Your tax rebate: Don't blow it

By MSN Money staff

The economic stimulus plan wending its way through Washington, D.C., finally appears to have the numbers Americans have been waiting for: tax rebates of as much as $600 for an individual and $1,200 for couples.

Of course, that's not final, and it's subject to a variety of limits and caveats. The only certainty is that something, somehow, will wind up in the mailboxes of most American taxpayers in a few months. The details, at least for now:

Individuals who paid income taxes would get up to $600, working couples $1,200 and those with children an additional $300 per child under the plan. Workers who made at least $3,000 but didn't pay taxes would get $300 rebates.

As many as 116 million households would see rebate checks, congressional leaders said.

The rebates would be phased out gradually for individuals whose income exceeded $75,000 and couples with incomes above $150,000, aides said. Individuals with incomes up to $87,000 and couples up to $174,000 would get partial rebates. The caps would be higher for those with children.

Blow it or keep it?

OK, you'll probably get a check, which makes the real question, what will you do with it? The obvious answer, at least to the economic advisers who came up with plan, is that you'll immediately spend it on consumer electronics, gas and dinners out at Applebee's, giving our flagging economy a jolt of energy.

We suggest that you do the selfish thing: Put it to use where it will do you the most good.

6 smarter ways to spend your rebate

Well, you could always save it. Absolutely everyone needs at least $500 in the bank. If you've got nothing between your regular paycheck and the wolf at the door, now's the time to do take action.

Go a step further and consider starting a savings account. You'll find the online banks pay several percentage points more than most brick-and-mortar operations.

Retire. Remember, the journey to your $1 million golden years starts with the first $100. Throw $300 into an online savings account paying 4%, add that much every year until you retire and, if you're in your 20s now, you'll wind up with about $30,000. (Run the numbers yourself.) Enough to retire on? No, but a lot better than retiring with nothing.

Throw it at your credit cards. It's free money that can go toward very expensive money.

Save it for one of your irregular bills. Have money for your next insurance payment? Car registration? Snow tires?

Use free money to get more. If you've been afraid to enroll in your workplace 401(k) plan because of the hit on your take-home pay, use your rebate to ease the transition. Most employers match at least 50% of your contributions up to a certain point. See how it would grow here.

Make an extra mortgage payment. $1,000 today on a 30-year, 7% mortgage would save you $4,000 over the life of the loan.

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