Now that the tax season is nearly in full swing, especially for individuals who work for other companies and have relatively “simple” W-2 based returns, we’re hearing a lot of things from clients.
Things like how their tax refunds are going to be used to pay down credit card bills or other debts.
I’ve heard that for years and, honestly, I think that was the biggest “negative” for taxpayers last year when the new tax bill went into effect…
In many cases, they did not owe as much, but the return they had come to expect was smaller or nonexistent, so it felt like they paid more.
So if your one of the millions of taxpayers who try to use their refund to help sort out credit card debt, I want to share another way you can work through that challenge, even with less money coming back on average returns these days.
Now, I can’t claim this is my own idea – I heard about it years ago watching an interview with Dave Ramsey. He calls it his “snowball” strategy and it basically works like this:
(And bear in mind, there is a far larger-reaching strategy at play here for those of you who really want to pursue Mr. Ramsey’s strategies)
To start with, you’ll list ALL of your debts, from smallest to largest. This might be as easy as one or two credit cards, then the car notes, then the mortgage. Just get it on paper.
Next, with respect to all of those debts, you’ll make the minimum payment on all of them EXCEPT for the smallest. This one, you’ll pay down as much as you can that month.
Wash, rinse, and repeat. Month after month, until the smallest debt is paid off, then move on to the next smallest.
Essentially, the idea is that by concentrating on one challenge, you’ll take care of it faster, and this will give you momentum (and extra money) to pay off the next smallest one.
Kinda like how a snowball grows larger and larger as it rolls down the hill.
Get it? Great!
Last year was a very challenging one for many taxpayers, as they “lost – at least on paper – a financial windfall many had come to rely on every year. The good news is there are still a lot of ways to save money and limit debt.
If you’re still struggling to sort it out, though, feel free to schedule some time with us to take a more detailed look at how we might be able to rethink your exemptions throughout the year.
Make it a great day!