3 Ways to Make Your Tax Refund Stamp Out Bad Debt

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Bad debt... nobody wants it but many of us have it. Usually we are just stuck paying the piper because we don't have enough free funds to get rid of the balance as we would like to. But there are certain situations where you may find yourself rarely flush with cash. If you are wise and decide that using your tax refund to stamp out bad debt is smart thinking for the New Year, you can head into 2016 with a little bit less financial stress.

Most Money You Get All Year

For most people, their tax refund denotes the largest sum of cash they will receive in a lump sum for the entire year. It's often splurged on silly things and superficial items that we don't really need. Instead, you should consider using this annual return to reduce your bad debt ceiling.

Compare to the Interest Fees You Are Paying

How much are you paying on interest on all your credit cards? When you take a good look at it, you will be shocked. Use a free online calculator to determine how much you would pay in interest fees over the course of 10 years. Once you see that number, you will agree that using your tax return to pay off bad debt is a wise choice.

Reducing Your Monthly Obligations Adds Up Fast

When you pay off bad debt two good things happen. One, you reduce your monthly payments. This adds up quickly to more liquid cash flow than you would ever suspect. Secondly, it also improves your credit score. This results in you getting approved for loans at lower interest rates because of a lower risk factor.

How Much Bad Debt Costs You

But just how much is that bad debt really costing you? Well, if you add up all the fees that you are paying, it's a lot more than you think. Experts say that if you just pay the minimum payment on a credit card that's carrying a $5,000 balance, it could take you as long as 20 years or more. What's more, the interest and fees that you'd tender in between this time could add up to be well more than the actual balance you had borrowed.

By using a one-time influx of cash to eradicate bad debt, you can get ahead on your finances the smart way instead.

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