According to Bankrate, 61 percent of Americans do not have the money they need to cover an unanticipated tax bill. However, a personal loan may be the answer to their problems.
A personal loan is an installment loan with fixed monthly payments that can be paid over a certain period of time. It’s money that can be used for anything you need it for – although some lenders do have some restrictions on how the money is used. One thing lenders do agree on is that the money can be used to pay taxes to the IRS. Still, before you go this route, make sure that it’s the right thing for you.
3 Ways To Pay Your IRS Debt Off
Personal Loan Lenders
Lenders like Avant, Earnest, Prosper and SoFi make the application process easy with an online application process. If approved, the money hits your account quickly. With a few simple pieces of information, you can get pre-qualified for a loan.
Some lenders will charge you for origination fees while others charge nothing. Interest rates can vary from one lender to the next, with some offering rates as low as five percent.
You could also choose to get a personal loan from a financial institution such as blue sky financial loans , a credit union or traditional bank. If you’re a customer with the bank, you could get a special interest rate discount.
No matter what you decide, you need to look at the different options available to help you pay your taxes – compare each offer to find the one that makes the most sense to you.
What You Must Have To Be Approved For A Personal Loan
- Good credit (640 or higher)
- Low debt-to-income ratio
- Some type of income to repay the loan
If you don’t meet one or more of these requirements, you could get a secured personal loan, which means using collateral of some type to ensure you repay the loan. If you default, the bank can repossess the item you secured. While they come with lower rates, they are riskier in the grand scheme of things.
Set Up An IRS Repayment Plan
Before you apply for the personal loan, consider a repayment plan from the IRS. Does it make sense to pay it off a little at a time or all at once with the personal loan?
With the repayment plan, you are charged interest on unpaid balances; there is a five percent or more penalty fee if you filed late and you may pay $135 or 100 percent of the unpaid tax amount (depending on the amount owed).
Be sure to reach out to the IRS to learn more about the option and what other fees you could end up paying back.
Using A Credit Card
Another option besides a personal loan is using your credit card to pay the tax bill. However, if you go this route, the IRS will charge you a convenience fee (usually two percent) to pay the bill. Be sure to have a card that offers a zero percent APR promotional period, so you’re not paying any interest. You want to pay off the loan before the promotional period is up.
How To Reduce Your Tax Bill For The Next Year
When it comes to your tax bill, you want an option that saves you on fees and interest. Use a personal loan calculator to help you determine what the fees and interest rates will be before you apply for a personal loan.
Still, you don’t want to contend with this every year, so consider making some necessary changes to your tax bill. Make some adjustments on the number of exemptions to make on the W-4.
Set up an emergency fund, with some of your paycheck automatically being directed into the savings account before it’s deposited into your checking account. If you have an unexpected expense, you can pay the debt off using that money instead of a personal loan.