It's tax season—here's 4 great ways to use your return

It's that time of year again – tax season. For many people, this means receiving a tax refund. If you're lucky enough to receive a tax return this year, it can be tempting to splurge on something you've had your eye on for a while. But before you do, consider other ways to use your tax return that can help improve your financial well-being.*

1. Build up your emergency fund

One of the best uses of a tax refund is to give your emergency fund a boost. Unexpected expenses can pop up at any time; things like a car repair, medical emergency, or a home repair. Having an emergency fund can help you cover those expenses without relying on credit cards or taking out loans. A savings or money market account is a great option to start—or grow—your emergency fund. Sturgis Bank offers 5 distinct savings accounts each with unique features to meet your specific needs.

2. Pay down debt

Using your tax return to pay down debt can be a smart move. It allows you to use a lump sum of money to reduce your debt balance, helping you save money on interest charges and reduce your debt faster. Additionally, paying down debt can improve your credit score over time. A lower debt-to-income ratio (DTI) can positively impact your creditworthiness and make it easier to qualify for loans or credit in the future. This is especially important when considering the purchase of a home. Another option is debt consolidation—transferring your high-interest credit cards to one with a lower interest rate. Sturgis Bank offers several credit cards designed with balance transfers and debt consolidation in mind.

3. Open a CD

Using your tax return to open a CD (Certificate of Deposit) is an easy, safe way to save and earn money with higher interest rates than traditional savings accounts. With a CD, you choose the duration of the account term, and with a fixed rate of return, you can estimate your earnings to help plan for the future. Sturgis Bank offer a variety of CDs with varying term lengths to choose from. 

4. Make an extra mortgage payment

Do you own a home? Using your tax return to make an extra mortgage payment once per year could save you tens of thousands of dollars in interest and reduce the term of your loan. Here's an example:

Let’s say you have a $220,000, 30-year mortgage with a 4% interest rate. Making one extra mortgage payment of $1,050 annually will save you over $25,000 in interest—plus you'll you'll have your home paid off 4 years early. Cha-ching!

Now, what if you made an extra payment each quarter? You'd pay your mortgage off 11 years early and save more than $65,000 in interest! You can see how making even just one extra mortgage payment per year can greatly reduce the amount of interest you'll pay in the long run. Want to run your own numbers? Check out our helpful financial calculators. 

*Sturgis Bank does not provide tax, legal or investment advice. Any information communicated here is for educational purposes and should not be construed as tax, legal or investment advice. For specific tax questions, please consult with your tax attorney or financial professional.