This article is reprinted by permission from NerdWallet. The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. If inflation has eaten away at your budget the way waves erode a beach, then your tax refund might just provide a much-needed protective barrier.
As of March, prices are up 6% over the past 12 months, according to the most recent consumer price index. At the same time, just over half of filers (55%) are expecting tax refunds for the 2022 tax year, with an average expected refund of $2,205, according to the 2023 Nerdwallet Tax Report. Financial experts say consumers can use that windfall — which is really just a delayed paycheck that you already earned — to help offset the strain of those higher prices. “Tax refunds are going to arrive at just the right time for many consumers this spring,” says Drew Wessell, a certified financial planner at Fiduciary Financial Advisors in Grand Rapids, Michigan. Don’t miss: 101 million taxpayers are missing out on this free serviceUnload high-interest debt With rising interest rates, variable-rate debt becomes more expensive — including credit cards. That’s why many financial experts put paying off debt at the top of the priority list, even considering it a type of investment. “Using your tax refund to pay off a credit card debt with a 20% interest rate gives you an instant, tax-free 20% return on that investment. It’s not a creative idea, but the math makes it the most impactful action that a consumer can take,” Wessell says. Plus: Don’t make these financial mistakes with your side hustleSave in a high-yield account Rising rates also mean rising yields on savings accounts, so you can save your refund and earn more on it. “If you already have a high-yield savings account, you can also look at CDs,” says Marguerita Cheng, a certified financial planner and the founder of Blue Ocean Global Wealth in Gaithersburg, Maryland. CDs, or certificates of deposit, offer higher yields in exchange for less liquidity. Wessel …