7 smart things to do with $1,000

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An unexpected $1,000 has just come your way from a bonus, tax refund or even that old silver set you finally sold on eBay. What do you do with this windfall?

Most of us would be tempted to go on a buying spree or splurge on a trip. Why not? It's "free money," after all.

But there are better choices — smarter things to do with that money.

Here are 7 smart things to do with $1,000 that will have lasting benefits — and a fair dose of immediate satisfaction.


Smart move 1. Pay down credit card debt.

No, it's not as fun as a weekend at a resort, but if you crave long-term financial freedom, paying down high-interest credit cards is one of the best things you can do for yourself.

The average credit card debt for households carrying balances month to month was $15,604 in 2014. And that number is on the rise. With the interest rates on credit cards that charge a variable rate now at 15.92%, chopping $1,000 off that debt can save you $157 this year alone.

Our calculators can help you devise a plan for paying off one credit card or a bunch of credit cards.

The best move is to pay down the card with the highest interest rate, but if that doesn't feel like enough of an accomplishment, and you have a card with a balance of $1,000 or less, then pay off that card completely.

Having one less bill to worry about will feel good immediately.


Smart move 2. Put it in an IRA.

If you don't have an individual retirement account, take that $1,000 and start one. Do it today. If you have one, consider making a one-time additional contribution.

Studies show most Americans have nowhere near the savings they should have as they approach retirement. If you're part of that majority, then this is a chance to start catching up.

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Putting some cash away early can yield huge benefits down the road. You'll thank yourself when you reach your golden years.

And, really, the benefits start right away. IRAs provide one of the best tax breaks available to middle-income Americans. By allowing your savings to grow tax-free, they can help you build real wealth.

Let's say the $1,000 you invest in an IRA grows at an average annual rate of 6.5% over the next 25 years. You'll wind up with more than $5,000.

Your best bet is probably a Roth IRA. If you run into money problems 10 or 15 years down the road, you can withdraw your contributions without paying penalties or taxes, and there are no penalties or taxes on any withdrawals once you reach 59½ years old.


Smart move 3. Build up your emergency fund.

If you don't have money set aside for unexpected expenses, you're one unlucky step away from financial disaster.

Depending on the security of your job, financial planners say you should have three to six months of living expenses put away in an easily accessible, government-insured savings or money market bank account.

This is your basic financial cushion, there in case you lose your job or face some other crisis.

If you don't have an emergency fund, or enough of one, stick your $1,000 in one of those bank accounts. You'll sleep better at night knowing you're more secure against the inevitable ups and downs of life.


Smart move 4. Buy a dividend-paying stock.

Most of the traditional savings options for a spare $1,000, such as CDs or money market funds, are paying almost nothing in interest these days.

Just take a look at the top-paying CD rates.

But there is one place where you still have a good chance of getting a decent return on your investment: blue-chip, dividend-paying stocks.

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There are well-established companies paying annual dividends of more than 4%. AT&T, for example, has been one of the better dividend-paying stocks, and its current yield of almost 5% is one of the best.

There's always risk with stocks, and they should be viewed as a long-term investment. But over time, financial planners say you can expect an average annual return of 8% or more when dividends are added to gains in the share price of solid blue-chip companies.

To buy your shares as cheaply as possible, go through a discount broker or use a direct stock purchase program, which many companies have. Just search "(Company Name) direct stock purchase plan" to see if the shares you want to buy are available through such a program.


Smart move 5. Fix up your car.

Driving on tires you should have replaced about a month or two ago? Ignoring that air bag light on your dash? This is a chance to take care of that overdue maintenance, which can save even more money down the road — not to mention your life.

Here's a way to make this move a little more special: If you can, set aside $125 or a little more to get your car detailed, which means cleaned up and polished from top to bottom. It'll feel newer, and you'll feel happier driving it.


Smart move 6. Put it in a Christmas fund.

Try as we might, the holidays leave a lot of us a little short. We want to be generous to loved ones, yet our paychecks can't quite cover the gifts, dinners, decorations and everything else. 4 Nifty Holiday Gift Ideas So we run up our credit cards, undoing a year's worth of struggle to bring them down.

Why not take that $1,000 and sock it away for the next holiday season? Put it in a savings or money market account, and pretend it's not there.

You'll be able to get to it if you face a real emergency. But with any luck, it'll be waiting when they start playing Jingle Bells nonstop at the mall.

Christmas, it turns out, is even more fun when you can actually afford it.


Smart move 7. Buy a bike.

With this choice, you finally get to buy something shiny and new while improving your life in ways that can last.

If your commute isn't too long, riding that bike to work will save you money on gas and car repairs while improving your physical fitness.

Studies have shown that productivity is related to fitness and health. Even if you can't use it for commuting, bicycling is a good, low-impact cardio workout. Buy one, get all the gear and head out for a healthy ride.

If you're not the biking type, then consider taking part of that $1,000 and spending it on a gym membership or fitness class. Many gyms will let you sample a class for free or for a small fee.

However you do it, an investment in your own health is likely to pay big rewards: You'll feel better, be more productive and maybe even live longer to boot.

What smart things will you be doing with your extra $1,000?