Smart ways to use your 2025 tax refund: Paying off interest, saving for the future & more

As tax season wraps up, many people have already received their refunds. While it may be tempting to splurge on something new, financial expert Kristin Afelumo from Her Planning suggests strategic ways to make the most of your refund.

Adjust Your Withholdings for a Bigger Paycheck

Afelumo advises taxpayers who receive large refunds annually to consider adjusting their withholdings.

“If you are consistently getting like $3,000 a year in a tax refund, maybe consider updating your withholdings with your HR department,” she said. “That’s $250 a month of your money that the government’s held onto for a year that you could be doing something else with.”

Pay Off High-Interest Debt

For those looking to reduce financial burdens, paying off high-interest debt should be a priority.

“I generally say high-interest debt is 6% or 7% or higher,” Afelumo explained. “People are buying new cars right now, and interest rates I’ve seen are really commonly 8%, 9%, 10% or even higher. So credit cards, high-interest debts, loans—those are really good places to direct some of that money.”

Build an Emergency Fund

Afelumo also encourages using tax refunds to strengthen financial security by boosting emergency savings.

“For people in a dual-income household, I recommend having three months of expenses saved up,” she said. “And if you’re single or just more conservative, I’d work towards having six months of expenses in the bank.”

Save for Future Expenses

Using a refund to prepare for upcoming costs can help avoid financial stress later.

“If a friend or a family member has invited you on a trip and it’s coming up next year, maybe put that money aside in a high-yield savings account,” Afelumo suggested. “Or you need to buy a car next year—sometimes people come to me with things that are emergencies, and I’m like, ‘Girl, you knew your car was gonna need tires eventually. It’s not really an emergency.’”

Invest in Retirement or Education

For those who have built up savings, Afelumo recommends using a refund to invest in the future.

“Consider using a 529 plan to save for college,” she said. “Or put the money aside for retirement—use a Roth IRA, another type of IRA, or even increase your 401(k) contributions.”

By making intentional financial choices, Afelumo says a tax refund can go beyond a short-term reward and create long-term financial stability.