Advice on using your tax refund wisely

Looking forward to a tax refund? Be smart about it! The IRS says that 77 percent of all taxpayers received a refund on their 2003 federal income tax returns, and that those refunds averaged more that $2,100. After waiting all year, refund means relief for many families looking to get a large sum to pay off bills, solve other financial pressures or purchase something they really need or want. There can be some pitfalls however. Busey Bank`s Susan Abbott has some money-saving options to consider.... Q1: What are some quick cash options? If you need cash and can`t wait, carefully consider your options and costs. Refund anticipation loans (RALS) may offer quick and convenient access to cash and the fees may seem small, but be careful. The costs translate to very high interest rates compared with other loans. The typical cost of an RAL (depending on the size of the loan) is $35 to $100. These fees could translate to APRs of 60% to 650% or more, much higher interest than you`d be willing to pay for other loans. IRS indicates taxpayers will receive refunds within 3 weeks if the return is filed electronically, and within 2 weeks if directly deposited into a bank account, if the return is complete and accurate. Q2: What if we really need to borrow money before the refund arrives? Consider lower-cost options such as your home equity line of credit or even a credit card. As soon as the refund is received, use it to pay off what you`ve borrowed. Free up additional cash by paying less or nothing for tax preparation. Two programs to consider are VITA (Volunteer Income Tax Assistance) service provided by the IRS, which provides free help to low- and moderate-income citizens in preparing their income tax returns and obtaining deductions and credits to which they are entitled. The IRS also offers Free File, which enables anyone to prepare and file their federal taxes for free through the IRS website. Q3: What else can we do to be smart with a refund? Have your tax refund deposited electronically into your bank account. Direct deposit is the fastest way to get your refund, especially if you file electronically, and it`s the safest way to receive it because paper checks can be lost, misplaced or stolen. Make good use of your refund. You could splurge (a little) on a small something as a reward for waiting, but there are also sensible alternatives: pay down or pay off your loans and other bills, by starting with ones that charge the highest rates on unpaid balances. Start or add to a savings account. Fund a retirement or college savings plan. Consider ways to reduce or eliminate a tax refund in the future. You don`t intentionally overpay other bills every month just because you know you`ll eventually get the extra payments back at the end of the year. If you pay your taxes that way and receive the average refund of $2,000, you`re lending the US government $167 each month, interest free. Review this year`s tax situation to be fairly sure you won`t have a significantly higher tax bill than before. If a change is appropriate, complete a new W-4 form increasing your personal allowances to reduce the amount withheld each pay period and increase your take-home pay.