Aaah, a tax refund..
Sweet.
Are you planning on using it to buy a car or some hot new wireless technology or to tidy up your finances?
Here's some advice from two debt counseling firms on the smart things to do with a tax refund.
First, let's discuss buying a vehicle.
About 16.5 million consumers got a new ride in 2005, said Jeff Beddow, spokesman for the National Automobile Dealers Association in McLean.
If you've got to have one, too, and your tax refund is the way to get it, follow these tips from ClearPoint Financial Solutions Inc. based in Richmond:
Check your credit before going to the car lot. The rate you'll get on a loan will depend in large part on your credit score.
Let's say your credit score is in the 660 to 689 range, or about midway up the score scale.
This might enable you to qualify for a 9.2 percent vehicle loan. If the car costs $19,000, you'll pay, with interest, $21,816 over three years, ClearPoint corporate trainer Bruce McClary said. Your monthly payment: $606.
But, if you get a 15 percent interest loan because your credit score is in the 500 to 589 range, you might wind up paying $23,760 for the same car.
Your monthly payment: $660.
Can't you think of something better to do with the $1,944 difference?
Go to www.annualcreditreport.com and get your free annual credit report, if you haven't done so.
While there, spend a couple of bucks for your credit score. Equifax sells the FICO score looked at by most lenders. Correct errors and try to raise your score for better credit deals.
Determine how much you can afford to pay each month. Don't you have plenty of bills already?
Add them up, and then find out what your monthly vehicle payment will be. Use an online calculator, such as one at bankrate.com. Or check out ClearPoint's Web address at clearpointcreditcounselingsolutions.org. Click "Budgeting Tools and Calculators."
Research the vehicles that catch your eye. Use the car-buying tools at Kelly Blue Book (www.kbb.com) and Edmunds (www.edmunds.com).
Type in the vehicle identification number at www.carfax.com to learn its accident or flood history, if any. Unlimited Carfax reports cost $24.99. A single report costs $19.99.
Research your financing options. Shop around and see who's offering the best rates based on your credit score, McClary said.
Then, get yourself pre-qualified, just as you would if buying a home. Do it before going to a dealership.
Start with a credit union or traditional banks and lenders. Their rates may be better than through a dealership.
Don't let emotions guide your decision. McClary calls it "'The shiny object syndrome.' When emotions get into the way, it sometimes clouds better judgment, even when you've got all the facts and figures in front of you."
Do your research and stick to your guns. Take along an enforcer.
-----
Perhaps buying a vehicle isn't the best choice for you.
Bradford Stroh, founder and managing partner of Freedom Financial Network LLC in San Mateo, Calif., offered these smart things to do with a refund:
Pay down a credit card or other high-interest debt, including a payday loan. List your credit cards and loans in order from highest to lowest interest rate.
Make minimum payments on all except the highest. "Use every cent of available income to make large payments on the highest interest-rate card," Stroh said. When that's paid off, start on the next highest, using both the minimum amount you were already paying on it, plus what you paid on the previous one.
Add to your emergency fund. You should have six to nine months of living expenses in it. Consider putting the stash into a money market fund or "rolling CD" so you can earn money yet it's not so easy to tap as a savings account.
Contribute to your retirement fund.
Invest in your home. Use your refund to do any major or minor maintenance so no expensive problems arise down the road.
Contact staff writer Iris Taylor at itaylor@timesdispatch.com or (804) 649-6349.
