If you received a large tax refund this year, too much is being withheld from your paycheck. When you get your refund check (or, more accurately, direct deposit), this might seem like a good thing. But it amounts to giving the federal government an interest-free loan.
Rather than handing over that money and waiting to get it back, you should be putting it to work for you.
If times are tight, having more consistent cash flow – as opposed to a single lump sum at the start of the year – will help you to better manage your budget.
WHEN TO PUT YOUR EXTRA CASH TOWARD YOUR STUDENT LOANS
If you’re in a position to put that money toward your student loans, it’s better to make multiple small payments throughout the year than it is to make one large payment when you receive your tax refund.
The reason for this is simple: Interest accrues on your student loan balance over time, and paying down your balance today means that interest will be calculated on a lower balance tomorrow. The earlier you make a payment, the less interest you’ll pay over the long run.
THERE ARE TOOLS THAT CAN HELP
Fortunately, there are plenty of tools out there to help you determine whether too much is being withheld from your paycheck. To start, check out the IRS withholding calculator.