Saturday, January 30th, 2010

To boost my credit score is it better to use money to pay off a federal tax lien or credit debt?

tax credit score
A.J. G asked:


I have some cash and want to improve my credit score. I have an IRS tax lien for about the same amount as my outstanding credit card balances. What would be a better action? Should I pay off the tax lien, currently on installment, or should I pay off credit card debt?

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6 Responses to “To boost my credit score is it better to use money to pay off a federal tax lien or credit debt?”

golferwhoworks Says:

pay the IRS first. then revolving to anout 30% of credit limit per card

Anjell Says:

Alway pay credit card first because it has the higher interest rate. What you can do is approach both. Use whatever amount of money that will bring your credit balance current. If not the full amount then just enough so you’re not over due.
Apply the rest to the tax installment loan so that you reduce your debt to income ratio on both accounts.

trilabyter Says:

If you owe more than 70% of the limit on your credit cards, it may help to pay them down at least part way. If the credit cards are below 70% of the limit, I would suggest taking care of the tax lien.

Karen S Says:

Pay what is required on every account. Then put the rest toward the tax lien. That is what I think I’d do. However, since you already have an installment plan on the lien, you should probably pay off the credit cards if they are at a higher interest rate. Once the cards are paid off, do not charge more than you can pay off each month.

kindoflost20 Says:

Pay the IRS first… their scary. Ask if you could lower the intrest rate in your cards.

OC1999 Says:

You don’t say if the CC Debt is current(but just excessive) or actually delinquent and in collections.

If the CC Debt is current pay off the lien. As the lien is harming your credit more than the Credit cards are. Also, even though you are on a payment plan the IRS could take further action and has more “tools” to get you to pay than the Credit Cards do.

If the Credit Cards are in collections and they could successfully sue you, that is you are still in the Statute of Limitations. It MAY be to your advantage to take care of these to avoid additional judgments from showing up on your report.

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