Tax refund check overlaid on photo of installer placing solar panels on roof of home
Tax refund check overlaid on photo of installer placing solar panels on roof of home

5 smart ways to use your tax refund

Forward-thinking options to put your refund to work

Good news, taxpayers: In 2023, the Internal Revenue Service estimates the average tax refund will be $3,079.1 A nice chunk of cash like that can pay for a smart TV, a trip to Mexico, or patio furniture.

Or that windfall can buy you peace of mind, by improving your overall financial strength. After all, we’re still in economically unsure times. A smart TV is nice, but it might be smarter to use your refund to reduce monthly debt payments or make your house a better tax shelter.

Let’s see how.

5 fiscally sound ways to use your refund

Remember the sound of a piggy bank? Hearing your savings grow, a few coins at a time, was literal proof that small efforts add up to secure big goals. The same can apply to how you use your tax refund. You can spend it on a Florida vacation this year or put it into savings for a trip to Cancun next year.

You work hard. These five smart suggestions can help your tax refund work harder for you.

1. Make an extra mortgage payment.

Want to reduce the number of years on your mortgage? A tax refund of even $500 to $1,000 can reduce your mortgage payments if put toward paying down a home’s principal. Tax tip: By reducing the overall principal (the amount owed on the home), the mortgage holder also reduces the interest owed. This is because interest on a fixed-rate loan is calculated against the amount of principal, so paying it down reduces the interest, which means smaller monthly mortgage payments.

2. Take a bite out of your debt.

The American household on average owes nearly $8,000 in revolving credit card debt.2 Say you’re carrying a month-to-month balance of just $3,000. At an interest rate of nearly 19% (the average for existing accounts), that would generate $47.20 in monthly interest debt. Tax tip: Paying down that credit card bill by $1,000 would reduce the monthly interest to $31.47.3, 4 Or, a borrower can consolidate all credit card debt into a lower-interest loan and use the tax refund toward the first payment. You can compare our lower-interest loans here.

3. Add it to your "oh no!" fund.

Cars break down, jobs change, kids might need braces. Unexpected expense can throw a household into turmoil. This is why financial experts advise holding three to six months’ worth of essential expenses in an easy-access savings account. Tax tip: A tax refund, when deposited into a high-interest savings account, can narrow the debt-savings gap, considerably. And watching that interest grow might encourage more saving ideas, such as the 26-week savings challenge.

4. Use it toward a home-sweet-home down payment.

The typical down payment on a home these days runs from 5% to 20% of the purchase price.5 The higher the down payment, the lower the monthly payments – and potential fees. Private mortgage insurance, for example, is usually charged to homeowners who put down less than 20%. Tax tip: A tax refund can get you closer to that 20% mark. Or, the refund can cover closing costs, which usually run 2% to 5% of the purchase price.6 Learn more about our low down payment and low closing cost mortgages here.

5. Home upgrades that may improve future refunds.

Certain home improvements can bring tax benefits. Energy-efficient equipment, such as certified furnaces, insulation, and solar panels, might qualify for tax credits (up to 26% of the cost for renewable energy equipment, for example). Renovations to accommodate out-of-pocket medical needs, such as a wheelchair ramp, also could qualify.7, 8 Tax tip: Even if you’re committed to building a non-tax-deductible deck, the investment can benefit your tax bill if it offsets your capital gains, which are taxed.

A smart TV is nice, but it might be smarter to use your refund to reduce monthly debt payments or make your house a better tax shelter.

It's your money today, but it can be more money tomorrow

Sure, many people look forward to their tax refunds as “me money,” a reward for a year of hard work and, well, paying taxes. If that “me” money were used to improve your earnings and savings power, you’d likely pay less in fees, get out of debt faster, and improve your credit score.

You can even treat yourself twice: a nice little splurge now, and a bigger, smart splurge for long-term peace of mind.

Not all of us are fortunate enough to have the choice of how to use a refund, but you do have the resources to help with all money matters. You can get in touch with a First Financial Bank representative now, right here.

1 “Here is the average tax refund so far this year – and some advice on what to do with yours,” By Elizabeth Gravier, CNBC, March 6, 2023;

2 “2022 American Household Credit Card Debt Study (actual figure is $7,919),” By Erin El Issa, NerdWallet, Jan. 10, 2023;

3, 4 “Average Credit Card Interest Rates,” By Adam McCann, WalletHub, March 13, 2023;

“Credit Card Interest Calculator,” By Paul Soucy, NerdWallet, Jan. 25, 2023;

5 How to Use Your Tax Refund to Buy a Home,” My Home by Freddie Mac, Dec, 13, 2022;

6 How to Use Your Tax Refund to Buy a Home,” My Home by Freddie Mac, Dec, 13, 2022;

7, 8 “2022 Tax Credit Information,” Energy Star;

“Are home improvements tax deductible? Only under limited circumstances,” By Tanza Loudenback, Business Insider, Dec. 7, 2022;

The information on this page is accurate as of April 2023 and is subject to change. First Financial Bank is not affiliated with any third-parties or third-party websites mentioned above. Any reference to any person, organization, activity, product, and/or service does not constitute or imply an endorsement. By clicking on a third-party link, you acknowledge you are leaving First Financial Bank is not responsible for the content or security of any linked web page. Member FDIC / Equal Housing Lender.


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