If you receive a large amount of money this tax season, whatever money you put towards your debt is guaranteed to give you a return equivalent to your interest rate. See here and here.
In order of priority, here are some ideas:
- Apply the refund to your debt with the highest interest rate, which usually tends to be credit card debt
- If you have money leftover, then use the remainder to apply to other debt based on whichever has the highest interest rate, as that will give you the highest rate of return.
- If you still have money left over after you've paid off any outstanding debts - congrats! You should either invest that money or add it to your emergency savings.
- Once your emergency savings is up to a level that you feel comfortable, you can then put that money towards your savings goals, such as an upcoming vacation.
I personally added my tax refund to my savings account, and I will use that money in April to help pay off another student loan. Thanks Uncle Sam!