Three Ways to Put Your Tax Refund to Use

Key takeaways 

• It may be tempting to use your tax refund to splurge on something fun. 
• Using your refund to help you realize your financial goals may be wiser, though. 
• Receiving a refund may also be a good reminder to reconsider how much you’re withholding throughout the year. 

If you’re one of the millions of Americans expecting a refund from the IRS for your 2025 taxes, you may also be counting all the things you want to spend it on. But before you run out and splurge, you may want to consider using your refund to help achieve your personal finance goals instead. Read on for some ideas on how to do just that. 

Using a Refund to Pay Debt

Paying down debt can be a great way to get your financial house in order and free up money in your budget for other priorities. Using tax refunds to pay off debt is a fairly common. A 2025 survey conducted by payments software provider ACI Worldwide found that 39% of U.S. taxpayers planned to use their refund to pay off debt, including outstanding credit card bills and loans.

There are a variety of ways to pay down debt. When tackling credit card debt, the debt avalanche method and debt snowball method are two approaches to consider. With the debt avalanche method, you pay off credit cards based on those that have the highest interest rate. In contrast, the debt snowball method involves paying off bills based on the balance remaining, starting with the smallest balance first.

For those struggling to make minimum payments, a debt management plan could be an option. Debt management plans are offered by nonprofit credit counseling agencies, who work with creditors to lower the interest rate on unsecured debt (typically credit cards and personal loans) and consolidate that debt into one monthly payment. Some financial experts suggest that having just one payment with a lower interest may make it easier to pay debt sooner.

Establish an Emergency Fund

Another option for your refund may check two boxes. With interest rates remaining high, you may want to open a money market account or buy a certificate of deposit (CD) to start (or to boost) an emergency fund. It’s a great idea to aim for a fund that could cover at least six-to-nine months’ worth of living expenses — but you may want to try to sock away even more.  

You don’t have to come up with all that money at once, however.  Starting a fund with the goal of adding to it over time can bring you enormous peace of mind. It’s important to remember that unexpected expenses are part of life. Having a cash cushion for when they do pop up, could mean less stress.

Automating the process may be a way to build savings faster. You could consider setting up an automatic transfer from your checking into a savings account every month or ask your employer to direct deposit a portion of your paycheck into savings.

Invest in Home Improvements

You probably know that home maintenance projects and upgrades are money well spent. If you’re like most people, your home is your biggest asset. When you make improvements, you get a refreshed, updated space in which to live, but you might also boost the value of the asset, and you probably avoid having more costly repair bills down the road. 

There are dozens of ways to upgrade your home. If you’re overwhelmed by all the options, you may want to prioritize the ones that help with energy efficiency, since they’ll also help you save on utility costs. Check out some energy-efficiency ideas, including energy-efficient appliances, heat pumps, and whole-house fans. 

Conclusion

Tax time can serve as a nudge for getting your finances together, but if your refund is just too small to make a real difference, consider obtaining a home equity agreement (HEA) from a provider like Unlock to help address bigger goals. An HEA allows you to sell a portion of the future equity in your home in exchange for cash now, to pay down debt, fund home improvements or achieve other financial goals.  With Unlock’s HEA, you may be able to access up to $500,000 in equity.

HEAs do not have monthly payments. Instead, the HEA provider receives their share of the property’s value when you sell your home. You can also buy back your equity any time during the HEA’s term, which can range from 10 to 30 years depending on the provider. Find out how to make it work for you today.