Why do some people go through contortions to avoid paying taxes, yet spend money on expensive financial advice, high-interest loans, etc?
"One is a choice the other is not. While they are both liabilities on the balance sheet, in the real world they are quite different.   We do not feel as much ownership over our money that goes to interest payments as we do over our tax payments.  Taxes pay for our government and the services it provides.  Interest, on the other hand, is what we pay in order to have a bank loan us money.  Similar to paying for a good or service obtained from some other business, we do not feel we have a say in what the bank does with that money.  If we disapprove of a business' practices, we stop doing business with them; assuming there are other choices.  We can not practically avoid dealing with our government.   We certainly feel that we should have a say in what is done with our tax money.  I doubt there is anyone in the world that completely approves of their government's spending.  It is very easy to feel marginalized with regard to our tax payments.  For example, some people feel resentment because their taxes fund the welfare rolls. All that said, I believe there is little overlap between the two groups.  It seems to me that you are referring to those with large amounts of high interest (e.g. credit card) debt.  I doubt that a large percentage of them are scouring the tax laws, looking for deductions and loopholes.  If they had that mindset, they would also be working hard to get out of the hole they are in.   In summary, we choose to pay a financial adviser, to take out a loan or to obtain a credit card.  We do not choose to pay taxes.  Since taxes are supposed to pay for our government and things which should benefit everyone, we want a say in what is done with it.  This is also the case because it is forced on us.  (""Fine son, I'll lend you some money, but I don't want you buying cigarettes with it."")  Since our say is limited and we likely will not approve of everything our government does, we want to exert what control we do have: reduce our payments as best we can." I think sometimes this is simply ignorance. If my marginal tax rate is 25%, then I can either pay tax deductible interest of $10K or pay income tax of $2.5K.    I think most americans don't realize that paying $10K of tax deductible interest (think mortgage) only saves them $2.5K in taxes.  In other words, I'd be $7.5K ahead if I didn't have the debt, but did pay higher taxes. "To some extent, I suppose, most people are okay with paying Some taxes. But, as they teach in Intro to Economics, ""Decisions are made on the margin"". Few are honestly expecting to get away with paying no taxes at all. They are instead concerned about how much they spend on taxes, and how effectively. The classic defense of taxes says ""Roads and national defense and education and fire safety are all important."" This is not really the problem that people have with taxes. People have problems with gigantic ongoing infrastructure boondoggles that cost many times what they were projected to cost (a la Boston's Big Dig) while the city streets aren't properly paved. People don't have big problems with a city-run garbage service; they have problems with the garbagemen who get six-figure salaries plus a guaranteed union-protected job for life and a defined-benefit pension plan which they don't contribute a penny to (and likewise for their health plans). People don't have a big problem with paying for schools; they have a big problem with paying more than twice the national average for schools and still ending up with miserable schools (New Jersey). People have a problem when the government issues bonds, invests the money in the stock market for the public employee pension plan, projects a 10% annual return, contractually guarantees it to the employees, and then puts the taxpayers on the hook when the Dow ends up at 11,000 instead of ~25,000 (California). And people have a problem with the attitude that when they don't pay taxes they're basically stealing that money, or that tax cuts are morally equivalent to a handout, and the insinuation that they're terrible people for trying to keep some of their money from the government." "The bank provides a service that the customer voluntarily agreed to - the bank will provide funds to the customer now and the customer will pay back those funds plus interest in the future.  The arragement wasn't forced onto the customer. The government, on the other hand, takes money (the exchange is not volutary) from people to provide a ""service"".  This frustrates a lot of people - myself included - since people do not have a choice.  They must pay the taxes or go to jail (or have their house confisicated, wages garnished, etc.).  It gets even more frustrating when the government takes money from the people and gives it to the banks, auto companies, insurance companies, etc.." An example, where I live. When you buy a house, the seller wants 'black' money. This is because that way the seller pays less taxes. However, it's not smart for the buyer to pay in black, as the tax reductions are lower. Eventually, when the buyer tries to sell the house, he has to declare the difference, so a higher buy price should not have affected... apart from the notary minutes.
