Is Taking Out Loans to Pay Off the IRS a Good Idea?Taking out a tax loan to pay off your IRS debt might be a smart move.

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If instead of a tax refund, you’re facing a big tax bill but don’t have the ability to pay it, you could be heading for IRS tax debt, which is not a fun place to be in the new year. And although the IRS does offer installment plans, there are other options to help with tax debt.

These options include taking out a personal loan, home equity loan, bank loans and more to pay your tax bill. GOBankingRates asked a few financial experts for tax tips, so if you owe the IRS money, discover your options here.

Related: The Average American’s Tax Bill in Every State

Not Paying Taxes Costs You More

The cost of a taxpayer not paying federal taxes can be steep, Steven Repak, a Certified Financial Planner and author of “6 Week Money Challenge: For Your Personal Finances.” If you file or e-file a tax return on time and owe money but can’t pay when you file, the IRS will charge you interest on the amount owed beginning on April 15. The charge will come at an interest rate equal to the federal short-term rate plus 3 percent, said Repak. Currently, that would be a total of 3.74 percent.

Not Filing a Tax Return Is Expensive

“If you owe money to the IRS but fail to file a return, you will incur some fairly heavy penalties,” said Repak. “In addition to charging you interest, the IRS will assess a failure-to-file penalty, which is usually 5 percent of the tax owed, per month, or part of a month that your return is late,” he said.

“If your return is more than 60 days late, there is a minimum penalty for late filing, and it is the lesser of $205 or 100 percent of the tax owed, unless your failure to file was due to reasonable cause and not willful neglect,” said Repak. You can find more details on late fees and other penalties at under Topic 653. And don’t forget that if you don’t have health insurance, you could incur an ACA tax penalty.

So, those are the charges you’ll likely incur when you sign up for an IRS payment plan, with a few caveats: “When you sign up for an installment plan, the failure-to-pay penalty will decrease to one-quarter of one percent, and you will be charged a fee of up to $120 to set up the IRS plan,” said Repak. You’ll also have to go through an application process.

Tax Debt Loans

If having a payment plan with the IRS and paying the mentioned penalties sounds terrible, you might consider a personal loan to pay taxes. “Generally, if you can secure a personal loan for less than the IRS rate, it might be a good idea. If you have filed your taxes, that should be about 4.24 percent,” said Repak.

There are other things to consider, said Aaron Hatch, CFP and cofounder of Woven Capital, a fee-only financial planning and investment management firm. He said that a personal loan probably isn’t the best option for most people. “Often, personal loans are unsecured debt, so the terms are unfavorable,” he said.

Related: FAQ: IRS Penalties and Filing Taxes Late

Home Equity Line of Credit

If you can get a lower interest rate than what the IRS will charge, it might make sense to use a home equity line of credit, said Repak. “In addition, the interest charged on your home equity loan might be tax-deductible if you itemize on your taxes, which would effectively reduce the rate of interest you are paying; the IRS interest is no longer deductible,” said Repak. Keep in mind that if you default on your HELOC, the bank could foreclose on your home.

Using a Credit Card

Credit cards would probably make sense only as a last resort because your credit card’s interest rate is probably much higher than the IRS rate, said Repak. You might, however, be able to take advantage of a promotional offer, such as 0-percent interest for a period of time.

These promotions also generally charge you an upfront fee of 3 to 5 percent, Repak said; so you’ll need to compare this to the current IRS rate.

Related: 10 Things You Should Never Put on a Credit Card

Other Considerations

There are a few other considerations if you default on the IRS, said Repak and Hatch. It could seize your assets and garnish your wages, bank accounts, Social Security benefits and retirement income to start with, said Repak.

If you do get into trouble, remember that you have the right to representation, said Repak. You also have other options, such as an offer in compromise. An OIC allows you to settle your debt with the IRS for less than the amount you owe. However, the IRS considers different factors before allowing this, including your ability to pay and your assets. Whatever tax bracket you might be in, if you owe the IRS and can’t afford to pay it upfront, make sure you explore all your options carefully before taking out any kind of loan.