Your refund Is on the way!

Gina Noe
Register Columnist

Fri, May 16 2008

— Checks are in the mail! The U.S. Treasury began sending economic stimulus payments to more than 130 million households last week. To receive a payment, taxpayers must have a valid Social Security number, at least $3,000 income for 2007 and file a 2007 federal tax return.
Although April 15 has passed, you can still submit a 2007 tax form and receive tax stimulus payment. Those not required in previous years to file a tax return because their income was too low or was nontaxable should file a return this year to obtain their economic stimulus payment. The Internal Revenue Service (IRS) will take care of the rest.
Eligible taxpayers will receive up to $600 ($1,200 for married couples), and parents will receive an additional $300 for each eligible child younger than 17. Millions of retirees, disabled veterans and low-wage workers who usually are exempt from filing a tax return must do so this year in order to receive a stimulus payment.
The government would like you to go spend the refund from the tax stimulus payment, along with your regular refund if one is due. This might be a good time to get your financial affairs in order by paying off credit card balances, however.
This only works for married couples if both of you really want to pay off bills and you make a game out of it, seeing how well you can do. If one spouse continues spending, it will not work and resentment will set in. You both also need to value being debt free (other than a home mortgage).
Congress is now considering offering money for consumers to buy foreclosed houses; so, if you do not own a home, it is in your interest to get your financial affairs in order so you can take advantage of this once-in-a-lifetime deal, if and when it is offered. You even get low interest rates! However, the government will only offer this deal to those who can really afford to make the house payments.
Even if Congress does not pass a bill to help consumers buy a foreclosed house, getting your finances straight could still save you money on such a home; but you first need to be preapproved for the loan amount.
So where to begin: Start by paying off the credit card that charges the highest annual percentage rate (APR); at the same time, make sure you are still paying at least the minimum on all other cards, and on time. If your place of work or your community has a credit union you can join, you might want to start there. You can probably get around 11 percent APR on a signature loan. You also should check with other lenders to make sure this is the best rate available to you.
If possible, using the signature loan, pay off all credit cards with an APR higher than 11 percent. Now comes the tough part: Stop using your credit cards and pay for everything with cash or a check. If you do this, you will likely buy only what you really need, not what you want.
You don’t want to cut up those credit cards, however, because your credit score depends on having a good credit history; the longer you’ve had a credit card, the greater an impact it has on improving your credit score, as long as you pay your monthly bill on time. You should put your credit cards away in a safe place, however. You might need to use one occasionally, as you usually need a credit card to reserve a motel room and most car rental companies will not rent you a vehicle without a credit card.
So what do you do with your tax stimulus payment if you’re debt free other than a mortgage payment? Put the money toward your 2008 Roth IRA or in an emergency fund. We all have a financial emergency now and then — car repairs or a washing machine that stops working, for example — we never know what the financial emergency will be, though, or when it will come.
Having an emergency fund with enough money to carry you through any circumstances that might come up means you will not need to borrow money or use your credit card when it happens; and that itself will save you money, as you will not have to pay interest!
Reference: Internal Revenue Service, Economic Stimulus Payments Information Center. http://www.irs.gov/irs/article/0,,id=177937,00.html
Source: Robert H. Flashman, Ph.D., University of Kentucky Cooperative Extension Service
Educational programs of the Cooperative Extension Service serve all people regardless of race, color, age, sex, religion, disability or national origin.