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I have a tax debt of ~$3000 and am trying to find the best method of paying it. I applied for a credit card that offers 0% APR for the first 12 months. As far as I can tell, this is a much better option than setting up a payment plan with the IRS because I'll dodge late fees and interest as long as I pay off the credit card with the first 12 months of having it and making regular payments on my credit card will boost my credit score. Am I missing something here? Why isn't this a good idea?

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    Possible duplicate of Are there any catches to a bank's offer of 0% convenience checks?
    – keshlam
    Apr 29, 2016 at 4:46
  • Depends, whats the APR in the end for if you accidentally overshoot the year goal?
    – James T
    Apr 29, 2016 at 9:50
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    The linked potential duplicate is similar, agreed. But, the accepted answer is relatively light on details. If no big objection, I'd like to close that one as dup, in favor of this, with @mhoran's detailed answer.
    – JTP - Apologise to Monica ♦
    Apr 29, 2016 at 10:16
  • @JoeTaxpayer It's not clear that the OP is talking about using a convenience check.
    – Ben Miller
    Apr 29, 2016 at 12:13
  • No, he's not. Although the fee for convenience check vs charging a tax payment are similar. Either way, I prefer to see this one stay open.
    – JTP - Apologise to Monica ♦
    Apr 29, 2016 at 12:34

2 Answers 2

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There are several things to consider with this plan.

  • Most low percent for x months cards or offers have a penalty interest rate if you don't completely pay it all off on time. In some cases that will mean that they could hit you with all the interest they could have charged you with, just at the moment you thought you had finished paying off the debt.

  • They can also have a penalty rate if one of the payments is late.

  • There can be a fee charged by the IRS to even use the card. From the IRS page Pay your Taxes by Debit or Credit Card, the fee is 1.87% to 2.25%. So you may have to do a cash advance from the card to the bank account before sending the money to the IRS to avoid this fee.

  • If you do use the cash advance feature of the card, make sure the fee for that isn't too high.

  • Don't use the card for anything else until the IRS debt is paid off. Otherwise additional purchases will not get the grace period, and could incur interest charges from the day of the purchase.

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All of @mhoran_psprep's points are valid things to consider.

At the same time, the IRS is not a fun entity to owe money to. The penalty and interest clock will be ticking, and the IRS has debt collection options that no one else has, such as wage garnishment. You can compare the fees for dealing with the IRS and the fees for using the credit card and see which is better. Alternatively, a loan from a credit union might end up being a cheaper solution.

No matter which way you go, you'll want to pay this debt as fast as possible.

If you do decide to deal directly with the IRS, this article from U.S. News does a good job of discussing the procedure and also the possibility of getting a first-time penalty waiver. The IRS also has its own page about your payment options.

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