Should I pay off my tax debt before my credit card debt? Experts weigh in

As the cost of living has increased, so has outstanding credit card debt. By the end of December 2024, outstanding credit card balances reached $1.21 trillion, according to Federal Reserve Bank of New York data. This represents a 4.0% increase from the previous year. 

If you're one of the many Americans in credit card debt, you might also get some unfortunate news this tax season and realize that you owe taxes as well. And, with money tight, you might face a difficult decision and wonder what to pay first — tax debt or credit card debt. We spoke with tax and financial experts to help you navigate this decision. 

Find out how to get help with your delinquent tax debt.

Should I pay off my tax debt before my credit card debt? 

If you're juggling tax debt and credit card debt, you're dealing with the Internal Revenue Service (IRS) and your credit card companies. Both entities can take action to get you to pay what you owe. However, one has far more reach than the other. 

"The IRS has significantly more power to take your money to satisfy the debt. In other words, their ability to force you to pay the debt is far greater," says Stephen A. Weisberg, principal attorney and founder at The W Tax Group, a nationwide tax defense company. 

You'll get a notice at first about paying taxes and what you owe. But if you don't take action, the IRS has multiple strategies to recover the money. 

"The IRS can garnish your wages, seize your assets, and levy your bank accounts just because you owe the debt," says Weisberg. 

Since the IRS is a part of the federal government, they have the tools and resources to collect tax debt. Credit card companies can take action as well, but they can't collect in the same way. 

"Conversely, credit card companies must take additional steps to get you to pay. They can call, send notices, and report you to the credit agencies, but they can't force you to pay until they sue you and get a judgment against you in court. It takes time and it's difficult for them to collect from you," says Weisberg.

Compare your credit card debt relief options.

Consider interest rates 

Credit cards have notoriously high interest rates that have only gone up in the last few years. The average credit card APR is nearly 23% currently, a record high. 

If you don't make a credit card payment for 60 days, you could trigger the penalty APR and your rates will go up even more. Interest rates on tax debt can change but are currently sitting at 7% for underpayments for the first quarter of 2025. 

While your credit card debt might have higher interest rates than your tax debt, the experts we spoke to generally recommend paying off tax debt first. 

"Generally, the consequences of IRS debt (liens, garnishments) make it a priority to pay off first, even if the interest rate is lower than credit card debt," says Jeffrey P. (JP) Dowds, CFP®, CPA, and senior wealth advisor at Marshall Financial.

While you should focus on your tax debt first, that doesn't mean you should stop paying off credit cards. 

"Prioritize your tax debt with the highest interest and penalties first, then work on paying the credit card debt with the highest interest rates next. Meanwhile, continue to make the minimum required payments on all debt," says Christine Damico, certified financial professional at Domain Money.  

Weigh the consequences of not paying 

If you don't make your tax payment, you could get hit with a failure to pay penalty, which is 0.5% of your unpaid tax each month up to the 25% cap. Be aware that this is different from the failure to file penalty, which is 5% of the tax due each month up to a maximum of 25%. 

"File your tax return even if you can't pay. It's crucial to avoid further penalties and negotiate payment plans," says Dowds. 

On the other hand, not making minimum credit card payments can lead to late fees and damaged credit. Late credit card payments can show up on your credit report for seven years. 

Consider options based on the amount of debt 

Depending on how much tax debt you have, you may qualify for a short-term or long-term payment plan with the IRS. 

• Short-term plan: To qualify, taxpayers must owe less than $100,000 and have up to 180 days to repay the debt. 
• Long-term plan: To qualify, taxpayers must owe $50,000 or less and have up to 72 months to repay the debt. Also referred to as an installment agreement. 

If your tax debt amount is overwhelming and your financial resources still can't make it work with a payment plan, there's another option. 

"You can also apply for an Offer in Compromise (OIC) to settle for less than owed," says Dowds. 

Similarly, for those experiencing financial hardship, Damico recommends contacting your credit card company and requesting a reduced interest rate or the possibility of delaying payments. If they agree, get everything in writing. 

Another reason to prioritize paying off tax debt first is that you may have more flexibility to pay off credit card debt. 

"Credit card companies generally have more options for managing the debt, such as negotiating low payment plans, lowering interest rates, and debt settlement plans that forgive a part of the debt," says Weisberg. "You can get rid of credit card debt through bankruptcy much easier than tax debt."

You can look into a range of credit card debt relief options, such as bankruptcy, a debt management plan, and debt settlement. 

Experts agree: pay tax debt first 

The experts we spoke with agree that if you have both tax debt and credit card debt, you should focus on paying off the tax debt first. Given the scope of the IRS and federal government, you want to clear your balance with Uncle Sam or face serious consequences. 

Learn more about how tax relief could benefit you now.

The bottom line 

Owing taxes and managing credit card debt can feel overwhelming. While experts agree that tax debt should be taken care of first, while making at least minimum payments on your credit card debt, you can look for support for both types of debt. The experts we spoke with recommend looking into the Taxpayer Advocate Service, the National Foundation for Credit Counseling (NFCC) and the Foundation for Financial Planning's Pro Bono service. You can also research legitimate credit card and tax relief options. Getting additional support can help you manage both and be an important part of your debt payoff strategy.