- Your tax refund is an opportunity to expedite your debt settlement journey.
- When you add additional money to your Program Savings Account, you can settle debts faster.
- Creditors are often willing to accept lower settlement offers during the tax season.
- Lump sum pay offs usually result in deeper discounts from creditors.
Every month that you continue to fund your debt settlement savings account means you are that much closer to living a life free from the shackles of high interest credit card debt. You’ve made a few sacrifices, tightened your budget, and made few sensible adjustments to your lifestyle and spending habits. Saving to settle large credit card balances takes time, even when you are paying off the accounts at a substantial discount.
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So much about life is timing. So, consider tax time to be a great opportunity to accelerate your debt settlement savings and in turn, pay off your debts faster.
The Tax Time Opportunity
In 2018, the average American received a tax refund of $2,727. If you just happen to be one of these typical Americans, how you choose to spend this windfall can have a major impact on your finances for the next 12 months.
You might choose to spend the money and end up in the same financial straits you were before. You might want to increase your financial security and save your tax refund. You could make an additional deposit in your retirement or emergency savings account, which can reduce your reliance on credit cards to cover unexpected expenses.
You might also want to become debt free faster, choosing to over fund your savings deposit account and in turn, build a bigger savings balance that can be leveraged to settle your debts sooner.
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The Benefits of Using Your Tax Refund for Debt Elimination
The Money Goes Further: Credit card collection companies know that millions of Americans receive tax refunds through the end of April. Anxious to capitalize on the influx of money to cash strapped consumers, many creditors offer deeper discounts on credit card settlements at this time of the year in order to get more accounts off the books off the books while consumers are receiving their financial windfalls from Uncle Sam.
You Pay Debt Off Faster: Overfunding your savings account can take months off your debt settlement program. For example, if your repayment schedule will last for three more years and you pay $700 a month towards debt reduction, a payment of $2,700 will pay off the debt up to four months sooner. Complete the process for two years in a row, and you could eliminate your debt an average of eight months faster.
You Give the Debt Settlement Company More Leverage: Your debt advisor works with creditors to make payment arrangements based on the balance in your savings deposit account and anticipated future drafts. When you overfund the account, they have more leverage to get a better payoff arrangement. For instance, instead of spreading out payments over a year they might reach an agreement for a lump sum payment at a higher discount.
Tax season is the perfect opportunity to accelerate your debt payoff by overfunding your savings account with your tax refund. Even if you cannot put the full refund towards debt repayment, you can earmark a percentage of the refund to go towards debt elimination. This strategy allows you to reach your goal of financial freedom faster.
What is the best use of my tax refund?
Tax refunds can create an annual windfall you can use to get your financial house in order. Paying off credit card debt, adding money to an emergency fund, or increasing contributions to retirement accounts are all good uses for your refund.
Should I use my tax refund to pay off credit card debt?
Paying off credit card debt can reduce monthly expenses and save you thousands of dollars each year in double digit interest payments.
Does everyone get a tax refund?
A tax refund means you overpaid your tax bill. You could adjust your withholdings and put more money in your monthly paycheck to reduce or eliminate your tax refund. However, millions of consumers look forward to a refund each year. They use the money to pay off debt, add money to savings, or take a vacation.
Can my creditors take my tax refund?
In some cases. Government debts such as delinquent taxes, child support, alimony, or student loan debt can all result in a tax refund being diverted to repay creditors. In most cases, credit card issuers, mortgage lenders, and other creditors cannot take your refund.