Smart Taxpayers Can Use Refunds, Stimulus to Pay Themselves Forward

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Bills.com's Ewing offers 8 ways to invest tax payments in the future

As economic stimulus payments hit the bank accounts of millions of Americans starting this month, Ethan Ewing, president of Bills.com (http://www.bills.com), reminds consumers that smart taxpayers will remember that tax refunds and economic stimulus payments are their money, being repaid by the government -- and it's worthwhile, he says, to make good use of that cash.

"This spring marks an especially rewarding -- and therefore potentially risky -- season for taxpayers who anticipate receiving a refund from the Internal Revenue Service. In addition to tax refunds that averaged $2,287 last year, most Americans will be receiving economic stimulus checks - up to $600 for individuals and $1,200 for couples," Ewing said. "But remember: A tax refund is a return of your own money that the government claimed for you this past year. And the economic stimulus checks are also returned taxpayer dollars."

Americans receiving substantial amounts back from the federal government have the opportunity to make a real difference in their financial picture. Ewing suggested eight ways to use tax and stimulus dollars:

1.    Pay down credit card and other high-interest debts (including payday loans). About 20 percent of all credit cards are "maxed out" by their owners, but applying a refund and/or economic stimulus check - nearly $3,000 for many - to the highest-interest-rate balance is a start toward debt freedom. As a bonus, borrowers will improve their credit rating, which is affected by the amount owed relative to available credit balances.

2.    Build a cushion. An emergency fund should include six to nine months' living expenses (not necessarily salary, but the amount of money needed to scrape by). But even $1,000 can provide a cushion to avoid turning to credit cards or payday loans to cover unexpected expenses. Store these savings in a money market fund or rolling CDs so that the money earns interest and cannot easily be spent -- but can be accessed in an emergency.

3.    Be adequately insured. Everyone should have health, auto, and home or renters' insurance. If dependents rely on your income, look into life insurance. Consider an umbrella policy to protect from additional liability. Those who could not live without their income should purchase disability coverage. A $3,000 tax boon could pay for a whole year's life, auto, and renters' - and/or umbrella - insurance for most people.

4.    Fund the future. Contribute to retirement savings, whether an individual or Roth IRA, 401(k) or other plan. If the program is tax-deductible, it helps next year's tax picture, too.

5.    Get educated. Put the money toward a college savings plan for a child, or strengthen your own financial future by continuing your education. The full $3,000 could pay for a good portion of an associate's degree, for instance. Higher education can really pay off: On average, associate's degree holders earn 23 percent higher salaries than high school graduates; holders of bachelor's degrees earn even more.

6.    Refinance the mortgage. For those whose mortgage interest rate is high, or adjustable and climbing, $3,000 can cover all, or most, of the costs of refinancing into a lower-interest mortgage if a homeowner's credit is good enough to do so. Refinancing could save thousands more in interest charges -- and avoid rising payments that could risk the loss of the home.

7.    Invest in the home. If there is money left, homeowners could consider using a refund to cover major or minor maintenance to make sure no bigger (and more expensive) problems arise down the road. In addition, these capital improvements can create equity.

8.    Adjust withholding. Finally, Ewing suggested, "talk to your employer about adjusting withholding so that next year, the government does not keep your money -- you do." Instead of giving the government a loan all year, use the extra cash in your paycheck to invest in extra mortgage payments, retirement savings or repaying debt.

"Most importantly, use a tax 'windfall' to invest in your future, not in a flashy lifestyle," Ewing said. "You will thank yourself today and in future years."

Based in San Mateo, Calif., Bills.com (http://www.bills.com) is a free one-stop portal where consumers can educate themselves about complex personal finance issues and comparison shop for products and services including credit cards, debt relief assistance, insurance, mortgages and other loans. As the online portal to Freedom Financial Network, LLC, the company has served more than 40,000 customers nationwide since 2002 while managing more than $1 billion in consumer debt. The company blogs about consumer finance issues at http://www.bills.com/blog.

In 2008, Entrepreneur Magazine ranked Bills.com as the No. 3 fastest-growing U.S. company on its Hot 100 list. Company co-founders and co-CEOs Andrew Housser and Brad Stroh have been Northern California finalists in Ernst & Young's Entrepreneur of the Year Awards and were named to the San Jose Business Journal's "40 Under 40" list in 2008.

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Aimee Bennett
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