Image by Don Hankins via Flickr

Now that tax season is over, many people are looking forward to a tax refund. (If you’ve filed for an extension, though, you won’t get your tax refund until after your return is actually in hand at the IRS.) The IRS estimates that the average tax refund is close to $3,000 this year. That’s a pretty nice chunk of change. If you are getting a tax refund, you might be wondering what to do with it. Before you decide to spend it all at once, consider your options.

Here are 5 smart things to consider doing with your tax refund:

1. Pay Down Credit Card Debt

One of the smartest things you can do with your tax refund is to pay down credit card debt. If you have credit card balances, you could be paying anywhere between 11% to 18% — or more — in interest. That’s money you are paying, but that doesn’t provide you with any sort of benefit. It just enriches someone else. If you have a good start on an emergency fund, you might be well-advised to pay down credit card debt, since the interest you are paying eclipses any returns you are getting from savings interest and investment returns.

2. Add to Your Emergency Fund

If you don’t have consumer debt to pay off, you can add to your emergency fund, increasing your safety net. This is especially important if you had to dip into your emergency fun any time during the last recession. You can build your safety net by adding to a high-yield savings account, or setting up a CD ladder.

3. Invest for the Future

Once you are all set for the present, it’s time to start thinking about the future. That $3,000 (or whatever you end up with) tax refund has the potential to grow over time into something a little more substantial. Beef up your retirement account, or open a new account. If you are maxed out on retirement plan contributions, consider opening a taxable investment account. You can also invest in your kids’ future by opening a 529 plan or a Roth IRA for them.

4. Upgrade Your Life

Not permanently, of course. But if you have old, energy sucking appliances, or if you need to spruce up your yard a little bit, you can use your tax refund to help you meet those expenses. Buy new energy efficient appliances that will save you money in the long run on energy costs. This can include a new water heater, new washer and/or dryer, new freezer or refrigerator, or any combination of appliances. You can also make improvements to your yard, enhancing the curb appeal of your home. This can be especially useful if you plan to sell anytime soon.

5. Give Your Money Away

Many financial experts acknowledge that — in some way that might be hard to understand — giving your money away can be a smart financial move. Donate a portion of your tax refund to charity, helping a worthwhile cause. You can donate to your church, a local food pantry, or to a national charity that shares your values. You will feel good, build up some good spiritual credit (if you believe in that sort of thing) and you will even get a monetary benefit in the form of a deductible item on your next tax return.

If you are getting a tax refund, how will you use it?