Getting a BIG Tax Refund was keeping us in debt

The “great debate” that centers around whether it makes financial sense to get a tax refund or not usually entails one of two perspectives:

The “No Refund” crowd loathes the fact that you are loaning the government your money for free.  Your monthly overpayment in federal taxes could be put in a high-yield savings account and earn you interest throughout the year.

The “Pro-Refund” people usually argue that getting the big refund allows them a forced way to save money that they wouldn’t otherwise save.  The refund can be used to pay down debt or put away for a rainy day.

I’m a reformed “Pro-Refund”.  We used to get the big refund and pay down the credit card.  The same credit card that we were forced to use throughout the year for necessities.  There was no end in sight, the credit cards would never get paid-off because the take-home pay was not enough to cover our lifestyle. What a crazy cycle, we were giving our own money away(letting the government hold it), and then we would have to use credit cards (at about 18% interest over the year) to borrow our own money, pay off the credit card with the refund and start it all over again!

Last week I asked my husband to bring an updated W4 to HR so we can avoid a refund.  Not so we can put this extra money per paycheck in a savings account or use it to pay off debt.  We will use it to avoid using credit cards. We are a paycheck-to-paycheck family.  We are fed up with that lifestyle.  For us, not getting a refund will result in an extra $200-$250 a month.

The majority of our credit card purchases were made because there was not enough wiggle-room in the budget to pay for our monthly expenses.  Even with our cost cutting measures, we were still one small hiccup away from using a credit card to get us through. Maybe down the road, when we have better control of our finances, this money can be used for a “Vacation Fund” or the like.  For now, I’m looking forward to NOT putting groceries or gas on a credit card.

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