Top 5 Relatively Cheap Ways To Pay Off Tax Debt

May 7, 2023 by Susan Paige

Tax debt can be a significant source of stress and financial burden for many individuals and families. Finding effective yet affordable ways to pay off a tax debt is crucial for regaining control of your financial situation and achieving peace of mind. 

In this blog post, we will explore the top five relatively cheap ways to pay off tax debt and get your finances back on track. 

Utilize Low-Interest Credit Options

One of the relatively cheap ways to pay off a tax debt is to utilize low-interest credit options, such as a personal loan, home equity loan, or a balance transfer credit card with a 0% introductory interest rate. 

These credit options can provide you with the funds necessary to pay off your tax debt in full, potentially saving you money on interest and penalties over time. Before opting for this strategy, find out about forgiveness programs, the interest rates, fees, and repayment terms associated with each credit option to ensure that you choose the most cost-effective solution for your specific situation.

Negotiate An Installment Agreement With The IRS

If you’re unable to pay your tax debt in full, consider negotiating an installment agreement with the Internal Revenue Service (IRS). An installment agreement allows you to pay your tax debt in manageable monthly installments over an extended period, usually up to six years. 

While interest and penalties will continue to accrue on the outstanding balance, the overall financial burden may be more manageable than trying to pay off your tax debt in one lump sum.

To apply for an installment agreement, you can use the IRS’s Online Payment Agreement tool or submit Form 9465, the Installment Agreement Request. Keep in mind that there may be fees associated with setting up an installment agreement, but these fees are generally much lower than the potential interest and penalties that could accumulate if you don’t address your tax debt.

Apply For An Offer In Compromise (OIC)

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An Offer in Compromise (OIC) is a program offered by the IRS that allows taxpayers to settle their tax debt for less than the full amount owed if they can demonstrate financial hardship. While the process of applying for an OIC can be complex and time-consuming, it can be a relatively cheap way to pay off your tax debt if your offer is accepted.

To apply for an OIC, you’ll need to submit Form 656, the Offer in Compromise, along with detailed financial information and a proposed offer amount. Keep in mind that there are fees associated with submitting an OIC, but these fees may be waived for low-income taxpayers or reimbursed if your offer is accepted.

Seek Penalty Abatement

If a significant portion of your tax debt consists of penalties, consider requesting penalty abatement from the IRS. Penalty abatement can reduce or eliminate certain penalties associated with your tax debt, making it more affordable to pay off the remaining balance.

To request penalty abatement, you’ll need to submit a written request to the IRS explaining the reasons for your tax noncompliance and providing evidence of reasonable cause, such as illness, natural disasters, or other extenuating circumstances. If your request is granted, you could potentially save hundreds or even thousands of dollars in penalties.

Prioritize And Strategize Tax Debt Payments

If you have multiple tax debts with varying interest rates and penalties, prioritize and strategize your payments to pay off the most expensive debts first. By focusing on the tax debts with the highest interest rates and penalties, you can reduce the overall cost of your tax debt and pay it off more quickly.

In addition, consider adjusting your withholding or making estimated tax payments throughout the year to prevent future tax debts from accruing. By staying on top of your tax obligations, you can minimize the risk of incurring additional interest and penalties, making it more affordable to address any existing tax debts.


Paying off tax debt can be a daunting task, but there are several relatively cheap strategies that can help you address your tax liabilities without causing undue financial strain. By exploring options such as low-interest credit, negotiating an installment agreement with the IRS, applying for an Offer in Compromise, seeking penalty abatement, and prioritizing your tax debt payments, you can take control of your financial situation and work towards becoming debt-free.

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