Should I Use My Tax Refund to Pay Holiday Credit Card Debt?

January 29, 2018, Written By John H. Oldshue

A recent study showed Americans accumulated an average of $1,054 in credit card debt over the 2017 holiday season. A separate study conducted prior to the holidays revealed that 21% of Americans planned to buy their gifts with credit cards and pay them off at a later date.

With tax refunds rolling in over the next couple months, you may be tempted to use your extra money to pay off leftover holiday debts. But is that a good idea?

Absolutely! There is no reason to continue paying the high interest fees on your credit card. If the average credit card has a 15% APR, why incur a 15% penalty on your balance for any additional time? Pay off that debt as soon as possible. There are very few ways to earn 15% on your investment so there is very little reason to put your tax refund toward anything but your credit card debt.

According to Taxslayer, 42% of all taxpayers plan to use some their refund money to pay off credit cards, student loans, and other debts. 43% plan to put their money into a savings account, and 26% plan to treat themselves to a gift or experience.

It is always wise to pay off credit card debt as quickly as possible. This lowers your credit utilization rate, which increases your credit score. However, if you have multiple credit cards to pay off, you need to figure out the best way to allocate your tax refund. Here are some tips to assist you:

  • Pay off the credit card with the highest interest rate first. If all of your cards have similar interest rates, pay off the one with the lowest balance first. Seeing the elimination of one debt may give you the momentum and confidence to keep paying off additional debt.
  • Avoid transferring your credit card balances unless you have done the math and it will pay off. Check to see how much money you will save in interest penalties if you have a 0% APR on this balance for a number of months. Compare that to the balance transfer fee that you will incur immediately if you transfer a balance. If it makes mathematical sense for you to transfer the balance, you must then ask yourself whether you will pay off the entire balance before the introductory period is over. If you are unable to do so, there are some offers where you may have to pay the ongoing interest rate from the time of the balance transfer.
  • Don’t use your credit card that you just paid off to accumulate new debt. Only charge things to your credit card if you have an achievable plan for repayment.
  • If you need to cancel a credit card due to high fees, consider paying that off first so you can avoid extra fees.
  • Wait 60 days before applying for a new credit card. It may take that long for all three bureaus to get the report regarding your paid-off balance, so your score will look low for a couple months.


The information contained within this article was accurate as of January 29, 2018. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.


About John H. Oldshue

John Oldshue is the creator of LowCards.com. He worked for over 15 years in television and won an Emmy award for his reporting. He covers credit card rate issues for LowCards.com.
View all posts by John H. Oldshue