How to avoid going into debt while waiting for your tax refund

This article was fact-checked by our editors and Christina Taylor, MBA, senior manager of tax operations for Credit Karma.

Many Americans rely on their annual tax refund to help them stay afloat financially.

The IRS says it typically delivers a refund within 21 days of receiving a return. But that can feel like a long time if you’re trying to avoid going into debt while waiting for your refund.

Your impatience is understandable considering that the IRS says the average refund amount for the 2016 tax season was $2,782. That much money could go a long way toward your financial needs.

You may wonder if there’s a way to get a tax refund advance and get some money sooner. Fortunately, you have multiple options for getting some money quickly. Some may be better for you than others, so it’s important to carefully consider how urgently you need the money as well as your options’ pros and cons.

• E-file your taxes as early as possible
• Refund anticipation loans and checks
• Zero-interest credit card
• Borrow money from family and friends

E-file your taxes as early as possible

Don’t create a delay; e-file your tax return as soon as possible. The IRS says e-filing is the fastest and most accurate way to file your federal income tax return. Choose to have your refund directly deposited into your bank account instead of mailed to you. That way, you don’t have to wait for a paper check to arrive in the mail and then clear your bank when you cash it.

The IRS says e-filing and direct deposit are the quickest way to get a refund. Plus, if you file your taxes early, you could get your return into the IRS before a potential identity thief does.

It’s important to note that if you claim the Earned Income Tax Credit or the Additional Child Tax Credit, your refund will be held until at least mid-February, even if you file early. You can always check your refund status on the IRS website.

Refund anticipation loans and checks

The sheer frustration of not being able to pay some bills when you know you have a big refund coming could send you looking for a way to get a tax refund advance. Two options are refund anticipation loans and refund anticipation checks.

Both lending vehicles allow you to borrow against your refund, and each has pros and cons. Both allow you to get some money sooner while you wait for your refund.

Refund anticipation loans were much more common before e-filing and direct deposit shortened the amount of time most people wait for their refunds. They often came with very high interest charges. Back in 2004, about 10% of tax returns involved a refund anticipation loan, and fees for those loans totaled $1.24 billion.

High interest and fees on refund anticipation loans prompted the IRS to put restrictions on them that have made it difficult to find lenders who will still underwrite the loans.

Refund anticipation checks are more common today. If you can’t afford to pay your professional tax preparer, a refund anticipation check lets your tax preparer open a temporary checking account for you. Your tax refund will be deposited into the account when it arrives, and the preparer’s fee, plus any other fees, will be deducted from your refund.

Zero-interest credit card

If you absolutely need money now and waiting a few weeks isn’t possible, another option might be to apply for a credit card with a zero-interest intro offer for purchases. These credit cards allow you to pay for purchases interest-free for a certain promotional period, usually lasting several months.

You need to make at least the minimum payment on the card so that you won’t be charged any interest until the promotional period is over.
This is a good option if you can pay off the credit card when your tax refund comes in.

It can be tempting to rack up a balance on the credit card (especially during an interest-free period), but watch out. If you don’t pay off the balance before the interest-free period is over, some credit cards will charge interest from the purchase date. And minimum monthly payments are required. You also don’t want to put yourself into a hole of debt by overspending on the credit card.

And don’t forget, when you open a new credit card, that information will appear on your credit reports and could affect your credit scores.

Borrow money from family and friends

Borrowing money from family and friends is always a tricky subject. But if you’re desperately in need of cash and a credit card with a zero-interest intro offer won’t work for you, borrowing money from people you know is one option.

Because your relationships are so important to you, this shouldn’t be a handshake, pinky-promise deal. Instead, show your friend or relative proof that you have the funds coming to you soon. Draw up a contract stating the terms of the deal. (For example, “I will have the money back to you by this date, and here’s what’ll happen if I don’t.”) Then simply make sure you follow through with the contract.

Bottom line

Patience is always best when you’re waiting for your tax refund. If you filed your return on time and accurately, the wait for your refund could be just a couple of weeks.

But if you just can’t wait the 21 or so days it could take for your tax refund to arrive, be sure you understand any interest, fees and conditions associated with any refund advance, credit card or loan you’re considering.

Christina Taylor is senior manager of tax operations for Credit Karma. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.