The Lesser of 2 Evils

While Dave Ramsey doesn't usually recommend borrowing money, paying off misfiled taxes is an exception to the rule. (Postmodern Studio/Shutterstock)

Dear Dave,

My husband and I are following your plan, and we’re on Baby Step 2. We just learned that the person who has done our taxes for the past three years made mistakes on all our returns. They were really nice and did our taxes for free, but now, we owe back taxes in the amount of $18,000. Since we’re still paying off debt, the only savings we have is the $1,000 in our beginner emergency fund. Should we take out a personal loan to take care of this, or set up payments with the IRS?

—Laura

Dear Laura,

Take out a personal loan. Period.

Let this sink in for a minute. How often does Dave Ramsey tell people to borrow money? Almost never. Why am I doing it now, in this situation? Because the IRS is the worst creditor on the planet. It has almost unlimited power, which it uses and abuses, and it has ridiculously high penalties and interest rates. With a personal loan from a local bank or credit union, you’ll at least have more input and flexibility in deciding the terms of the agreement.

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Now, I don’t know about you, but if the person doing my taxes screwed things up to the tune of $18,000, I’d find someone else in a heartbeat. I understand you want to work with someone nice, and free is usually a great price. But in this case, free was not so free after all.

Just go to your local bank or credit union, explain the situation, and see what you can work out. I always recommend small banks or credit unions over any of the mega banks. Places such as Bank of America and Fifth Third just have no soul or empathy whatsoever. And the customer service at a credit union or small bank is a hundred times better than what you’ll find at a big bank. Sure, they’re still bankers, but there’s a human element in there. You’re not just a number to them like you are to the mega banks.

I hate debt, Laura, and I’m sorry you guys are in this situation. But 100 percent of the time, I’d rather have personal loan debt than IRS debt. In my mind, it’s the lesser of two evils.

—Dave