What do you plan to do with your tax refund? Do you have your eye on some new furniture or a relaxing vacation — or do you plan to use your refund to pay for the furniture that you already purchased and the vacation that you have already taken?
Of course, paying down debt is the more responsible path. According to a recent poll by The National Foundation for Credit Counseling (NFCC), a majority of Americans plan to take that more responsible path with this year’s tax refund. Almost 7 in 10 (68%) of the 1,121 respondents indicated that they would use their refund to pay down debt, while only 2% said they would use the money to take a vacation or go shopping.
In other poll responses, 15% plan to use the refund for basic necessities, 11% plan to save the money, and another 4% are not sure how they plan to use their refund.
In some ways, this is good news, because paying down debt should be the highest priority choice if you do not have to use your refund for necessities. The NFCC is looking at the poll from the overall debt perspective by pointing out that over six times as many respondents are applying their tax refund to debt compared to savings. According to NFCC spokesman Bruce McClary, “These poll results indicate that debt is still getting in the way of personal savings for many Americans.”
For perspective, consider that the average 2014 individual tax refund was $3,034 while the average 2014 credit card debt was $5,047. Applying every bit of tax refund money toward debt would knock the average debt down by over half, but still leave the average American with over $2,000 in debt.
A shift toward debt repayment is a welcome conclusion for the NFCC and similar credit/debt counseling agencies. Merchants and economists may find this statistic alarming, since consumer spending drives the majority of the U.S. economy. However, there are two things to keep in mind when assessing this poll.
1. Intent – The poll is saying what people plan to do with a tax refund this year, not what they did with a tax refund. Sometimes, plans go out the window when a check is burning a hole in your pocket.
2. Location – The poll was conducted through the front page of the NFCC website. Therefore, anybody who sees the poll question at all has taken the time to contact a website regarding credit counseling. It may be possible that the poll respondents have more pressing debt to deal with and have a more responsible attitude about paying it down, compared to the general public. Psychology may also play a part — you may expect paying down debt is the “right” answer in the context of a credit-counseling website.
We suspect that if this poll were taken later to find out what people actually did with their tax refund and was an actively random survey of Americans, the responses would probably be different. However, the recent drop in gas prices and the resulting spending patterns do suggest a more conservative trend. People are applying their gas savings toward increasing their savings accounts and paying down debt instead of simply going on spending sprees, so it is logical to assume the same thing will occur with tax refunds.
In any case, to us this poll reflects good news. Reduction of debt is almost always a positive thing. Let’s hope debt reduction really is a trend.