The 5 best ways to use your tax refund in 2026

Thanks to changes to the tax code brought about by the One Big Beautiful Bill Act, Americans are enjoying larger tax refunds this year. As of April 24, the IRS reports the average refund for the 2025 tax year was $3,268 for individual filers, an 11% increase from the prior year.

If you received a refund, here's how to use it to move your financial life forward.

In the third quarter of 2025, Americans held a record $1.233 trillion in credit card debt, according to the Federal Reserve Bank of New York, with the average balance topping $6,700. Credit card interest rates are higher than nearly any other form of debt, so chipping away at your balance is one of the smartest money moves you can make.

Roughly 37% of Americans use their refunds to pay credit card bills, according to a TaxSlayer survey. The average refund is less than half the average credit card debt, though, so most people won't be able to wipe the slate clean in one go.

There are two approaches to paying off debt: The avalanche method and the snowball method.

The avalanche method: Use your refund to pay off as much of the balance as possible on the card with the highest annual percentage rate (APR). From there, work through your other cards from highest to lowest APR. This strategy reduces the overall interest you're paying. 

The snowball method: A more psychological approach, this involves paying off the cards with the smallest balance first, creating a "snowball" effect. You'll still have high APR credit card bills, but the feeling of accomplishment can be a real motivator.

Both methods are effective — it just depends on which will keep you on track.  

It's important to have a financial cushion to deal with unforeseen events, from a broken appliance to a sudden job loss. 

Financial experts recommend putting three to six months' worth of living expenses in an emergency fund. The average household's monthly expenses are about $6,440, so an emergency fund of $20,000 to $40,000 would be appropriate.

Almost 40% of Americans have $250 or less in savings, according to a 2025 GOBankingRates survey, so filling those coffers is one of the most important steps you can take to secure your financial future.

Your emergency fund should be easily accessible while still earning interest: A high-yield savings account like Lending Club LevelUp Savings or the UFB Portfolio Savings will earn an above-average APY with no fees.

Even though the pause on student loan payments ended in October 2023, millions of borrowers still haven't started making regular payments.

It's easy to think of student loan debt as less critical than other financial obligations. It's not like they can repossess your education, right? But loan servicers notify credit reporting agencies about delinquent accounts and your credit score can plummet by as much as 200 points if you don't keep up with your loans.

Using your tax refund to make an oversized loan payment can get you back on track and bring you closer to a life without student loan debt. Be sure to check if your lender charges a penalty for larger-than-normal payments.

You'd be surprised how far your tax refund can go toward making the dream of homeownership a reality. ONE+ loans by Rocket Mortgage require only 1% down, so a $3,300 refund could cover a $330,000 house.

You could also put your refund toward an FHA mortgage, which only requires 3.5% down if you have a credit score of at least 580.

Even if a $3,300 refund isn't enough for your dream house, it can cover lenders' fees, closing costs and other expenses associated with homebuying.

In 2025, in-state public college tuition averaged about $11,011 per year, while private school tuition averaged $43,505. A 529 college savings plan is a state-sponsored education account designed to help parents save for their children's education by allowing earnings to grow tax-free.

Withdrawals from a 529 are also tax-free, as long as they're used for qualified educational expenses.

ScholarShare 529 and Invest529 are two of our top picks for 529 plans, with average rates of return that are higher than what you'd get with a deposit account, even a HYSA. A $3,300 investment now will go a long way by the time Junior is ready for freshman year.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed financial decisions. Every tax article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of tax products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

Catch up on CNBC Select's in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.