Paying off your tax debt can be a tough proposition – especially if you owe a significant amount of money. Many people can’t afford to outright pay their tax debt and one option to obtain tax debt relief is to borrow money, whether in the form of a bank loan, refinancing on a property, or even obtaining a personal loan from a friend or family member. A common question that arises is whether it is a better idea to borrow money from a bank or friend, or if it is more prudent to enter into an installment agreement with the IRS?
When you approach this question, the most important thing to look at is which option allows you to save the most money while repaying your tax debt. Let’s look at an example. If you have $10,000 in tax debt and you enter into a 36-month installment agreement with the IRS, your payments could be as high as $339 per month! In addition, you have to pay an “installment agreement user fee” that can be as high as $105. This all adds up and in the end, expect to pay a total of around $12,000 to pay off your $10,000 debt. Sure, you can do it over the course of time, but you end up paying an extra $2,000 out of your pocket – making tax debt relief even harder to achieve.
A better option is to take out a loan from a bank or other financial institution. With the same amount of tax debt ($10,000) and loan period (36 months), chances are you will end up saving money! For example, if you secure a loan with a 7% interest rate for 36 months, you will ultimately pay $11,115.72 – a savings of over one thousand dollars! Even if your loan’s interest rate is as high as 13%, you can save around a hundred dollars over the course of the loan!
Before entering into an installment agreement with the IRS, always check with your bank to see if you can obtain a low-interest loan to help you achieve tax debt relief – it will save you money in the long run.