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Smart Ways to Spend Your Tax Refund

Prior to the recession, getting a tax refund gave many Americans an excuse to hit the malls or buy big-ticket luxury items they've coveted over the year. However, those days may be over, since so many Americans are out of work or struggle to pay bills. 

Today the temptation to buy frivolous items has given way to smarter financial decisions in the wake of this weak economy. And it seems more Americans are looking for ways to save their tax return or spend it wisely.  In fact, at least 71 percent of tax payers who expect a 2008 refund will try to save the money instead of spend it, according to an ING Direct survey.

"Although Americans are often encouraged to spend their refunds to help stimulate the economy, Americans are choosing to save themselves first," says Arkadi Kuhlmann, President of ING DIRECT USA, in a press release.

"They strongly believe their top priorities are to stimulate their personal finances and keep the lights on at home," Kuhlmann adds. 

If you're expecting a tax return and want to know how you can make the most of your money, look into these four ways to spend your 2008 tax refund the smart way:

Invest in your Thrift Savings Plan. When the economy went sour many Americans tried to bolster their discretionary income by not contributing to, or dipping into, their retirement plans. Bad idea. In fact, 25 percent of Americans ages 45 to 64 surveyed by AARP use their retirement funds to pay for bills or household expenses, which puts them at a disadvantage when retirement rolls around. When you receive your 2008 tax refund contribute the funds to your Thrift Savings Plan (TSP), and continue to build savings for your future.

Pay off Debt. It seems most tax payers hope that a refund will help squelch any upaid balances this year. ING reports that 39 percent of Americans getting a tax refund will use it to pay off debt. If you're one of these tax payers and have one or more credit cards with an high balance, now would be the time to pay those off. recommends that you use your tax refund to pay off a department store credit card with the highest interest rate. Then, try to pay off any credit cards with a high interest rate and a low balance.

Go to School. Taking a class or getting a degree is a great way to become a more attractive job candidate to employers, and it shows that you took some initiative to improve your skill sets. If you're saving to go back to school, use your tax refund to fund a 529 savings account. A 529 lets you contribute funds -- tax free -- to be used for higher education. What's more, you can also make tax-free withdrawals from this account when you need to. Learn more about going back to school - visit the Education Center.

Spend a little money. Once you've paid off bills and set some money aside for your savings, it's time to spoil yourself (but don't go crazy). Most retailers slashed prices on their merchandise, reports So you may be able to find that big-ticket item you've been coveting on clearance or at a discounted price. Or, maybe you can take a small stay-cation with friends or family members.

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