9 Smart Ways to Use Your 2022 Tax Refund

Simply the thought of going through tax preparation in the first quarter of the year is daunting for many people. After all, tax season is something that most of us don't look forward to. Fortunately, the prospect of a refund check can make the process worth it — just so long as you know how to use your tax refund wisely.

In 2021, a survey conducted by the National Retail Federation found that 62% of consumers expected a tax refund. If you're expecting to receive a refund this year, it's time to start thinking about what to do when that direct deposit or paper check arrives. Here are some smart ways you can use your tax refund in 2022.


Pay Off Debt

In 2020, the average refund that Americans received from the Internal Revenue Service (IRS) was $2,707. That money can be hugely beneficial for people who have debts to pay off. If you're receiving a tax refund this year, you might consider putting the money toward anything that you owe money on — whether it be loans for college, credit card balances or car payments.

Student loans

Whether you have federal or private loans, it can be a good idea to use some of your tax refund toward paying them off. To start, log into your account with your lender to see which student loans you are making payments on.

The best method to tackling debt depends on the loans you have and what you're looking to do. For example, if you have a student loan with a much higher interest rate than the others, you might want to prioritize paying that one off first. This can help you save the most on interest over the lifetime of your loan. You can also pay off the entire balance of one of your loans if you have enough money. Doing so will most likely give you a sense of accomplishment that will inspire you to pay off another loan after that. 

High-interest credit card balances

Similarly, if you have a few credit cards to pay off, you can focus on the card with the highest interest first. Paying down the balance on the credit card with the highest interest rate can help you save money and pay off your other credit cards faster as well.

Auto loan

Auto loans are another debt that many Americans face. Like student loans, however, car payments can feel more approachable since you most likely owe a fixed amount each month, unlike credit card debts. This can make planning the payoff much easier.

If you're striving to manage auto loans in addition to other debts, you may want to consider the interest rate, monthly payments and terms of all of your debt. Then you can either decide to put all of your money toward the auto loan or spread your tax refund across your other debts as well.

Personal loan

Unlike other loan types, a personal loan can be used for several different purposes. Sometimes people take out a personal loan to pay off an unexpected expense such as a car repair or medical bill. Whatever the reason, personal loans often come with high-interest rates, making them a good option to prioritize if you want to use your tax refund to pay off debt. 

Start an Emergency Fund

An emergency fund (also known as a "rainy day fund") can provide a sense of security for your everyday life and can be a financial lifesaver in a time of need. These funds are meant to be used in the case of an unexpected life event, such as a job loss or sudden financial setback.

Typically, experts recommend having an emergency fund that amounts to three to six months of your usual living expenses. When determining how much to have in your emergency fund, think about your rent or mortgage payments, grocery costs and other monthly bills. Saving up this amount of money isn't feasible for everybody, but having any amount in your emergency fund can help you face unexpected expenses.

Emergency funds can be beneficial for everyone regardless of your financial circumstances because you never know when you'll have to face the unexpected. Setting money aside that you cannot access through your checking account can provide peace of mind, even if you never need to use it. So, if you're looking for a way to put the refund from your tax return to good use, this is a strong choice to consider.

Donate to Charity

Do you volunteer for an organization? Or is there a cause that's near and dear to your heart? If so, you might consider using some of your tax refund to give back to charity. To do so, you only need to select the charity of your choice and go through their donation process. As a bonus, donations to charity are eligible for a tax deduction, and you can use a deduction when you file your income tax return — just be sure to consult with an expert or resource to navigate the paperwork.

Invest in Yourself

If you want to splurge on something, you can’t go wrong by investing in yourself. Is there something that you've been wanting to do? A goal that the money from your tax refund could help you achieve? A place that you have wanted to visit? After spending days, weeks or longer going through the tax filing process, you deserve a break. Don’t be afraid to buy yourself something nice.

Go back to school

If the pandemic inspired you to consider a career change, you're not alone. Whether you're going to school to finish up a degree you've previously started or you're pursuing an entirely new degree, your tax refund can be put toward tuition costs. Even if using your refund doesn't help you avoid taking out student loans entirely, it can reduce the amount of debt you'll have if you need to request funds to further your education.

Going back to school may also help you save on federal taxes moving forward. TurboTax's article about education tax credits can help you understand the eligibility requirements and how to claim the tax credit if you qualify.

Fund continued education training or courses

Maybe you're interested in furthering your education but don't want to pursue a degree. In this case, you might consider spending your tax refund on training sessions. Seeking out courses that help you advance within your current career, is an especially good idea if your financial goals include making more money. By increasing your skill level, you may be eligible for promotions and/or increases in salary depending on your industry.

Another option is to check out courses in other fields to see if there’s a different profession that you want to pursue. This can be great if you're unsure about the job stability in your current career or if you feel like you're at a dead-end and need to find something that pays better or reinspires you.

Fund your retirement account

No matter how far off retirement seems, it's never too early to start thinking about the future. If you choose to receive your tax refund via direct deposit, you may be able to transfer those funds directly into your IRA from your bank account. Using your refund to fund your retirement account is a great way to start thinking about the long game and investing in your future.


What Should You Avoid When Deciding How to Spend Your Tax Refund? 

There are many factors to consider when deciding how to use your tax refund wisely. The simple truth is all taxpayers face different situations, and what's best for you may not be best for your friends and family. That's why it's important to think about your needs, goals and financial situation.

When deciding what to do with your tax refund, take some time to consider what you want. If there's something in your home that you feel needs an upgrade and that's important to you, think about a renovation. If you're actively working to pay down debt, you might want to look at all of your debts to see which one(s) should be prioritized.

There's no need to put your tax refund all in the same place either. If you get back $2,000, you can divide it up however you'd like. And there's no need to make immediate decisions. Your tax refund isn't going anywhere, so you can let it sit as you take time to think about what you want.


This content provided is for educational and informational purposes only and does not constitute financial or legal advice. RISE is not acting as a credit counseling or repair service, debt consolidation service, or credit services organization in providing this content. RISE makes no representation about the reliability or suitability of the information provided – any action you take based on this content is at your own risk.

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