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Having tax debt is a major problem for a lot of taxpaying Americans, especially those who are self-employed or own their own business. The IRS does offer settlement options and extensions to pay off the debt, but not all taxpayers qualify. So what do you do if you need to pay off your tax debt and don't have the money? You could try taking out a loan. However, there are potential downfalls to taking this route.

What Loans Are Available?

If you're thinking of taking out a loan to pay off your tax debt, there are some options available to you:

1. Personal loan: If you owe more than you can handle in tax debt, you might try a personal loan to pay back the debt then simply owe the bank. However, there are two potential problems with personal loans. One is that interest rates could rise if you secure it at a variable rate, making repayment more difficult. Also, if you don't have the best credit, you may not qualify for the loan, forcing you to try other options.
2. Home equity loan: Another option that you may consider is a home equity loan. If you have equity available in your home, this is a good option because you will receive on lump sum that could help you not only pay off your debt, but also leave you with the possibility of receiving tax deductions. (Find other tax deductions you might have forgotten)

Is Taking Out a Loan a Good Idea?

Some wonder if taking out a loan is a good idea, considering that they already owe money. One way to determine whether it's worth it is to look at the amount of interest and penalties the IRS will tax you if you're late making payments - or even if you consider an installment agreement or settlement option - versus taking out a loan.

Since interest from the IRS is high and is compounded daily, and you could have a lien placed on your property or your wages garnish for tax debts, some determine that taking out a loan is a better option.

So do you think a loan is right for you? Again, it's a matter of looking at how much you owe, as well as the penalties and fees you might face versus the interest rates of a loan. Whichever one results in the lowest debt for you is the best route to take (if you're not sure how to make the calculations, consult a tax professional for assistance).

President Barack Obama has a plan to cut the federal student loan payments of millions of Americans. His plan, which was originally announced on Monday, would lower the top payment that a borrower could make above a specified amount.

The Basics of Obama's New Proposal

Under Obama's proposed plan, he would cap payments on federal student loans at 10 percent of a borrower's income above 150 percent of the poverty level for the borrower's family.

To better understand this idea, if you are head of a family of four, your federal poverty level would be $22,050. If you make less than 150 percent of this poverty level, which would be $33,075 (the set minimum), you would pay nothing on your students loans on a monthly basis.

However, if you make more than the set minimum then you will pay a monthly student loan amount that equals 10 percent of your income $33,075.

Originally, the same family would have had to pay what equals 15 percent of their income above $33,075.

Will the Reduction Make a Difference?

If you're wondering whether this adjustment will make a difference, here is an example proposed by Forbes Magazine:

• Under the old plan: If a borrower has an adjusted gross income of $30,000 and owes $40,000 in student loans, he would pay off the debt for $170 (based on 15 percent of his income).
• Under the new plan: If the borrower pays back his loans under the new plan, he would pay back $115 a month (based on 10 percent of his income).

Either plan is more affordable than what the borrower would have to pay without caps, which would be $460 a month over 10 years.

Another adjustment in proposal is that the debt, if not paid off in 20 years - assuming that the borrower has made qualified payments over this time - will be forgiven. This was adjusted from a 25-year period.

How do you feel about the student loan repayment adjustment the president is proposing?

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