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Are You Planning to Pay Your Taxes With a Credit Card?
By The BIDaWIZ Team - February 7, 2010 Share:
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If you are considering paying your taxes with a credit card because you don't have the money, then think again. If you have the money but are paying because of convenience then that is okay as long as you are aware of the fees and interest that can add up.
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Credit Card Interest Payments Add-up
The interest rates (APR) on credit cards are often high (20%+), so paying a $5,000 tax bill, for instance, with a credit card can add up.
Processing Fees
While you may not realize it, there are processing fees which generally range from 2%-3% of your tax bill if you pay online using a credit card.
Personal Loan Rates Should be Lower
You may have other options available to you such as obtaining a personal loan through a community bank or credit union which often carry lower rates than credit cards. Your objective should be to choose the loan option that has the lowest interest rate on debt and the most favorable terms.
Sell Your Material Positions
We are sure there's a stereo, bicycle, video camera or other material possession that you do not need to live with. Unlike Hard Cash, these items will only decrease in value over time so it makes sense to get rid of them now and use the money to pay your tax bill.
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Loan From a Family Member
You can even explore asking a family member to spot you the money. But, be sure to have a plan in place to pay them back. It can be an embarrassing time for you but if you have a family member that you are very close with then this may be a better option than accumulating a high amount of credit card debt.
Better to Pay with Debt Than Not Pay At ALL
While we don't recommend paying your tax bill with your credit card, it is however better than not paying at all. You will be in far more trouble if you don't pay your tax bill as penalties and interest due to the internal revenue service can cause a nightmare.
Plan Better Next Year
You can budget better by eliminating unnecessary costs during the year and even put aside money each pay period into a savings account for the sole purpose of paying your taxes for the year. If you are putting money into a 401K, which is a good thing, but can't pay your tax bill at the end of the year, you definitely need to do some re-thinking on how you are budgeting.
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Your specific situation may not fall under the circumstances detailed above. If so, the Tax Advisors are Here to Assist.
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