Four ways to use your tax refund

ARE YOU GETTING A TAX REFUND? HOW ARE YOU GOING TO USE THE EXTRA CASH COMING YOUR WAY?

As another tax reporting deadline approaches, the hope is that you have maximized all your income tax deductions and will be receiving the maximum allowable refund.

Here are four sensible ways to put that money to use:

1. As your mortgage is likely the biggest debt you have, paying down some of the principal will help save on interest charges, as well as whittling away at the remaining balance.

Usually banks have a “penalty-free” amount that you can put towards your mortgage every year.

If you have a large amount of debt outside of your mortgage, consider reducing some of the outstanding amount.

2. Whether it’s a personal loan, RRSP loan, line of credit or credit card, start by paying down the debt with the highest interest rate, as that generally saves you the most in interest charges.

3. Some people use a line of credit in case of a surprise expense, such as a job loss or unexpected repairs. But you can also choose to set aside money in an emergency fund to cover unplanned expenses.

It’s recommended to have approximately six months’ worth of expenses set aside in safe, easily accessible investments such as a bank account or money market fund.

4. If you have contribution room for registered plans like an RRSP, RESP or TFSA, you can use your refund to max out your contributions.

Not only does it help build your nest egg or add to education savings, but in the case of RRSPs, it will give you another deduction for the current tax year.