Is Paying Off Credit Card Debt With My Tax Refund the Smartest thing for Me?

Many of the top gurus out there are all about paying down debt and living on cash. What do you think?

Really, what feels right to you? There’s the emotional reasoning, “Do I stay up at night worried about my debt?” (It might be worth paying it off) . And the logical reasoning, “Is it financially intelligent to do this?” (Do the numbers make sense?)

I ran across this post from our friends over at Nerdwallet, and Lindsay was discussing this exact point (from the logical perspective).

She used this example:

If you carry a $5,000 balance at 6.9% for 12 months, and pay it off in equal principal installments of $417, you’ll end up paying approximately $184 in interest. Is there anything you’d prefer or need to spend that $184 on? If not, save the refund. If so, pay down the card.

Now, I’ve seen many credit cards out there and there are VERY few that carry a 6.9% APR.

Most millennials will qualify for one with a 12–25% interest rate. Pretty high of course, so look at your current rates and debts. If you have a card that is sitting on 0% rate for an introductory rate, you might be able to wait on paying this off for now. You can use your refund on something else.

If your rate is much higher, check each bill to see how much interest you’re racking up and figure out if it’s worth just taking a hacksaw to your debt.

As your balance creeps up, so will the interest charges. If you can spend your refund somewhere else where you get a higher rate of return, it might be more logical to spend the money there.

Sometimes it might be worth just hanging on to debt for more immediate opportunities. I believe all debt isn’t bad. It can help finance some of the risks and opportunities that come up in our daily lives.

What do you think? Are you paying off debt when your refund comes in, or are there other opportunities you can think of?

For more: Should I use my tax refund to pay off my Credit card debt — Nerd Wallet