What will you do with that Tax Refund?

Most people agree that it feels better to receive a tax refund than it is to owe additional money to the IRS. Even it means you're loaning the government money for a brief period of time, it feels better to get cash back than to send a check along with your final return.

If you learn that a refund is coming your way, it’s time to plan your next move. More specifically, what will you do with the money?

You have the right to spend your tax refund however you want. But even with this flexibility, there are a few ideas that are better than others.

Note: when financial times are tough, such as during the coronavirus pandemic, it's critical to act responsibly with any money you come into. Rather than spend your money on entertainment or travel, consider how it could have a "real" impact on your life as a whole.

Here are three of the best things to do with a tax refund:

1. Pay down debt. Do you have credit card debt? How about medical bills? A tax refund is a great way to take care of some or all of this debt, once and for all.

Tip: focus first on the debt with the highest interest rate.

2. Rid yourself of student loans. Your refund may not be large enough to leave all your student loans in the past, but you can definitely “chunk it down.”

Throw a few tax refunds at your student loans, along with regular payments, and you will be surprised at how quickly they disappear.

3. Save it. Unless you are 100 percent ready to spend the money, it’s often best to sit on your tax refund for the meantime. Rather than spend it, put your refund in the bank. It’s not going anywhere. At any point, you can use the money to your advantage.

Even if things are going well for you and the economy is booming, things can change quickly. And if they do, you'll be glad that you have an emergency account to lean on. It's there to get you through tough financial times.

If you don’t know what to do with your tax refund, take a look at the past. Were you happy with the way you spent your refund last year? Would you change your approach if you could?

From paying down debt to saving the money, there are many things you can do with your tax refund. As long as you have a plan that you are comfortable with, you never have to worry about making a decision you will regret.