Rule of thumb, the earlier you pay down your balance, the less interest you will accrue and the faster you will pay off the debt as a whole. But lets play with some real numbers here.  You cited $5000 balance and a $750 payment, but with various bills and things adding onto the balance over the course of a month. Now if your purchases and payments add up to the same number, you are in a losing game, so for the sake of argument I am going to say you are putting $500 + interest on the card each month and making a $750 payment.  We also need an interest rate to work with, I am going to use 1%/month and 30 day months to keep the math a bit easier to follow.   You basically have two choices in this scenario, you can pay 750 a month on the card, then use it to make your $500 in purchases/other payments over time as you suggest in your question.  Or you can pay $250, and hold back $500 to make those other payments directly without running them through the card, as has been suggested in some other answers. So let us compare the two... If I start the cycle at $5000, make a $250 payment on the first day of the cycle, then have no other activity, I will have a balance of $4750 for the month and accrue $47.50 in interest at the close of the cycle.  Balance going into the next period is now $4797.50.  Carry this out for a year, and your balance at the close of the 12th cycle is $2431.79, and $431.79 of your payments went to interest. By contrast, if you pay $750 at the start of the month, then add $100 back every 6 days so that you spend $500 over the course of the cycle. You will have an average daily balance of $4466.67, which results in $44.67 in interest charges being accrued at the end of the month.  This gives you a balance of $4794.67 going into the next cycle, putting you about $3 ahead of the previous method.  Push this pattern out for a year and your ending balance is 2395.86, with 395.86 going to interest.  Resulting in a savings of ~$36 over making the smaller payment and paying cash for your other expenses.  If this happens to be a rewards card, you also have gained whatever rewards benefit it gives you. This demonstrates that by the strict numbers game, the scenario you propose should come out a small but measurable distance ahead of making a smaller payment in order to avoid putting things back on the card.  So why do so many people adamantly advise you to not do this?   Most of it has to do with psychology and risk.  The cash method does not leave any room for you to over spend.  You have shredded or locked up the credit card so it can’t be used casually, and when you run out of cash, you can’t spend any more.  Which forces you to pay much closer attention to where your money is going.   When you are running things through the credit card, you generally don’t have that hard stop unless you are up against your credit limit, and even then most issuers are quite happy to let you go over and charge you extra fees for doing so.  So if you have this plan where you are intending to put $500 on the card in a month, then lose track of something you did early in the month, and inadvertently spend $800, you are digging yourself deeper into the hole instead of climbing your way out. There is also a risk in terms of income loss.  In the cash method, you no longer have the money to spend, and you are forced to make the hard decisions about where to allocate what you do have, making you much more likely to cut back on luxury items to preserve the necessities.  In the card method, it is easy to say “eh, the card has room, I can catch up again later” and not realize the mess you are causing yourself until you are in way over your head.  I personally have run all my bills through a credit card in the past so that I could have one single payment to make.  Then I was unemployed for six months, and ended up moving before I found a new job.  Everything in between, including the move, went on the card.  Next thing I know I am carrying a balance of $15k where I used to always have it paid in full.  It took roughly 10 years, including several years of working strictly in cash, to get that back under control. I currently have a card that is carrying a balance, and I am running select expenses (such as fuel and food) through it while I whittle the balance back down.  Most of my main bills are still paid directly from cash, specifically so that I don’t fall back into the same trap I did before.  Even so, there were several months in the past year where the balance was creeping up instead of down, because we were not paying that close of attention to our spending.   Then my wife lost her job, and it forced us to closely evaluate where our money was going.  We still run certain things through said card, but we are much stricter about it being only those select things, and the balance is trending down again.  The main reason we are still channeling those expenses that way is because this is a cash back reward card, and we will be getting roughly $1000 back here in a couple more months. Some have suggested you can put the money in the 401k then take a loan to pay off the student loan debt.  Some things to consider before doing that: Check your 401k plan first.  