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Bankruptcy May Be Your Option

Experts advise using tax refund to better financial health

In 2013, the average refund paid to taxpayers across the country was $2,800. For a lot of American families, that is a very healthy sum of money. It is just enough of a bump that taxpayers could buy that 70-inch television they’ve had their eyes on, go on a shopping spree or take a vacation.

Sure, it would be a great way to have some fun, but financial planners suggest that individuals take a different tact with this money. Instead of an immediate bit of pleasure, planners suggest that using it for the future is a smart move. Sissy Osteen, a resources management specialist with Oklahoma State University Cooperative Extension, suggests that individuals should improve their “current or long-term financial health.”

Planning for future financial health may include investing in a retirement fund, like an IRA. It may include adding money to a savings account; experts suggest having at least three months worth of living expense in this account. It could also include planning for a child’s future through an Oklahoma 529 College Savings Plan.

Paying down credit card debt is one way to address current and future financial health. Credit card debt often carries with it high interest rates. This means that money from minimum payments often only goes toward interest, doing little to reduce the principal balance. A lump sum payment made directly to the principal helps pay the debt down faster.

The reasoning behind adding an extra chunk of cash to the principal balance is exactly what makes credit card debt so overwhelming. An individual can work hard to make payments, but never make a dent in the principal balance. In many cases, this isn’t even the only debt that an individual has to worry about. It can feel like an endless cycle.

Bankruptcy is a way to break that cycle. Although some look at bankruptcy as a last resort, in many cases it can be used as a proactive tool. Whether one reorganizes debt into a manageable payment or has debts discharged, the process provides real debt relief that involves the bigger financial picture and stops collection actions.

Source: Edmond Sun, “Wisely spend your tax refund,” Leilana McKindra, Feb. 14, 2014

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