A big tax refund can help you score a rewards card sign-up bonus. Should you use the points on a summer vacation, or some other planned expense? Read on to see what experts recommend.
With insufficient vacation days and even scarcer available funds, Americans often need to get creative to fund their vacation goals.
For some families, that means saving spare change in a jar or opening a targeted savings account. For others, it means picking up part-time work or a side hustle to earn more cash.
Twenty-nine-year-old Clint Proctor of Daytona Beach, Florida, has different plans. Proctor and his wife have a family wedding in Pennsylvania this summer, and they really wanted to make a vacation out of it. The Proctors, who have two small children under the age of four, ultimately found a way to use their upcoming tax refund to their advantage.
Your tax refund can help you score lots of airline miles
It all started when Proctor noticed a limited-time offer for the Southwest Airlines Companion Pass – a BOGO pass that allows a designated “companion” to fly free. The offer, which is now expired, was for 30,000 points plus the Southwest Companion Pass through the remainder of 2019 when you sign up for a personal Southwest credit card and spend $4,000 within three months.
While Proctor wanted to take advantage, he knew the family’s typical cash flow would make it difficult to meet the minimum spending requirements. However, he also realized a big tax refund could easily change the game. Proctor and his wife decided to sign up for one Southwest card each, and their two children will use the companion passes they’ll earn when the spending requirements are met.
Once the couple receives their tax refund, he says, they plan to use their new credit cards to purchase a laptop and phone for personal and business use. Proctor says that, combined with their other normal expenses, they should have no problem reaching the minimum spending requirements on both cards.
Josh Overmyer of Fort Myers, Florida, has similar plans for his refund this year. Overmyer noticed a limited-time offer, which has now expired, on the CitiBusiness AAdvantage Platinum Select World Mastercard that he coveted. Like the Southwest Companion Pass offer, the CitiBusiness card requires Overmyer to spend several thousand dollars in a short amount of time.
Overmyer says he timed his card application to coincide with two events – his upcoming tax refund and a remodeling project he is planning for his master bathroom.
“My upcoming tax refund will pay for more than half of the card balance for the bathroom project, so this was a perfect time to get a new card and meet the minimum spending requirement to earn the bonus 70,000 miles,” he says.
Should you use your tax refund to fund a big goal – or a trip?
Receiving a tax refund is somewhat controversial since, as financial advisors love to say, “you’re giving the government an interest-free loan.”
The reality, however, is that many people do receive a refund on accident or on purpose. It’s not that easy for everyone to estimate their annual tax bill, after all, and some people even see withholding extra money as a form of forced savings.
The average tax refund in 2018 worked out to approximately $2,890, and some experts say Americans may receive closer to $3,000 this year due to recent changes in the tax law.
But should you parlay this refund into something fun, like a trip you may not be able to afford otherwise? Dan Miller, a family travel expert from Points With a Crew, says he thinks it’s a smart idea.
“It’s really hard to get a worthwhile amount of points from just everyday spend where you’re only earning 1 or 2 points per dollar spent,” he says.
Sign-up bonuses are the best way to earn a rush of points in a hurry, so if using your tax refund to make large essential purchases can help you earn one, why not? A few thousand dollars is easily enough money to take some sort of vacation – especially if you can avoid the cost of airfare and drive instead.
But you aren’t helping yourself if you use your tax refund in a wasteful way. Travel writer Lee Huff of BaldThoughts.com says you should opt to use it for a planned purchase you need to make anyway. By timing your credit card sign-up with pricey home repairs or an expensive purchase, you can score a big sign-up bonus without throwing your budget out of whack.
Huff says you can also consider using your refund for an investment that could pay off – things like energy efficient upgrades to your home, classes to update or expand your skills or startup expenses for your side hustle. “This way, the money can pay dividends for years to come.”
Huff says to be aware of the total cost of your purchase and to avoid spending your tax refund on something that will increase your monthly expenses.
“A new pet, another vehicle or products that require subscriptions end up costing more than the initial purchase,” he says.
Maximizing your tax refund – consider these tips
Using your tax refund for a large purchase can absolutely help you score a sign-up bonus, but there are ways to maximize this windfall even more. It all starts with picking the right rewards credit card for your needs.
Miller suggests figuring out where you want to go and what you want to do before you pick a sign-up bonus to go after. Do you want to earn airline miles? Hotel points for a stay in a nearby resort? These are questions you should ask yourself before you apply for a new card.
If you don’t have a clue where you want to travel but want to be prepared, Huff says to consider a flexible travel credit card that lets you redeem points in more than one way.
For example, the Capital One Venture Rewards Credit Card doles out 2 miles per dollar you spend without bonus categories to keep track of, and you can also earn a huge sign-up bonus. On the redemption side, you can cash in your miles for any type of travel at a rate of one cent per mile or transfer your miles to one of their new airline transfer partners.
Additional tips to help you maximize your tax refund include:
- Using a shopping portal: Miller suggests using a shopping portal to earn extra points if you are using your tax refund to make a large purchase online. Credit card and loyalty program shopping portals normally let you earn an extra 1-5 points or miles for each dollar you spend, and all you have to do is log in and click through the portal before you shop.
- Buying gift cards: You can also buy gift cards for a big purchase to maximize rewards. If you have a card that offers bonus points at a grocery store that sells gift cards, for example, you could buy one for the store you plan to shop in and earn more rewards that way.
- Look for card-specific bonus offers: Also note that some rewards programs offer special cash-back deals and discounts, including the popular Amex Offers program and Chase Offers. These bonus programs let consumers earn bonus points, get money back or gain access to special sales when they use a specific rewards credit card. Combined with a large purchase, they can help you boost your earnings considerably.