How to use tax refund

Tax Issues
1

Here’s a relatively straightforward question. I, a 24-year-old woman, currently have three loans outlined as follows:

Loan 1: $6,100, $372/month, 7.5% interest
Loan 2: $9,100, $334/month, 11.5% interest
Loan 3: $8,200, $300/month, 7.95% interest (I’m paying $20 over the minimum for this loan)

I’ve been contemplating where to allocate my tax refund. Initially, I thought it would be wise to apply it to the $6,100 loan since it carries the highest monthly payment. My plan was to then redirect the freed-up funds from that loan to double my payments on the 11.5% interest loan. However, I’ve received conflicting opinions suggesting that I should prioritize putting the money towards the 11.5% interest loan instead of the $6,100 loan.

What are your thoughts on this matter? I’m torn between the two options.

Additionally, I’m well aware that carrying this debt at 24 isn’t ideal, which is why I’m striving to eliminate it as swiftly as possible. That’s why I’m not planning to spend my tax refund but rather apply it toward becoming debt-free.

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2

The debt avalanche focuses on the highest interest rate first. So in your case, that would be the $9,100 loan at 11.5%. By paying that down faster, you save the most money overall on interest.

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3

my financial expert advises If you have financial stability, think about investing your refund in a taxable brokerage account to increase your wealth gradually.

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4

Why in the world are you allowing the Treasury to utilise the money you pay interest on loans interest-free? Rather than wait a whole year and pay interest, I would lower my withholding and utilise the cash to pay off my loans. Given that you will be paying interest on each of them, does it really matter which one you pay off first?