Tax refunds expected to fuel a wave of credit card spending
Credit card use expected to soar in the coming weeks.
The deadline for filing taxes in the US is fast approaching. If you haven’t already received your tax refund, you may be tempted to spend it before it’s actually in your bank account.
You’re not alone. Many American consumers anticipate their annual cash windfall, so much so that they often have huge plans for how they will spend it. Many choose to make major purchases, often using their credit cards, with a plan to pay them off when they receive their refund.
This could be good news for the revolving credit industry, which recently saw its smallest growth since November 2013. Overall consumer credit rose 3.3% in February, while revolving credit – mostly credit cards – only saw a 0.2% gain. Reported credit card gains have been smaller than others reported within the consumer credit sector.
National Association of Federally-Insured Credit Unions chief economist and vice president of research Curt Long says he expects credit card spending to increase as Americans receive their tax refunds.
What Americans really intend to do with their tax refunds.
Most Americans are level-headed about their finances. In fact, credit scores are higher than ever. That can be a reflection of responsible spending.
The majority of Americans plan to sit on their refunds and put the cash injections into their savings. Most of the rest plan to pay off their debt, including their credit card balances. Very few intend to use their refunds on vacations, other luxury items or major purchases.
Last year’s tax refunds totaled $324 billion. The average tax refund across the board amounted to $2,895.
While it might be tempting to make a purchase before even having your refund in hand, consider your entire financial picture. Evaluate your current credit card debt. Closely examine the APR of each card. Interest rates average 16% but can be as high as 30%.
Experts say it might be a good time to consolidate existing credit card debt into one card with a lower rate. Otherwise, it may be a good idea to pay down higher-interest cards with your tax refund.
Of course, if you’re one of the unlucky few who owes taxes, rather than anticipates a refund, your credit card may come in handy to pay your IRS bill.
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