Did you know that an installment agreement will end up costing you way more money in the long run? Many people think that applying for a payment plan with the IRS will help them save money – this is not the case. It is very important to realize that you will be spending more money than you have to in order to pay off your debt.
Why does an installment agreement end up costing me more money? This is the question you need to ask yourself before you apply and move forward. Generally speaking, with a payment plan you are asking the IRS to let you pay off your debt over the course of many months. There is nothing wrong with this, but since you are carrying debt they are going to charge you interest. So as you can see, the longer it takes to pay back your debt the more money you are going to owe.
Throughout the duration of the payment plan you will be charged interest on the unpaid portion. Sure, this amount will get smaller as time goes by, but nonetheless you are still paying more than just your original debt.
What can I do to avoid paying more? The IRS suggests that you attempt to pay your debt in full. If you have enough cash available to pay your entire debt you should do so. This may deplete your cash reserves, but in the long run you will save money because you will not have to pay penalties and interest to the IRS.
If you cannot pay your taxes in full an installment agreement is a good choice most of the time. If you just don’t pay your taxes you will be charged with multiple other penalties that will make your tax balance grow much faster. It is a good idea to assess your different options and decided which is best for you over the long term.
As you can see, an installment agreement will cost you more than if you decide to pay your tax debt in full. Yes, there are times when an installment agreement is the only way to go. Many times the interest and penalties that you will pay when entered into an installment agreement will be less than if you borrowed money in a different way, such as a credit card. This is why thousands of people wind up with a payment plan. But remember this: if you don’t have to apply for an installment agreement you should avoid it. This way you can get rid of your debt without paying the IRS extra money. Don’t you owe them enough?
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