59% of Americans Plan to Spend their Tax Refunds on Everyday Purchases or Make Bill Payments

Islandia, NY ? Nearly six out of ten Americans (59%) who have received or anticipate a tax refund this year plan to spend it on everyday purchases or make bill payments, down from 68% in 2004, according to the Cambridge Consumer Credit Index. Of those surveyed, 31%, up from 27% in 2004, plan to save their refunds in a bank account or invest the money in stocks, bonds or mutual funds. This year, 69% of Americans expect to receive a tax refund, while 21% will owe money and 10% will not be paying any taxes.

The survey also asked respondents who owe money how they would be paying their taxes. 71% said they would pay from their savings or checking accounts, down from 74% in 2004 and 82% in 2003. Many more Americans (11%) plan to use their credit cards to pay their tax bill, up from only 3% who used credit cards in 2004. An additional 7% plan to borrow the tax money from a bank or relative, down from 10% who needed to borrow last year. 3% planned to withdraw their tax payment money from an investment account, up from 2% last year.

?The results of the Cambridge Consumer Index wildcard question show that most consumers still plan to spend their tax refunds on everyday purchases, which should give the economy a short-term boost in coming months. However, more Americans plan to invest or save their refund money than a year ago, which shows an increased interest in putting away money for the future. Of those needing to pay taxes this April, it is remarkable that the percentage of Americans using credit cards has jumped from 3% in 2004 to 11% now. While some of those paying taxes with credit cards are probably doing so to earn frequent flier mileage and other rewards, others clearly are doing so because they don?t have the money to pay their taxes and need to borrow from credit cards to settle up with Uncle Sam, ? says Jordan Goodman, spokesperson and financial analyst for the Cambridge Consumer Credit Index.

These findings are the result of monthly nationwide telephone polls of more than 800 adults, conducted by ICR/International Communications Research The most recent survey was made last week, and was sponsored by the Debt Relief Clearinghouse.

The overall Cambridge Consumer Credit Index fell by eight points from March to 51. The Index fell sharply on all three questions: past, present and future intensions question. The ?Reality Gap,? which is the difference between the amount of debt consumers say they will pay off in the next month versus the amount of debt they actually paid off a month later, was 8 percentage points, down from 9 points in March. A month ago, 82% of Americans planned to pay off debt, while a month later only 74% actually did so.

The Cambridge Consumer Credit Index is a forward looking economic indicator gauging consumer spending and debt. It is released on the fifth business day of every month to coincide with the Federal Reserve Board’s G19 release of consumer credit outstanding data.

According to Chris Viale, President and C.E.O. of Cambridge Credit Counseling Corp., ?We encourage all consumers to consider how they can use their tax rebates to pay down debt, build emergency savings, and to stay within their budget. Rather than spending their rebates on unnecessary luxury items, consumers will be much better off as they take steps to improve their financial situation.? In conjunction with the Index, Cambridge Credit Counseling Corp. is releasing its monthly survey of people who have called in for credit counseling services over the past month. Cambridge representatives ask callers for the primary reason they found it necessary to get help with their debts. From the 250 people who answered, this was the order of their responses:

1. My income has been reduced from a lower salary, less overtime or layoff (36.4%)
2. I am frustrated with high bank rates and fees (22.8%)
3. I want to improve my ability to achieve future financial goals like buying a house or saving for retirement (10.0%)
4. I got into too much debt by overspending (8.4%)
5. Other (6.4%)
6. Large medical expenses forced me to take on huge debts (6.0%)
7. My lack of financial education caused me to take on too much debt (5.2%)
8. Recently divorced or widowed (4.8%)

For more information on the survey see http://www.cambridgeconsumerindex.com/index.asp?content=client_survey

The Cambridge Consumer Credit Index number is a composite of these three questions:

1. In the past month, have you taken on more debt or paid off debt?

The Index reads 52 on this question, a drop of 4 points from March.

In April, 26% of Americans say they have taken on more debt, with 17% taking on a little and 9% taking on a lot more debt. Conversely, 74% of Americans have paid off debt, with 50% paying off a little and 24% paying off a lot.

2. In the next month, do you anticipate taking on more debt or paying off debt?

The Index reads 32, down by 6 points from March.

In April, 16% plan to take on more debt, with 6% planning to take on a lot and 10% planning to take on a little debt. Conversely, 84% plan to pay off debt, with 62% paying off a little and 22% paying off a lot. In March,19% planned to take on debt and 82% planned to pay off debt.

3. In the next six months, do you expect to take on debt because you are thinking of making a major purchase such as a car, education, appliance, medical procedure, furniture or carpeting?

The Index reads 68 on this question, down by 14 points from March.

In April, 34% of Americans plan to take on more debt to make such purchases, with 12% taking on a lot of debt and 22% taking on a little more debt. In contrast, 66% of Americans plan to pay off debt in the next six months, with 46% expecting to pay off a little and 20% expecting to pay off a lot. In March, 41% of Americans planned to take on more debt, while 59% planned to pay off debt.

?The results of the Cambridge Consumer Credit Index show that consumers are planning to pull back on their use of credit sharply in coming months. The Index?s 8-point decline is the largest in its 3 ½ year history, taking the Index to 51, tying its lowest level ever, which was last reached in May 2002. The combination of rising interest rates and energy prices and a soft employment market seems to be taking a toll on consumer intentions to go into debt to buy what they want and need, ? says Jordan Goodman, spokesperson and financial analyst for the index.

The Index survey is conducted by ICR (International Communications Research) of Media, Pennsylvania over five days in the week before the Index is released. Over 800 households are polled based on random-digit dialing, with all demographic and regional groups in America fairly represented. The Index has a margin of error of plus or minus three and one-half percentage points.