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4 Smart Things You Can Do With Your Tax Refund

Bethy Hardeman
Tax Day: Tech (and Other) Toys to Buy With Your Refund

For many Americans, the tax refund is one of the largest financial windfalls they’ll receive all year. According to the IRS, the average refund this tax season is nearly $3,000, as of March 24, 2017. And with so much money at stake, you’ll want to make the most of that cash.

Whether you’ve received your refund already or are expecting one soon, consider these five things that can help you get an edge on your finances:

1. Look into extending the life of the refund
If you can afford to, contributing to a “traditional” IRA or 401(k) retirement account can help you build wealth for the future. (Also know that you can contribute to both types of accounts in the same year.)

In 2016, you can put as much as $5,500 into a traditional IRA, or $6,500 if you are 50 or older. Best yet, you may be eligible for certain types of tax deductions or tax credits for contributing to these accounts, which may lower the amount of tax you’ll need to pay. For example, traditional IRA or 401(k) contributions may be tax-deductible in the year you make the contribution. You may also qualify for the Saver’s Credit, a tax credit that encourages lower and moderate-income workers to save for retirement.

2. Invest in yourself
If you don’t have one already, seriously consider contributing to an emergency fund, as it can help you hedge against unexpected events in the future. Setting aside at least three months’ worth of your everyday expenses can bring some much-needed financial stability and protect against financial stress later.

Remember to keep your emergency fund liquid. Despite the less-than-stellar returns, you’ll be thankful when you can pay for the unplanned home or car repair easily and quickly.

3. Work to defeat your debt
Credit cards can quickly become the most expensive type of debt with their high interest rates, of up to 20% or more. If you’re carrying debt on any credit cards month-to-month, think about putting your refund toward paying down your balances. Besides saving you money in interest, it may also help to improve your credit health. Your credit utilization-the amount of debt on your credit cards divided by the total of all your credit limits-is one of the biggest factors that goes into calculating your credit score.

And while credit cards may be the most common type of debt, most Americans’ largest debt load is their mortgage. The trick here? Put some of your extra money to work by making a larger payment toward your mortgage, or even “prepaying” with an extra payment toward the principal.

Believe it or not, even a one-time or occasional larger monthly payment can help you save money by reducing the principal of your loan. This works because most of your mortgage payments goes to paying interest. The extra payments toward the principal can keep your mortgage from compounding as much interest over the life of the loan, resulting in extra savings for you.

4. Consider avoiding a refund altogether
Generally speaking, receiving a large refund may mean you have been paying more in taxes throughout the year than you owe. Most of us earn our income from the wages our employer pays us, and because most of us can’t afford paying thousands of dollars when we file our taxes, we can have our employer withhold part of our wages to pay our taxes.

When you started your job, you likely received a Form W-4. This form lets you adjust how much your employer can withhold from your paychecks. But if you’re like most people, you haven’t revisited this form since then. Changes to your life such as getting married or having a child can affect your tax situation. You may want to lower your withholdings if you have a child, for example, because you may now qualify for tax credits like the Child Tax Credit, Child and Dependent Care Credit, and others that reduce your tax bill.

Revisiting your tax withholdings regularly can keep you from having more taxes withheld from your paycheck than you owe. You may want to adjust your withholdings so your tax return results in a zero or low-dollar obligation once you file. This allows you to avoid “giving” the IRS an “interest-free” loan and pay just the right amount of tax. But, if you know you’re the type of person who would overspend with the extra money throughout the year, having the money returned later through a refund could be a good way to force yourself to save.

Bethy Hardeman is the chief consumer advocate at Credit Karma.

This article was originally published on FORTUNE.com