Tax rebates to pay debt or into savings: survey

NEW YORK (Reuters) - Among U.S. households receiving a federal tax rebate, about one-in-four planned to spend the money sometime in the next year or so, with most planning to pay debts or add to their savings and reserves, according to a Reuters/University of Michigan poll released on Friday.

Overall, these results reflect both the pressures on household budgets from rising fuel and food prices as well as more cautious spending plans due to heightened uncertainty about future economic prospects, the consumer survey said.

The intended uses of the tax rebate have remained largely unchanged over the past six months, and are comparable to consumers' responses to the 2001 tax rebate.

Importantly, only a minor portion of the spending from the 2008 tax rebate was reported to have already occurred by July, with planned spending reaching a peak in the third and fourth quarters of 2008.

The 10 percent of all households that did not expect to receive a tax rebate were excluded from the estimates included in this report.

The median tax rebate was $1,000; the mean was $1,007. The tax rebates were distributed nearly evenly between mail and direct deposit.

In addition to the tax rebate, 62 percent of respondents reported receiving a refund on their 2007 taxes.

Those who reported refunds on 2007 taxes held similar spending intentions.

Perhaps the most significant tilt toward using the tax rebate to repay debt was among households who reported they had experienced problems with obtaining a new loan in the past year, an indication their financial situation had been overextended; nearly three-in-four of these consumers plan to use the rebate to reduce their indebtedness.

Higher income, older consumers, and those who reported recent gains in their finances were slightly more likely to plan to spend the tax rebate, whereas lower income, younger consumers, and those who reported a worsened economic situation were more likely to report using the money to repay debt.

While adding to saving balances or repaying debt are equivalent in terms of "savings" and a precaution against unforeseen contingencies, repaying debt has the added advantage of reducing net interest costs.

(Reporting by Ellen Freilich; Editing by Neil Stempleman)