5 smart ways to spend your tax refund

Most taxpayers anticipate a tax refund from the IRS: About two-thirds of filers (64%) got money back in 2024 and, so far this tax season, over $145 billion has gone out — with the average refund hitting just over $3,300.

It’s important not to think of it as free money, though: It’s just your hard-earned income going back into your pocket.

According to a survey by Talker Research, over half (52%) of filers getting a refund plan to put it toward rent or essentials like groceries.

If you’re fortunate enough to not have to spend your refund on the basics, however, these are some great ways to use the funds to move your financial life forward.

As of the fourth quarter of 2024, Americans held a record $1.21 trillion in credit card debt, according to the Federal Reserve Bank of New York. Interest rates on credit cards are higher than nearly any other form of debt, so chipping away at your balance is one of the smartest money moves you can make.

In fact, an estimated 37% of Americans plan to use their refund to pay credit card bills, with many targeting purchases they made over the holidays. With the average refund at $3,300 and the average U.S. household carrying about $8,000 in credit card debt, though, most of us won’t be able to wipe the slate clean entirely.

There are two schools of thought about paying off credit cards: The avalanche method and the snowball method.

The avalanche method

Use your refund to pay off as much of the balance as possible on your card with the highest annual percentage rate (APR). From there, work your way through your other cards, from highest to lowest APR.

This strategy makes financial sense because it reduces the amount of interest you’re paying overall. 

The snowball method

The snowball approach is more psychological: Use your refund to pay off the card with the smallest balances first, then the next smallest, and so on, creating a “snowball” effect. You’ll still have high APR credit card bills, but the feeling of clearing at least one card off the list can be a real motivator to keep at it.

Both methods are effective — it just depends on which approach appeals to you and will keep you on track.  

Life can be unpredictable, so it’s important to have a financial cushion to deal with unforeseen events, from a broken dishwasher to losing your job. 

Financial experts recommend having three to six months’ worth of living expenses in an emergency fund. The average household’s monthly expenses are about $6,440, so that would imply an emergency fund with between $20,000 and $40,000.

But almost 40% of Americans have $250 or less in their savings account, according to a 2025 survey from GOBankingRates. So, refilling those coffers is one of the most important steps you can take to secure your financial future (and avoid taking on even more credit card debt).

Your emergency fund should be accessible: A high-yield savings account like Lending Club LevelUp Savings or the UFB Portfolio Savings will earn an above-average APY with no fees.

Americans owe $1.74 trillion in federal and private student loans but even though the pause on payments ended back in October 2023 and the “on-ramp” period ended a year later, millions of borrowers still haven’t started making regular payments.

It’s easy to think of student loan debt as less important than other financial obligations, like rent or car payments. It’s not like they can repossess your education, after all.

But loan servicers have started notifying credit reporting agencies about delinquent accounts and borrowers’ credit scores are starting to plummet — in some cases by as much as 200 points.

Using your tax refund to make an oversized loan payment can get you back on track and bring you closer to a life without student loan debt. Just be sure to check if your lender charges a penalty for larger-than-normal payments.

You could also put that refund toward an FHA mortgage, which only requires 3.5% down if you have a credit score of at least 580.

Even if a $3,300 refund isn’t enough for your dream house, it can cover lenders’ fees, closing costs and other expenses associated with homebuying.

In 2025, in-state public college tuition averaged around $11,011 a year, while private colleges averaged $43,505. A 529 college savings plan is a state-sponsored education account designed to help parents save for their children’s education by allowing earnings to grow tax-free.

Withdrawals from a 529 are also tax-free, as long as they’re used for qualified educational expenses.

ScholarShare 529 and Invest529 are two of our top picks for 529 plans, with average rates of return that are higher than what you’d get with a deposit account, even a HYSA. A $3,300 investment now will go a long way by the time Junior is ready for freshman year.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every tax article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of tax products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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