Wisdom for windfall

Many will soon receive a tax refund, but using it cleverly can save or make more money, writes Sophie Elsworth

MILLIONS of Australians who are lucky enough to receive a small windfall this tax time will choose to save it instead of going on a spending splurge, research has revealed.

Australian Taxation Office statistics show the average tax refund from the 2014-15 financial year was $2564, and out of 13.2 million taxpayers, 10.3 million received a refund.

With the 2016-17 financial year now behind us, many people will be lodging their returns and waiting anxiously to see if they get money back.

New research from lender ME found 52 per cent of Australians expect to save this year’s tax refund, while 24 per cent plan to pay down debts other than their home loan.

About 18 per cent are opting to tip the money into their mortgage, while 13 per cent said they would be spending it on a product or service.

ME’s head of deposits and transactional banking, Nic Emery, said any windfall received should be a good opportunity to help to get rid of debts.

“Start with your highinterest-rate debt, so start with any credit cards or any personal loans, and then put the money into your home loan,” he said.

“That interest (on these products) really adds up over time. After this there may be an opportunity to maintain assets, so looking after your home, car or your health.

“It will also be a good opportunity if you don’t have an emergency fund to build up one.”

Interest rates on credit cards can be higher than 20 per cent, and on personal loans are about 10 per cent.

Home loans remain the cheapest form of personal debt, with many deals around 4 per cent.

AMP financial adviser Andrew Heaven urged Australians to use any tax refund money wisely and not in haste.

“In the first instance, they should be paying down non-deductible debt and the debt that is at the highest interest rate,” he said. “If you do have debt owing on a credit card or a line of credit or a personal loan debt, look at your behaviours to see how you got yourself into this position and modify your behaviour accordingly.” Mr Heaven said for consumers without debt, it could be a good idea to invest the money in assets such as superannuation, but most importantly they should avoid spending it on impulse purchases.

Lenders examine a person’s credit report when assessing their suitability for a loan, and a poor report can lead to much higher interest rates or refusal.

Credit reports also note how many times people apply for loans, so taking on new debt to pay old debt is not a good idea.

Rodney Michail, director of 1800Approved, said the popularity of online shopping and the ease of obtaining credit had led to problems for younger people, and many were ruining their credit score by making multiple loan applications.

“I recently had one young client who had applied for a loan online with four banks in one day and his credit score had suffered significantly,” he said.

“His lower credit score meant he was deemed high risk and therefore was potentially looking at an interest rate around 4 per cent higher than an applicant with a better score.”

Anyone can check their credit report for free using one of many online services. Simply search for “free credit report checks” but read the fine print.

Mr Caesar said people could improve their chances of getting a good loan deal by:

deals and advice online first.

lenders a history of being able to save at least some money every week or month.

a deposit even if 100 per cent finance is offered.