A recent survey by TD Ameritrade finds nearly half of people expecting a tax refund said they plan to save the money, while 44% intend to pay debt. However, researchers found people tend to spend more of their refund than they anticipate, which means they don’t save as much as they want to, or don’t pay off as much debt as they need to.

Here are some smart ways to use your tax refund to boost your financial health.

Pay off high-interest rate debt, like credit cards

The average credit card interest rate is 15%, and for those with bad credit, it’s close to 24%. The average American household carries $15,000 in credit card debt. Pay down your credit card debt now to save yourself money in interest payments in the future.

Establish or rebuild your emergency fund

It is recommended that you have at least three to six months’ worth of living expenses in savings should you lose your job, get sick or face another challenge that makes it hard or impossible for you to work. Use your tax refund as a starter for this emergency savings fund or to rebuild your emergency fund if it has been depleted.

Set up an Individual Development Account

Individual Development Accounts (IDAs) are matched savings accounts designed to help people with limited income and wealth to save money to buy a home, start a business or get more education. The program provides a match to the funds deposited by the individual. It’s a great idea to use your tax return to start an IDA and start building your assets.

Community Financial Literacy partners with CEI to provide IDAs for immigrants and refugees. CEI also provides IDAs for non-immigrants. Contact CEI to learn more. A number of organizations in Maine also provide a similar account called Family Development Accounts.

Save for retirement and get a tax credit in return

Have you heard of the “saver’s tax credit”? It’s a federal tax credit that’s available to low- and moderate-income people who make contributions to a 401(k) plan or IRA. The size of the tax credit you are eligible for depends on your income level and how you file your taxes (see the table below).

The credit is applied to contributions of up to $2,000 per person, and the maximum credit amount is $1,000 for individuals and $2,000 for married couples. So, a single filer who makes $25,000 and contributes $2,000 to a 401(k) or IRA will receive a $1,000 tax credit. In addition, the $2,000 contribution will reduce the filer’s tax liability, which saves even more. Deposit your tax refund into a retirement savings plan this year and you will have a tax credit to look forward to next year.

Your employer might also provide a match funds for 401(k) contributions, which is another reason to start saving for retirement today.

Invest in your home, or save for one

If you own a home, consider using your tax refund to make improvements which may increase your home’s value. A good place to start is to fix any structural issues (like a leaky roof) or mechanical systems. Energy-efficiency upgrades, like replacing leaky windows or adding insulation, not only improve your home’s value but save money in energy costs. You can also pay down the principal balance of your mortgage, which will reduce the amount of interest you will pay over the life of the loan.

If you don’t own a home and are thinking about buying one, use your refund to begin saving for a down payment. Do you have questions about whether home buying is for you, or do you want to learn more about the process? Sign up for one of our homebuyer education classes.

It may seem like a tax refund is free money begging to be spent on a splurge, but if you use your refund wisely, you’ll set yourself up for future financial success.

By David Stolt, Home Ownership Services Manager