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✔ The average refund is more than $1,000
✔ You can use your refund to reach some of your financial goals
✔ One of the best ways to use your refund is to pay down debt
With the average income tax refund in Canada hovering at $1,610, this once-a-year boost is a great opportunity to help you achieve some of your financial goals.
Pay down debt
Paying down debt is one of the best things you can do with your income tax refund, because it can save you a lot in interest and a lump-sum payment can help improve your credit score. One good strategy is to pay down your highest interest debt first. Another is to make an extra payment on a mortgage if you have – just one extra payment a year can save you many thousands of dollars over the life of your mortgage.
Start an emergency fund
An emergency fund is there for you when unexpected expenses such as emergency home repairs come up. Instead of putting those emergencies on your credit card or getting further into debt, you pull from your cash reserve. A good tip is to put this money in a separate account so you’re not as tempted to spend it.
Pay for a larger purchase
An excellent way to get out of the habit of credit card debt is to start saving for your major goals in advance and paying for them with cash. That means instead of putting a vacation or new furniture on your credit card and paying it off after, you can pay for it right away and save interest.
Contribute to an RRSP
Many Canadians are not saving enough for retirement. The nice thing about a tax refund is it is money that is probably not part of your monthly budgeting, so you can put it to good use. If you put $1,000 from your tax return into an RRSP (Registered Retirement Savings Plan) every year that yields a 5% return, you’d have more than $34,000 in 20 years. While retirement might seem far off, the earlier you start saving for it, the more you’ll gain in compound interest.
For many Canadians, their income tax refund represents an opportunity get ahead with some of their financial goals. Use yours wisely!