Some plans allow you to continue paying on a loan if you leave the company, some do not.  If you have to change jobs before you pay back the 401k loan, you may only have 90 days to completely pay the loan or the IRS will treat this as an early withdrawal, which means taxes and penalties.  If you don't have another job lined up, this is going to make things much worse since you will have lost your income and may owe even more to the government (depending on your state, it may be up to 50% of the remaining amount).  There are ways to work with some student debt loans to defer or adjust payments.  There is no such option with a 401k plan. This may change your taxes at the end of the year.  Most people can deduct student loan interest payments.  You cannot deduct interest paid to your 401k loan.  You are paying the interest to yourself though.   It may hurt your long term growth potential.  Currently loans on 401k loans are in the 4% range.  If you are able to make more than 4% inside of your 401k, you will be losing out on that growth since that money will only be earning the interest you pay back. It may limit flexibility for a few years.  When people fall on hard times, their 401k is their last resort.  Some plans have a limit on the number of loans you can have at one time.  You may need a loan or a withdrawal in the future.  Once you take the money out for a loan, you can't access it again.  See the first bullet about working with student loan vendors, they typically have ways to work with you under hard circumstances.  401k loans don't. Amortization schedule.  Many 401k loans can only be amortized for a max of 5 years, if you currently have 10 year loans, can you afford to pay the same debt back in 1/2 the time at a lower rate?  You will have to do the math. When considering debt other than student loans (such as credit cards), if you fall on hard times, you can always negotiate to reduce the amount you owe, or the debt can be discharged (with tax penalties of course).  They can't make you take money out.  Once it is out, it is fair game. Just to clarify, the above isn't saying you shouldn't do it under any circumstances, it is a few things you need to evaluate before making that choice.  The 401k is supposed to be used to help secure your financial future when you can't work.  The numbers may work out in the short term, but do they still work out in the long term?  Most credit cards require minimum payments high enough to pay back in 7-10 years, so does shortening that to 5 (or less) make up for the (probably early) years of compounding interest for your retirement?  I think others have addressed some of this so I won't do the math. I can tell you that I have a 401k loan, and when things got iffy at my job for, it was a very bad feeling to have that over my head because, unlike other debts, there isn't much you can do about it. "So I'm in Australia and we have our very own housing price/credit bubble right now (which is finally deflating) and I'll try explain it as I understand. I welcome anyone to chime in and correct me.  The problem we faced (still face to a large degree) is the idea of rising asset prices and how this fuels a feedback loop into increasing personal debt, all based on the false assumption that house prices always go up. Now before I continue, house prices *do* always go up in the long run, but so does the cost of everything and we call that inflation, adjusting for this effect usually reveals that house prices are cyclical in the long term and never really 'grow'. So that aside we in Australia recently saw a long period of increasing house prices (as did the USA and Europe, and more recently China), the thing about house price is it is your 'equity', I'll try and explain: (all figures are made up to provide a simple example) if you borrow $200,000 to buy a house that costs $250,000 you owe the bank 80% of the equity (what your home is 'worth', and notionally this is value that you own) in your home and the bank will be happy, remembering that they make money on your interest payments, not your principal repayments. If your house then increases in value to $300,000 but you still owe $200,000 then you now owe only 66% of your equity. The bank sees you as a lower risk and encourages you to borrow more to get back up to that sweet spot they had before of 80% - this is a nice tradeoff between risk and reward for the bank. You, the consumer, have just been mailed a new credit card with a 50k limit (hypothetical) and theres a new iMac being released next week, and you really did want to trade in your 5yr old car (see where this is going yet?). Not only is this type of spending given a mighty boost but consumers feel like this house thing has done them very well and suddenly they have the ability to borrow lots more money, why not get a second house and do it all over again? The added demand for investment housing drives prices, throw in some generous government incentives (here and in the USA) and demand is pushed hard, prices grow more and the whole thing feeds back into itself. People feel richer, spend more from their credit cards, buy another house, etc.  