One of the most frequent questions I’m asked is what to do with a windfall. This time of year that question often is prompted by taxpayers getting a refund.

During my most recent online discussion, many people wanted to know whether it’s better to use a tax refund to save or to tackle debt.

For example, one reader wrote: “I got a huge tax refund that would : pay off a good chunk – about half – of my credit card debt. But I am embarrassed to say that I have no savings at all aside from my 401(k). I am wondering if I should divvy up my refund between establishing an emergency fund and paying down my credit cards.”

The sensible thing would be to establish an emergency fund. The ideal is to have between three months and six months of household expenses in a rainy day fund. In this case just one month’s worth will do. Use the rest of the refund to reduce your credit card debt.

Another reader asks: “I’m 25 and will receive an $8,000 tax refund this year as a new homeowner. My rainy day fund has two months’ worth of expenses, and I can’t decide between building it to a full three months first then putting the rest of the refund toward my biggest student loan, or paying the loan (9 percent interest) off entirely. I’d love to see that one loan (I have three more) disappear and not pay any more interest. What would you do?”

I would pay off the one student loan, entirely.

You have $8,000 in student loan debt at 9 percent. If your loan is for 10 years, you would pay about $4,160 in interest. If you saved $8,000 in a simple savings account earning 4.5 percent (about what you can get with an Internet bank), you would earn more than $4,400 in interest if the rate stayed constant.

On first look, it appears you’re ahead a few hundred dollars if you save the refund as part of your emergency pot. But don’t forget to consider taxes you’d pay on the interest. Of course that could be offset some by a tax deduction for the interest paid on the student loan.

However, let’s get real. Most people won’t let the money just sit in a savings account. They end up spending it on a big screen television, vacations, car repairs or whatever. Before they realize it, the windfall is gone, and yet the debt is still there.

I would pay off the student loan and apply its monthly payments of about $101 to the remaining education debt.

As for the emergency fund, building a three- to six-month reserve doesn’t have to happen all at once.

When faced with whether to pay off debt versus saving or investing it, keep in mind there’s a psychological reward that you should factor into your decision. That’s the priceless feeling of getting rid of debt.r