By Expecting a refund? New data from the Internal Revenue Service (IRS) shows that the average refund received by American taxpayers in the 2024 tax filing season as of March 8, 2025, was $3,324. Experts recommend using the extra money to get ahead on your savings and pay down debt—and have some great tips to do so.
“Recent data by Intuit Credit Karma revealed that 27 percent of American taxpayers plan to use their refund to splurge on non-essentials (i.e. clothes, travel), while nearly half (47 percent) plan to use their refund to pay down debt, which is the case for 59 percent of millennials,” explains Courtney Alev, consumer financial advocate at Credit Karma.
“While it’s okay to splurge a little, a tax refund is a great opportunity to improve your financial health. As a rule of thumb, allot no more than 10-20 percent of the refund toward something fun and put the rest toward your financial goals, such as paying down debt or putting it in an emergency fund.”
Pay off debt first
If you’re carrying some debt and you’re expecting a refund this tax season, Alev suggests putting some or all of your refund toward paying down debt, focusing on paying down high-interest debt first—like credit card debt but sometimes student loans, too.
“This will help you jumpstart your debt repayment strategy and could help limit the amount of interest you accrue,” she says.
More specifically, if you have any debt over about 7 percent interest, then you usually want to pay it off as quickly as possible, offers Ashley Morgan, debt and bankruptcy attorney and owner of Ashley F. Morgan Law, PC.
“Credit card interest rates can be up to 35 percent, which can take years to pay off if only paying minimum payments, so being able to pay off a credit card with a tax refund will usually help your monthly budget and open up money from your monthly spending,” says Morgan.
Build your savings
After making a significant dent in your debt, Alev suggests using the remaining money to build your savings. If you don’t already have an emergency savings fund, this is the perfect place to start, she says.
“If you have money set aside for a rainy day, park that money into a high-interest savings account,” she offers. “Many online banks allow you to earn interest and grow your money over time.”
If you have no high-interest debt and you’ve established an emergency fund, the next step is usually retirement savings, explains Morgan. Putting your refund in an IRA or Roth IRA and investing within the retirement account will help you prepare, and saving for retirement and investing it as early as possible allows for the most compound growth possible, she explains.
Cover rising costs
It’s no secret that prices are inflated, and you can use your tax refund to pay for everyday essentials like groceries and bills, says Alev. In fact, she adds, data from Intuit Credit Karma revealed that 37 percent of American taxpayers are dependent on their refunds to make ends meet. Of those who depend on their refund to make ends meet, nearly half (45 percent) say it’s because of the rising cost of living and necessities.
Save for big purchases
Anything from home improvements to a big event can be a great way to spend your tax refund dollars. “Whether you’re planning a wedding, saving for a down payment on a home or you’re a few drives away from needing a car repair, this can help you cover a major purchase that may have otherwise put you in debt,” says Alev.
Take advantage of early payment discounts
Morgan also suggests prepaying any expenses that you can get a discount on. For example, she explains, some expenses like car insurance are often cheaper if you pay a lump sum every six months instead of monthly payments. Additionally, you may be offered a discount if you pay rent on a home or storage unit months in advance.
“Look into what you can do to use this lump sum as a prepayment for savings,” she says. “It can help your monthly budget by lowering your monthly expenses and reducing the overall amount you are having to pay.”
