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Refrain from using credit cards to pay off your taxes

2011-04-10

The time to file taxes is just round the corner. Almost all credit card lenders in the United States are urging customers to use their credit cards to pay their taxes, thanks to the convenience it offers. Lenders are not leaving any stone unturned in reminding the customers constantly about the rewards they can earn such as discounts, cash backs and even air miles. The IRS too is egging tax payers to use their plastic cards to make their payments. While the convenience it offers cannot be disputed, the fees associated are also pretty high.

Third party providers process the tax payments made to the IRS. Though the standard processing fees charged by these providers is around 2.35 percent, there are times when the processing fees can go up to 3.93 percent.

Assuming your tax bill amounts to $7500 and the processing fee stands at 2.35 percent, you will end up paying $176.25 as processing fees. These fees get added to your outstanding balance on the card in addition to the total tax amount. Furthermore, if you do not pay off the entire amount in full before the billing date, you will be charged interest for $7676.25. If the interest rate on your card is high, it may take a long time for you to repay this amount.

Despite this, if you intend to pay off your taxes using your card, ensure you check the available credit limit on the card in order to avoid exceeding it. Also remember, that using anything over 30% of the available credit limit will be reported to the credit bureaus and will impact the credit score.