Three Tips for Using a Personal Loan to Pay an Income Tax Bill

[Feb 13, 2010.]

 

Tax season is a time of joy for many people due to the fact that they receive large tax refunds worth thousands of dollars. However, for other people, reporting income taxes is not fun because they end up owing thousands of dollars to the IRS and/or to the state tax authorities.

Taxpayers who do experience unpleasant tax debt may want to consider taking out a personal loan in order to pay that tax debt. But there is a right way and a wrong way to use a personal loan to pay a tax bill, and there are differences between them.

Here are three tips to paying a tax bill with a personal loan:

1. Get a Good Price on Tax Preparation

Some tax preparation places charge outrageous fees. Yes, the tax code is increasingly complicated, but tax preparers should not use that to gouge customers. And yet that is what happens every day all day during tax season.

Especially for taxpayers who owe taxes, paying $300 to be told that you owe $2,000 to the IRS is not cool at all. Instead, find affordable tax preparation that saves money right away. After all, you are going to need that money to pay your actual tax bill.

2. Get the Best Interest Rate on a Personal Loan

For individuals who have good credit, taking out a personal loan to pay a tax bill is a great option because some great interest rates are available on personal loans, some as low as 7 percent. Unfortunately, for people suffering with bad credit, the personal loan interest rates can be much higher.

The point is to compare personal lender interest rates ahead of time to make sure that the personal loan that you choose is the one with the best interest rate.

3. Evaluate Your Other Options

There is more than one way to pay a tax bill, including installment agreements, credit cards, raiding the 401K account, and a personal loan.

Perhaps a personal loan is the right choice, but if you don't evaluate all your options, you'll never know. Taxpayers who hire the services of a competent tax consultant may be able to enlist that professional's help to test out a few different options in terms of the cost.

A personal loan is one choice but there are others that may make more sense in certain situations.

 

About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.