will be $720) then 22.36%


We also would really like to purchase a house. We can get one for about $100 less a month (including taxes) than what we pay in rent for MORE space. Which we need because of the new addition. We would need about $5,000 to get that whole process started.

We have one vehicle in EXCELLENT mechanical condition with 150,000 miles on it. Completely paid for. We've thought about needing a more reliable vehicle. Ours is probably worth about 3,000 - 3,500 ppv.


What do I do with the tax refund?

[Alyantavid]

I'd completely pay off all the cards. Then you can take what you were paying on the cards every month and save it.

[mtm]

I'd put 1-2000 in a basic emergency fund and then use the other 2-3000 to pay off as much as your cc as possible. If you get the full 4000 looks like you can pay off all the ccs, I'd do that then cut them up.

[aircantu1]

I'd pay off all the cards and cut them up.

[ksera05]

Originally Posted by dsaucone

CC1 - $20min payment - Discover $400 at 15.99%

CC2 - $0min payment - Lowes $770 at 0% until March 31st (then add about $120 in retroactive interest and 21.99%)

CC3 - $42min payment - Alienware $1350 at . . . you ready? . . . 29.74%

CC4 - $19min payment - Goodyear $800 at 0% until Nov 2009 (I have an $80rebate coming for the card so it will be $720) then 22.36%

so total, you have $3320 in debt. That's not horrible, but that's definitely something you probably want to get rid of?

I personally would get a copy of Dave Ramsey's The Total Money Makeover and follow his plan. I'd start out by putting $940 in my savings account so that I had a solid emergency fund of $1000. If you get $4,000 back, that'll leave $3060. I'd then pay off the $400 Discover card, the $1350 Alienware card, the $770 Lowes card. That will leave $540, and only one minimum payment a month (the $19 Goodyear card).

I'd then personally would take the $500 and put it in savings towards a new car. I'd put the $40 left towards the Goodyear card and then I'd start snowballing to get that Goodyear card paid off as fast as possible. I would then, as soon as it is paid off, evaluate my budget and start saving for both a newer car and also money for a house. If you need $5000 for a downpayment, you'll want to save that, plus the money you'll need to have in savings for repairs (you're going to want at least $1000-2000 in case, you know, say, your hot water heater and your air conditioner break at the same time, for instance.)

You totally could use this as a great jumping off point to not only get out of debt, but also get saved up for a house very quickly!

[westernskies]

I would pay off the cards and use the money that you would have used for those payments to start a savings fund...

[feminist~mama]

I'd pay off the cards too. Then start saving for that down payment!

[mamayarn]

Ooooh, fun!

If the refund is $4000, I would pay off

Alienware and Discover now. = $1750 gone, $2250 left into savings.

Lowes card on or before March 10 (built-in leeway) - note - ONLY DO THIS IF YOU WILL REMEMBER, otherwise just pay it now!!! $770, $1480 left in savings + savings interest accrued between refund date and March 10.

At that point, the only credit card left is the Goodyear and it is interest free until November, so let's say that's October 31. I might not be doing this correctly, so someone else please tell me if so, but if it's 0% interest then the $19 minimum payment all applies to the principal, right? So, take the minimums from the Discover and the Alienware - $62 per month - and pay that as well as the $19 onto the Goodyear balance. That is $81/month. Let's say your refund arrives in time for all this to be enacted in February - Feb-Oct is nine payments. 9 x $81 = $729, so assuming that it goes as planned you should pay it off before the interest-free period is over which leaves you with your leftover refund $1480 sitting in savings all year long. Like I said, though, this assumes that the $19 minimum applies to the principal and, honestly, that sounds a little too nice for credit card companies. If you are paying $19/mo for the privilege of borrowing "interest-free" then by all means, pay that sucker off.

The big fat disclaimer on all of this, however, is that you have to be on top of the dates and transfers. Otherwise rid yourself of the debt asap and start saving for your house out of the money you can count on, and don't use credit cards. You will look better to a scared lender without consumer debt on your credit report.

[kirstenb]

I would pay off the cards and put any leftover money into an emergency fund.

[annethcz]

I'd pay off the cards, use the leftover money to add to your savings account. Take the money you were using to pay the cc payments and add to your savings account each month.

[Denvergirlie]

Originally Posted by kirstenb

I would pay off the cards and put any leftover money into an emergency fund.

Yeah this, then with the money you'll be saving in monthly payments start saving for a larger EF, house downpayment and car replacement fund.
When you are in the house start/ or up your retirement savings and if desired college fund savings.


Dave Ramsey has a great plan, that we ourselves are walking the steps with just one small tweak for our own personal situation.

[living_organic]

I agree with everyone else...pay off that debt and start saving!

[bellabear]

Originally Posted by Alyantavid

I'd completely pay off all the cards. Then you can take what you were paying on the cards every month and save it.

Ditto.

[EFmom]

I'd also pay off the cards, put what's left in an emergency fund and start saving.

[Teensy]

I agree 100% with KSera05 - get your emergency fund funded ($1,000) then pay off the cards as she described. You could get that last CC paid off by the end of the year and enter 2010 with no CC debt and $1,000 in savings, and maybe looking forward to another refund that could go towards your down payment on a house.

Check out the Dave Ramsey book she recommended, and start listening to his radio show or (also free) podcast.

[bigteamug]

yep, pay off the debt and then set aside for emergency fund and then for a house. i can't imagine too many places where home prices will go up much, certainly not similar to your cc interest rates! if they drop, you'll save a lot by waiting just a little longer.

i know the renter's feeling of longing for a house of your own, we're there too, hang in there mama!

[weliveintheforest]

I would absolutely follow ksera05's advice

[dsaucone]

The HRBlock calculator says we should get a little over $5,000.

I think we will pay off all of our cards ASAP. This will free up about $100 a month that normally goes towards payments.

On top of that, my health insurance premiums are being reimbursed this year so that's another $200+ that we're not used to getting.

This means at least $300 extra a month can get put away.

bigteamug - I'm so tempted to just throw it all towards a house and finally pay less for something that's mine that I love. I hate this apartment. I hate having landlords. I don't like not being able to fix things when and how I want. I hate paying more for something I don't feel is worth the money and is getting me no where when I could pay less and have something to show for it. Ugh, it's so frustrating. I'm trying to wait it out a year, I just hate this place so much! Wow, I wasn't aware all that was in there. haha, mini vent.

[LilMama23]

Yup, I'd absolutely pay off those cards and start an emergency fund.
Ours will not be as much as yours, but we intend to use every cent of it to pay off credit cards and student loans.

[phathui5]

Like the other posters, I would bring your savings account up to $1000, then pay off the debt. You'll also need to figure out what it was that got you $3300 in debt and resolve not to do that again, especially if you want to save up to buy a house.