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Ask Dave

Taxes to Debt Snowball?

Michelle should use the tax refund to pay off her consumer debt and then set aside cash for her tuition.

QUESTION: Michelle and her husband received $5,000 back on taxes this year.  Should they put it toward the debt snowball or use it to pay some of her law school tuition?

ANSWER: You should pay off your consumer debt first.  Then as you become debt free, you’ll be able to put more cash toward your tuition.

You also need to adjust your tax withholdings with your human resource office at work.  You should not be getting back that much money.  When you do that, it means that the government is taking too much out of your paycheck and you’re loaning it to them – interest free – for a year.   Remember: you’re not required to pay too much to the government.  A big tax return is not a good thing!