When is it worth paying taxes with a credit card?
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Since tax season is here, many conSumers might be wondering how they’re going to pay the IRS this year.
You can pay taxes with your credit card, but it usually comes with fees. A minimum payment processing fee of between 1% and 2% will apply. The IRS breaks down the fees for each payment processor here.
Your credit card will be charged in addition to the payment processing fees interest unless you pay your balance at the end of your billing cycle (on average around 15.78% loud The latest data from the Fed).
But sometimes it can make sense to charge taxes on your credit card, even though it’s not usually recommended. Choose spoke to Ashley Patrick from Budgets made easy who took advantage of a 0% APR offer that came with her Bank of America® Customized Cash Rewards Credit Card Paying $6,000 in taxes in 2015.
At the time Patrick had some money to savebut she didn’t want to drain them emergency fund to pay their tax bill. She and her husband wanted to pay for it over time and when she got that 0% offer from your credit cardit gave her the opportunity to pay her taxes interest-free for 18 months (although Patrick and her husband were able to pay it back quicker).
Patrick and her husband have since taken steps to ensure they are more financially prepared and rely less on credit cards for large expenses. The couple now have six months worth savingsno debt and they pay off their credit card balance every month.
“My experience with [my credit card] It was pretty easy,” says Patrick, explaining that it saved her from stress because she didn’t owe the IRS any money and she didn’t have to use all of her savings.
It also inspired her and her husband to reconsider their finances. When they couldn’t raise enough money to pay their taxes, they decided to take stock of how they were spending and learning how to save more. They cut theirs to eat out Halve your budget and use that money to pay off debt.
“Having the money owed on my credit card sparked my search for debt-repayment plans,” says Patrick, who continued to pay off a $14,000 car loan and $25,000 in student debt immediately after credit card repayment.
“It was the catalyst that launched us on the journey to financial freedom,” says Patrick.
Now Patrick and her husband have six months of savings in an emergency fund. Experts say that money in a Savings account with high return is one of the best ways to stay ahead financially because when unexpected expenses arise, you’ll be prepared.
“For us, financial freedom doesn’t mean worrying about the next paycheck,” explains Patrick. “I’m not worried about my husband losing his job… Even now with Covid-19 my husband has lost 25% of his income and we are not stressed. For me, that is financial freedom.”
If you have a large payment to make that you didn’t have time to save for – a large tax bill or emergency expense – a 0% APR Credit card, like that of Citi Simplicity® card or the US Bank Visa® Platinum cardcan be a good support.
Remember you need Good to Excellent Credit to qualify for these and others best interest free cards. And once you’re approved, you often have to wait for the card in the mail unless you get a card with you instant access.
But if you’re short on time, you can check if any of your current credit cards have a 0% APR convenience check offer, which Patrick used. Convenience checks often count as cash advances come with their own fees. Make sure you do the math to see if the money you save in interest is more than what you pay in fees.
If using a 0% APR credit card isn’t an option, another option is a short-term one private loan.
Personal loans have a lower average APR than credit cards (around 9.5% according to the fed). Their interest rate is usually fixed, which means you pay the same monthly rate until the loan is paid off. You can repay a personal loan in as little as a few months or as long as three years, and sometimes even longer. Longer maturities usually have higher APRs.
Getting a personal loan can sometimes be easier than getting approved for a new credit card, which is something to consider if you have one fair or average creditworthiness. This is especially important while you keep track Card issuers are tightening the requirements for new credit cards.
Paying taxes with your credit card is not recommended due to processing fees and the possibility of paying interest if you cannot pay the balance immediately. But if that choice is the only one available to you, it might be better than owing to the IRS.
If you think about it with a credit card To pay taxes, be sure to review the APR and create your debt-payment plan. You may also consider looking for ways to revise and reset your budget savings goals and be motivated to pay off all other debts.
Editorial note: Any opinion, analysis, review, or recommendation expressed in this article is solely that of Select’s editors and has not been reviewed, approved, or otherwise endorsed by any third party.