One Credit Card Mistake To Avoid During Tax Season
Not everyone gets money back from the government during tax season. For those who have to pay up there's one thing you definitely shouldn't do - pay with a credit card.
According to the IRS 80 percent of Americans who file taxes will get money back from the government. That means 20 percent of tax filing Americans are paying taxes they owe. These people can be business owners, contractors, freelance workers and more.
Those who owe money can expect to pay an average of $5,294 according to Magnify Money. That's a pretty significant chunk of change. But even if you don't own quite so much you still shouldn't use a credit card to pay and here's why...
There are fees associated with making a payment to the IRS with a credit card. For the most part you can expect a fee of around 2 percent but if you are using a tax filing service that can increase to 2.5 to nearly 4 percent.
If you are putting a $5,000 tax bill on your credit card and you can't pay it off immediately you can expect to see some serious accrued interest which can snowball quickly. The best way to avoid submerging yourself in debt is to avoid it all together and pay by check or utilize the IRS's tools for making payments in installments.
Charging a large amount and then having that sit on your card accruing interest can make it more and more difficult to make full on-time payment, which can impact your score. Charging it can also negatively impact your credit utilization ratio, which can also impact your score.
What If You Can't Pay At Once?
If you can't pay at once utilize the tools provided by the IRS. You can choose from several different arrangements to have money automatically withdrawn on specified dates to cover your bill in increments that don't bankrupt you. You will have to pay a setup fee for the plans (the lowest at $31 and highest at $140) but you would ultimately pay less than the fees and interest of a lingering credit card transaction.
We're here to help you rebuild and understand your credit. Give us a call to get started or learn more about what we can do for you 1-800-431-0449.