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Money Q&A: Using Tax Return To Build Up Savings Or Pay Down Debt?

Q.

Is it better to use our tax return to pay down debt or build up our savings?

A.

Unless you have some magical savings account with a higher annual return than any of your loans (credit card, mortgage), pay down your debt. Say you put $1,000 into your savings. You might make $30 off of it in a year, but you'll also owe an extra $100 on high-rate $1,000 debt that's been racking up interest. Your net profit:-$70. Bottom line: Route your return to whichever debtor is charging you the highest interest.

-- The Nest Editors

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