For many Americans with standard employment, taxes are withheld automatically from their weekly, biweekly or monthly paycheck. At the beginning of each year, when taxes are filed, people rejoice when they receive news that they will be getting a sizable tax refund. Many people choose to use that lump sum to pay off or pay down some of the credit card debt they've accumulated through the year. Unfortunately, that balance on your credit card is accruing massive amounts of interest each month, while the money that the Federal government over-withheld in taxes does not.
While you may look forward to that potential refund every tax season, it's often not in your best financial interests to overpay your taxes in the hope of receiving a sizable refund. Especially if you are accumulating debt, that over-payment could be causing problems for you. If you are having a difficult time making minimum payments on your credit cards and struggling to pay your other bills, you may want to consider bankruptcy. An experienced bankruptcy attorney can help you review your debt and income to determine how you should proceed.
The Cost of Interest Can Make Your Refund a Bad Deal
Your refund isn't some magical gift from the government or the Internal Revenue Service. Instead, it's the IRS returning an over payment you made throughout the year. Each paycheck, you are having your employer withhold more than is necessary, which results in an over-payment and later, a refund. While getting that big lump sum check each year can be quite enjoyable, in reality, that is money that should have already been part of your family's budget. A refund of $2,500 means that you are paying over $200 too much each month in taxes. How much could you do with another $200 a month?
Could you pay down or pay off your credit cards? Could you start saving that extra $200 to help improve the size of your retirement account or even just create an emergency fund in case of unexpected circumstances? If you receive a refund from your taxes each year, you should look into adjusting your withholding schedule to better fit you exact tax burden. Doing so could be the first step to improving your finances. Unfortunately for some, their debt load may be so high by this point, thanks to accrued interest, that a few extra hundred dollars a month won't make a substantial difference.
An attorney can help you make debt decisions
It can be terrifying to live paycheck to paycheck, especially if there are issues with debt, such as credit cards you have completely maxed out. One injury or illness means lost wages and inevitably, creditor phone calls. If you're worried about your ability to pay off or get out of debt, it's time to speak with an experienced bankruptcy attorney about your best options.