Chase has emailed its customers a friendly reminder that if you can’t pay your taxes this year, you can charge them on your Chase credit card! Even the IRS site suggests you consider using a credit card if you can’t pay your debt. However, before you do something as debt crazy as charge up a high credit card balance, consider the following points and make sure you’re doing the most financially responsible thing.
The IRS suggests that paying with a credit card may be cheaper than setting up an installment plan with them, or paying your tax debt late.
What the IRS suggestion doesn’t take into account is that, as we have seen repeatedly over the past several months, credit card interest rates can be raised dramatically without warning. Credit card limits can also be cut, reducing your available balance and damaging your credit score. Basically, once you’ve charged your tax debt onto credit card, you’ve put control of that debt in the hands of the credit card company. Have you ever trusted a credit card company that much?
Update: You’ll also have to pay a “convenience fee” to your credit card company—think of it like a specialized type of cash advance.
The IRS may waive certain penalties, or work with you to set up a repayment plan you can afford.
In this economic climate in particular, you may be able to work out something more affordable if you explain your current financial straits to the IRS. At the very least, you should talk to them first to review all of the repayment options they offer.
You may be able to get a loan from your bank or credit union.
Loans are harder to come by these days, but try this route before you grab the credit card. You’ll be able to lock in an interest rate and avoid the “convenience fee” Chase charges.
Ask for a short-term extension from the IRS.
This will be cheaper than either payment by credit card, a bank loan, or an installment agreement.
Consider all of your options, and talk to a professional tax preparer or accountant for advice before you opt for using a credit card. (Professionals can help more than you might think: a few years ago, I had a complicated tax return and went to a CPA. He was able to pick up the phone and get through to actual humans at the IRS to have my questions researched and answered immediately. He also knew the tax law inside and out, naturally.)
In some cases it may by the cheapest option you have available, but you should do the research first to rule out every other option. As we’ve seen time and again, credit card debt has a sneaky way of lingering and eating up more of your money than you initially think—and it keeps you in an unbalanced business relationship with a company that doesn’t have your best interests at heart. The last thing you want to do is feed the credit card monster.
“Filing Late and/or Paying Late” [IRS]