Tax Payment Credit Card Hacks Risk Wiping Out Gains With 25.3% Average Interest Rates

The value of a credit card sign-up bonus can be wiped out by carrying a balance, especially with the average credit card interest rate now at 25.3%. For taxpayers using new cards to pay tax bills to earn points, the risk is the cost of borrowing.

Taxpayers are opening new cards to capture sign-up bonuses, some of which offer 100,000 points for meeting spending thresholds. The IRS allows these payments, but they incur a processing fee of 1.8% to 2%. On a $5,000 tax bill, a 1.75% fee adds $87.50 to the balance.

This strategy requires the taxpayer to have the funds to pay off the balance immediately. For those without a clear payoff plan, the points are a negligible gain compared to the cost of interest.

Household credit card debt averages $11,500. According to a CouponFollow survey of 1,000 Americans, 52% of Americans rely on their tax refunds to catch up on bills, and 18% use those refunds to pay off existing credit card debt. 27% of Americans say they cannot afford to pay their taxes if they owe money this year.