If you know you owe taxes but can’t pay right away, don’t despair. There are options, although some are admittedly better than others. Here a few ways to take care of your tax debt so it doesn’t come back to haunt you. Failing to pay your taxes can lead to a tax lien on your credit reports, which can not only be costly, it can severely damage your credit scores.
Arrange an Installment Agreement
Even Uncle Sam understands not everyone has readily available funds to put toward their taxes. If you’re unable to pay your tax debt immediately, you can arrange to make monthly payments through an installment agreement. If you ultimately pay your tax debt in full, you may be able to ditch the fee for setting up the agreement and other penalties or interest, depending on your specific agreement.
To apply for a payment agreement, you’ll need to file your tax returns. You must also owe $50,000 or less in combined individual income tax, penalties and interest. If you’re ineligible for an online payment agreement, you can still pay in installments by completing and mailing Form 9465, Installment Agreement Request, and Form 433-F, Collection Information Statement.
Get a Personal Loan
A personal loan is another way to cover a hefty tax bill, though you’ll pay interest on the financing and the loan amount and your monthly payment record will be noted in your credit reports. Also, the loan application will count as a hard inquiry into your credit, which will temporarily lower your score.
Keep in mind, you need good credit to qualify for a personal loan at the best interest rates. (You can find tips for improving your credit here.)
You can strive to minimize loan applications by researching a lender’s minimum credit score requirements in advance; the idea is to choose a lender whose requirements are in line with your credit score. (You can see where your credit stands by viewing your free credit report summary, updated each month, on Credit.com.)
Pay With Credit Card
The IRS authorizes many companies to accept credit card payments on its behalf, but these companies charge major fees, starting at 1.87% of the amount paid and running as high as 2.25%. (Debit cards also are typically charged between $2.50 and $3.95 per transaction.) Paying with credit card can be convenient, but it can also be expensive, given that, in addition to the fees, any balance you carry from month-to-month is likely to accrue interest.
If you’re in a jam and won’t be able to pay the charges off right away, you can minimize the cost by using your credit card with the lowest interest rate to pay your taxes. You may also want to look into using a credit card that features a 0% introductory interest rate and paying your tax bill off before its promotional interest period ends. (You can learn more about the best balance transfer credit cards in America here.)
This article originally appeared on Credit.com and was written by Jill Krasny.