Use your tax refund to lower debt, build emergency savings

Lowering your outstanding high-interest debt should be one of your top priorities when you receive a tax refund or any other type of cash bonus. While you can certainly get more immediate satisfaction from a vacation or other type of splurge, being able to knock down outstanding debt balances will put more money in your pocket in the long-term. Once you pay off your credit card or other consumer loans, you'll save yourself on all the interest you might have paid on those balances in the coming months or years. It's almost always a good idea to pay off high-interest consumer loans, such as credit cards, first.

An interesting report from the Center for Financial Services Innovation just came out in November stating 45 percent of Americans do not have enough savings to cover at least three months of living expenses. If you fall into that category, the very next thing you should do is set aside money for a rainy day. Building a nest egg or even just wanting to have a little extra cash is never a bad thing. Do you set aside a little money each week or month in a savings account? Are you contributing to a retirement plan? If not, or if you're not happy with the amount you've been saving, you might consider placing your tax refund in a savings account, secure investment or to add to or open a retirement account. The savings could end up saving you from a costly loan.

Sure, but you have to make sure you're taking care of your needs first. You do need to not be in debt and you do need an emergency fund — because all of us face emergencies. But also, don't neglect other areas. If you need to boost retirement or college savings, that's the next best place to invest. If you are facing urgent home repairs, your car really needs new tires or your washer and dryer machines are on their last legs, this may be a great use of your refund. Keeping up with maintenance orbuying new equipment can save you money if it's more energy efficient or if it helps prevent more serious (and expensive) problems later. If you're just dying to go shopping, then consider doing some holiday shopping early. You could get some people marked off your list and you may net considerable savings for buying in the off season. Have you always wanted to make a big donation to a favorite charity? Consider that. Not only will you reap good karma, you might also get a deduction if you itemize. The point is, you can still use a portion of your refund on a small indulgence.

A refund is actually your money — money that could have been used throughout the year for any of the suggestions here. You basically just gave the government an interest-free loan. So, you might consider increasing your withholding with your employer, so you receive a little bit more money on each paycheck and receive a smaller refund next year.