 TITLE: Should I Use My Tax Refund to Pay Off Debt? CONTENT: How Paying Off Debt Affects Your Credit\n---------------------------------------\nGenerally speaking, paying off debt helps your credit. At the most basic level, it marks the successful repayment of your debt—one of the very things your credit score is meant to track. But the way you use your tax refund to repay your debt can make a difference in how your credit is affected. Consider these three scenarios:\n*   **Bringing or keeping an account current**: If you're late making payments on a credit card or loan account, or you are about to fall behind, your tax refund money could save the day. While you can't erase late payments that have already been made from your credit report—or reverse the damage they've done to your credit score—you can avoid further trouble by bringing your account current. Any leftover money can help you cover timely payments going forward.\n*   **Paying off an installment loan**: Suppose your tax refund enabled you to pay off the rest of your car loan, personal loan or mortgage. Would that help your credit? Only somewhat. While successfully paying off an installment loan is a good thing, doing so means your loan account will drop off of your credit report. This may cause you to have a less diverse credit mix or lower the average age of your accounts, which can lower your credit score a bit. This doesn't make paying off your loan a bad idea—after all, that's the idea of a loan. But if you're looking for a way to boost your credit score quickly, this may not be the way.\n*   **Dissolving high-interest credit card debt**: The fastest bump to your credit score would probably come from paying down or paying off your credit card balances. Paying down card balances helps reduce your credit utilization rate—which can raise your credit score. Spelled out: If your total credit card limits add up to $10,000 and you have a current balance of $2,000, you are utilizing 20% of your available credit. Pay $1,500 toward your balance, and your credit utilization becomes a score-boosting 5%.\nIf you're thinking about paying down credit card debt to improve your credit score, you may want to sign up for free credit monitoring. When you use it to check your credit report and score, you'll see suggestions for improving your score—for instance, by paying down your total outstanding debt or using fewer card accounts. This information can help guide you in deciding how to deploy your funds. One approach is to pay off your smallest card balance first, so you can reduce the number of accounts you're utilizing. Or you might instead pay off the card with the highest APR first, to save the most on interest. END