Second-Chance Cash

If

you're among the two-thirds of U.S. taxpayers anticipating a refund check or already clutching one, the question is, What will you do with it? The majority of you will spend your refund — averaging $2,000 this year — or simply stick it in the bank (where it will earn 1.4% interest, on average), according to a survey by Cambridge Credit Counseling, a not-for-profit adviser to debtors. Chances are you can do better. Here's how:

MAKE YOUR 2003 IRA CONTRIBUTION. One mistake many people make is waiting until April 15 to make a previous year's IRA contribution. At the last minute, they scrounge for funds — often unsuccessfully. Moreover, they sacrifice valuable compounding time. If you contribute $3,000 to an IRA at the start of each year and earn an average 8% a year, you'll have $367,000 after 30 years, according to Ed Slott, editor of the newsletter Ed Slott's IRA Advisor irahelp.com). Wait for the IRA deadline to make those same contributions, and you'll accumulate $27,000 less.

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Where should you put a contribution now? Check which investments are needed to reach your desired balance of cash, bonds and various kinds of stocks. Don't forget foreign bonds and stocks, in which most Americans are underinvested. Many foreign countries have been privatizing state-supported firms and reducing regulations and bureaucracy (and corruption), moves that will ultimately benefit investors. Brazil and Argentina have potentially powerful economies, deeply troubled but on a road to reform, notes economist Mark Zandi of Economy.com. And a U.S. dollar that appears to be headed lower in the next few years could provide a nice tailwind as your foreign investments are translated back into greenbacks.

A broadly diversified international mutual fund, such as Oakmark International or William Blair International Growth, helps blunt risk. If you can handle more volatility, consider a fund like T. Rowe Price Latin America to take advantage of that region's anticipated fast growth.

PAY DOWN CREDIT CARDS. There aren't many sure-thing investments today that return 10% to 18%, but that is what you'll get, through lower interest payments, by cutting credit-card debt. Consumers are now on the hook for non-mortgage debt of some $14,000, on average, up from $8,500 a decade ago, according to the Care One network of debt counselors. About two-thirds of that is credit-card debt. If you must carry a balance, at least switch to a no-fee, low-fixed-rate choice like Capital One Platinum Visa (8.9% with good credit) or American Express Blue (10.99%).

REFINANCE YOUR MORTGAGE. With 30-year fixed rates averaging about 5.8%, one-quarter of homeowners could still benefit from refinancing. If you haven't refi'ed because you couldn't muster closing costs, your tax refund could be the ticket. Cutting the interest rate on a $200,000 mortgage from, say, 7% to 5.8% saves some $150 a month. (Simply applying a $2,000 tax refund against the principal on that 7% loan would slice about a year off its term.)

How do you prioritize the choices above? If debt is preventing you from saving, knock that off first. If you last made an IRA contribution when George H.W. was President, that climbs up the list. But if you're still sitting on a mortgage rate above 7%, refinance — now. These days will come to be thought of as the good old days for home buyers.

Jean is a columnist for money magazine. You can e-mail her at moneytalk@moneymail.com