a_reader, just to throw in my two cents and to offer another voice, if I were in your position I would use the tax return money to pay off your highest interest credit card and keep the remainder in savings. You’ll knock out the interest you are paying the credit card company each month, and in case of a life emergency, you can always use the credit card. I haven’t found an auto shop, repairman, or hospital that wouldn’t take a credit card for payment.

Unless you have incredible rates on your credit cards, you will get a lot more cash in pocket from paying down a 10-20% credit card than you would gain from putting that same money in a 5%-interest savings account.

Just a thought.

a_reader: I agree with a few other suggestions, you should definitely make sure you have enough savings to get you through a job loss. I know first hand what it’s like, my partner lost his job due to his company moving across the country 2 years ago, it took him 9 months to find something. We were lucky enough to have the savings to make it through. Unfortunately we haven’t been able to save enough to replace that savings and he just got laid off again last week. Three months isn’t enough savings in this economy, so be prepared for disaster.

HS

i currently claim 0 b/c I like having a refund at the end and not worrying about owing…it’s a nice way to “save” so to speak. of course I could claim more, get more in my paycheck and force an auto-withdraw from checking to savings instead.

If you were to save your entire refund, then you’d have $13K in the bank, which sounds like a very good cushion should you have a major emergency, such as losing your job or having a medical emergency. If you suddenly lost your income, then the $13K would help you stay current on your credit card payments as well as assist in paying for food, utilities, etc.

So, I’m heavily in favor of saving cash right now. My advice to you would be to save enough of the tax refund so you have at least 3 months’ worth of expenses. That should make a good emergency fund. Then, if there is any of the tax refund left over, put that towards your debt.

Also, $11K seems high for a refund. It might be a good idea to review your withholding and see if you can get more take home pay in your paycheck. That would enable you to put more towards debt throughout the year.

Of course, this advice may not apply to your particular situation. Maybe you have a source of income other than your job, or your income is highly variable, or your peace of mind at paying off a credit card is worth more than having a stash of cash for an emergency. Ultimately, it’s up to you to decide what is best.

I’m debating on what to do with the tax refund. I could pay off one of the credit cards ($9k) and put away the other $2k or use some of it.

Or do I put away the tax money into my savings, to build that up…then keep paying towards the credit cards until next year (hopefully get a nice tax refund and pay off a large chunk then).

note: i am committed to not using the credit cards anymore. so having a nice chunk in savings could be good, in those cases where I need the $ but dont want to use the cards.

thoughts, suggestions???