March 17, 2010
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Paying taxes with cc could be a problem, Pt.2
Surviving aggressive marketing strategies.Discovering that you owe the Internal Revenue Service (IRS) rather than receiving a refund, can be an overwhelming and disappointing experience. These confused feelings and concern of "how you’ll find the money to pay", can encourage Americans to resort to their credit card. If you are considering this, there are a few things you should also consider prior to entering that credit card number in the payment option.
What is you credit card limit? One variable that credit reporting bureaus use in calculating your credit score is the amount of available credit on your card. As your debt balance increases, your credit score decreases. If your card is close to the limit, utilizing it to pay your taxes is a bad idea. Raising your debt closer to its limit can also raise a red flag to your issuer and result in higher interest rates.
Safeguard your credit card information! Do not write your card information on your return and do not mail your card in.
Work with the IRS. The IRS offer payment plans that typically carry a lower interest rate than credit cards. The current interest rate is 4 percent.
Cash advance or purchase? Check with your lender to make sure that the credit card payment will be processed as a purchase transaction rather than a cash advance to avoid additional fees.
Explore your options. Talk to a representative from your personal financial institution to learn about other available loan options. If you have maintained a good credit score, you may be eligible for a low interest personal loan.
What will the reward points really cost? Credit card companies have raised the level of eligibility for reward points. It may cost you double or triple what it once did to earn one point. Research shows that most individuals end up paying more for products and services through reward points than if purchased straight out.
Although each individual must determine the best method of paying their tax bill based on their own situation, in most circumstances, financial experts advise against using your credit card to pay the IRS.