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How Should We Divide our Tax Return Towards Our Credit Cards? – Jacquie

Hello! My husband and I will be getting a good amount of money back from taxes and we are wondering what would be the best for bettering our credit, we have pretty low scores.

We have 5 credit cards with balances ranging from about $130-$700. We want to know if it would be better on our credit reports if we totally pay off a couple of them, or put money towards all of them and get it to a lower balance and then continue to make the monthly payments?

Or would it be better to put more money towards student loans and hospital bills from the birth of our son.

Thank you!!


Dear Jacquie,

The first thing that comes to mind is if you are getting a big chunk of change back it may be a strong indication you are overwithholding throughout the year when you need that money most to makes ends meet.

Consider changing your withholdings so you can get back closer to a break-even point at tax time. Let’s say you are expecting $3,600 back, by adjusting your withholdings you can put $300 a month back into your pocket when you need it most to pay down your debt.

Tax Withholding Adjustment

You can adjust your tax withholding by a specific amount to put more money in your pocket each month.

The goal of tax withholding is not to let the government use your money for free all year long and get a big refund, it is so at tax time you either get a bit back or owe a bit.

As the IRS says, “You should try to have your withholding match your actual tax liability. If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. If too much tax is withheld, you will lose the use of that money until you get your refund.”

You can use the online Withholding Calculator to help you determine what you should be claiming.

Here is what the IRS says about adjusting your withholdings.

“If too much tax is withheld, you may receive a large refund when you file your return. If you would prefer to receive the money during the year, you should see if you qualify to have less tax withheld. If so, give your employer a new Form W-4 showing more withholding allowances.”

Regarding how to best use the money you will be getting back, I’m afraid I need a bit more information. I’d like to know the balances on your current cards and their limits, the amount of the other debt you mentioned and how much you currently have in savings.

Please post your responses and follow-up messages to me on this in the comments section below.

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Bundixlake

    I agree with Steve. Redo your withholding statement. It is not fair to give the government your money for a whole year and then have to file to get it back and wait for your refund. I know some use this as a way to save, but I feel they could just as easily set aside the extra they get in each paycheck if they redid their withholding statement.

  • Jaxcp_247

    The reason we are getting more money back this year than usual, Is we got married and had a baby last year. We have a capital one card with a limit of $200 and a balance of $159. I have a visa through wells Fargo with a limit of $800 and balance of $740. I have a master card through best but with a limit of $400 and balance if $320. And then I have 2 store cards, one with a limit if $400 and it’s maxed out and the other with a limit of $500 and a balance of $460. And sadly, we have nothing in our savings. My husband gets stock every year from his job he can sell if we need, but it still doesn’t sit well with me.

    • Steve Rhode

      How much do you think you will be getting back?

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