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Some considerations about paying your taxes with a credit card

While many people will be out enjoying the warmer temperatures this weekend, many others will be sitting at their kitchen tables or in front of their computers desperately trying to get their taxes done before Monday's deadline.

As anyone who has already completed their taxes for this year knows, this can prove to be a frustrating, exhausting and altogether nerve-wracking experience. That's because as you shuffle through paperwork and read the arcane IRS publications, you will undoubtedly have a multitude of questions. In fact, you will probably have questions once your return is complete about how to submit it and, of course, how to pay your tax bill.

Given the proliferation of tax preparation software, many people may people will be tempted to simply punch in their credit card number and go on their way. While this is understandable, experts indicate that they might want to take a few factors into consideration before paying their taxes with plastic.

  • Installment plans: If you are short on funds in your bank account to cover your entire tax bill before the deadline, a credit card is a viable option in that it can help you avoid the IRS penalties that come from late payments. However, experts indicate that if the tax bill is high, a person may want to give serious consideration to the idea of setting up an installment plan through the IRS, as it may end up costing them less over the long run than using a credit card when you factor in the interest that will need to be paid.
  • Credit utilization: Using a credit card to cover a small tax bill is typically not a problem. Problems can arise with something known as the credit utilization ratio, however, if the bill is too high or high enough to put you near your credit max. For those unfamiliar with the credit utilization ratio, it measures the ratio of available credit to outstanding debt. If the number is too high, it can negatively affect your credit score. As such, experts advise people to at least make sure the tax bill won't be excessively high for their credit card.

Above all else, it's important for people who are no longer able to manage their credit card debt despite their best efforts to understand that they have options. To learn more about the fresh financial start offered by Chapter 7 or Chapter 13 bankruptcy, consider speaking with an experienced legal professional as soon as possible.

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