Borrowing Money from Credit Card? At 25-30%? Think Again
The interest one pays on a credit card is onerous. It can be in the 7% range for an excellent customer or up to the normal 18-22% area. Some even gouge you at 25-30%. It all depends on your history, your balances and other factors—like can they get away with it. Obama is looking to get a credit card “Bill of Rights” from Congress so people can understand what they are getting into. Some in the legislature want to limit rates and pass laws to regulate how the credit card companies do business. Of course, the credit card companies feel that simple marker competition will keep them honest and rates reasonable. You be the judge on that one.
How can you put a hefty tax payment on your credit card with these kinds of interest payments? Sit down and calculate what you would have to pay off in a final payment if you borrowed $10,000 at 18% interest for a year. That is $1800 per annum in interest; or $150 per month. At 25%, that is $2500 extra per year. If you have it, fine. Remember though, that this interest is not tax deductible either. Another loss in the tax battle for next year’s writes off. Now that is just interest—the final tab keeps on growing unless you can pay the principal down quickly. You may be in a downward spiral of increasing debt with the interest added onto interest. Up and up and up. If you had the money coming to you in a few weeks or a month from another source, then maybe you could justify it. But even so, it would seem foolish to me.
Why is it foolish? Well that is simple. There are better ways to borrow money. Does a family member have it? If so that may be an interest free loan—check with you accountant. How about a home equity loan? That is doubly good in that the interest is tax deductible. If the answer is none of the above then the answer is straightforward. If you have a payment due on your taxes for April 15th and you don’t have the cash to pay it, you simply talk to the IRS. Call them up of go on line and get the correct forms for a payment plan. You can set up a payment plan at current interest rates and pay it off according to your formulated plan. The interest rate is much lower than any credit card. The IRS will work with you on this in order to get their payment. It may not be what you want but it may prove doable. Plus, you avoid any other potential illegal activities like avoiding your tax altogether. Remember, if you don’t file on the 15th of April, then things are going to be even worse.
Don’t put anything like taxes or any major purchase on a credit card. There are better ways. Look for them.
August 27th, 2009 at 5:42 pm
The credit card industry has a new way of damaging peoples’s credit scores. They are reducing credit limits to within a couple hundred dollars of peoples’s balances. This effectively raises the percentage oge credit used and will lower the credit score of the individual. With no other factors changed, I have had limits reduced by 3 major issuers which has raised my debt ratio from 35% to over 80%. These are the same companies that the us government gave money to to help with housing market. But now they can say that they can’t lend to people with bad credit scores. But they have manipulated the scores.
this is the worst type of fraud that is being perpetrated of the public. Why is no one talking about this? Why is no one investigating these companies?