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Four smart uses of your tax refund

Wondering what to do with that extra cash? "Today" financial contributor Jean Chatzky helps you figure it out.
/ Source: TODAY

Did Uncle Sam surprise you this year and give you money back? Before you head to the mall to blow it all on a new TV set or a pair of shoes, think about the other ways you can make the most of this extra cash. "Today" financial contributor Jean Chatzky was invited on "Today" to share her top four suggestions on how to use your refund.

Pay down debtWhen you pay down debt, the return you get on your money is equal to your interest rate.  That means if you use your tax refund to help pay off a credit card at 16, 18 or 20 percent — that’s the return you’re getting on that money.  You’re going to find that tough to beat in the stock market, in real estate or anywhere else. 

Save for retirement or a rainy day
I know, it’s tempting to go out and spend that money, but if you don’t have an emergency cushion this money can be a terrific start to one.  Sock it away in a money market fund where you’re earning 2 or 3 percent.  If you already have an emergency fund, you could use this money to jumpstart your IRA contribution for 2005.  That way, when you get around to next April 15, you won’t be scrambling to get the money together.

Tend to a forgotten need
There are things in life you let slide because you don’t have the money — perhaps you haven’t had your car serviced in way too long.  Maybe you haven’t had a dental or vision check-up because it isn’t covered by insurance.  Maybe it’s been too long since you took the dog to the vet.  Or maybe it’s your house in disarray — the gutters need cleaning, the trim needs painting.  Any of these things, if let slide for too long, can end up costing you way more money in the long run.

Invest in yourself
Sign up for a class that will improve your job skills — a computer class, an accounting class, something that will either impress your boss or move you closer to your dream position.  Or sign up for a yoga class, cooking class or crafts class that will remove some of the stress from your life.

Finally, if you're getting a refund year after year, it’s time to pay a visit to the payroll department where you work and change your withholding.  Wouldn’t you rather have the money in your paycheck every other week than continue to give Uncle Sam an interest-free loan?  But don’t just spend the difference: Note how much your take-home pay increases and use that money to pay down debt or save for retirement.

Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Her latest book, "Pay It Down: From Debt to Wealth on $10 a Day," is now in bookstores. Copyright ©2005. For more information, go to her Web site, .