But what happens if your house 'value' then drops to $240k? The bank now sees you as a high risk, so do the bank's investors, you have negative equity, the bank demands the difference paid back to it or it might take your home. Somehow, nobody believed this would happen.  Hopefully you start to see the picture? In Australia we are now facing a slow melt in housing prices which has not yet hurt en masse but it has dried up the credit cards, retails spending has collapsed and everyone is worried about the future.  Now to realise where the USA got to you have to also understand that banks were not merely asking for a maximum of 80% owed on the asset, many of them let this figure go to 100%, since hey prices always go up, right? They then in some cases went further and neglected to look into your income and confirm you could even *repay* your loan. Sounds dodgey? This is just the setup.  Remember I mentioned the bank's investors? Well banks/smart people basically figured out a clever way of 'dealing with' the risk of a few outliers with bad financial situations by collecting large numbers of home loans into a single entity and selling it on. Loans were graded according to risk and I believe they were even cut up into smaller pieces (10% of your high risk loan assigned to 10 different 'debt objects' with different risk profiles). These 'collateralised debt obligations' were traded from one bank/investment firm to another with everyone happily accepting the risk profiles until eventually nobody knew what risk was where. Think about it like ""I'll throw 10 high risk loans, 50 medium risk loans and 40 low risk loans into a pot, stir it up and sell the soup as 'pretty safe' "". This all seemed like a very good idea until it gradually became clear just how much of these loans were in the 'extremely stupid high risk' category. This is probably extremely confusing by now, but thats the point, investors could no longer judge how risky an investment in a bank or financial institute was, the market did not correct for any of this until it was all too late.  The moral of the story is when people tell you an investment is guaranteed to make you money, you stay away from that investment. And to specifically answer your question you can't solely blame government incentives as you might be able to see, but they play a part in a giant orchestra, there are many factors that drive this sort of stupidity, stupidity being the primary one." "Two reasons: Many people make lots of financial decisions (and other kinds of decisions) without actually running any numbers to see what is best (or even possible).  They just go with their gut and buy things they feel like buying, without making a thoroughgoing attempt to assess the impact on their finances.  I share your bafflement at this, but it is true. A sobering example that has stuck with me can be found in this Los Angeles Times story from a few years ago, which describes a family spending $1000 more than their income every month, while defaulting on their mortgage and dipping into their 7-year-old daughter's savings account to cover the bills --- but still spending $275 a month on ""beauty products and services"" and $200 a month on pet expenses. Even to the extent that people do take finances into account, finances are not the only thing they take into account.  For many people, driving a car that is new, looks nice and fresh, has the latest features, etc., is something they are willing to pay money for.  Your question ""why don't people view a car solely as a means of transportation"" is not a financial question but a psychological one.  The answer to ""why do people buy new cars"" is ""because people do not view cars solely as a means of transportation"". I recently bought a used car, and while looking around at different ones I visited a car lot.  When the dealer heard which car I was interested in, he said, ""So, I guess you're looking for a transportation car.""  I thought to myself, ""Duh.  Is there any other kind?""  But the fact that someone can say something like that indicates that there are many people who are looking for something other than a ""transportation car""." High taxes and tax breaks have done. Tax breaks can only be accessed if you can essentially afford a descent accountant. For that to makes sense you need to earn a large amount of money. So proportionally the middle classes end up paying the most tax and gets the least for it. Imagine a married couple without a mortgage, but live in a house fully paid for. They pay state income taxes, and property tax, and make charitable deductions  that together total $12,599. That is $1 below the standard deduction for 2015, therefore they don't itemize.  Now they decide to get a mortgage: $100,000 for 30 years at 4%. That first year they pay about $4,000 in interest. Now it makes sense to itemize. That $4,000 in interest plus their other deductions means that if they are in the 25% bracket they cut their tax bill by $1,000. These numbers will decrease each year.  If they have a use for that pile of cash: such as a new roof, or a 100% sure investment that is guaranteed make more money for them then they are losing in interest it makes sense. But spending $4,000 to save $1,000 doesn't. Using the pile of cash to pay off the new mortgage means that the bank is collecting $4,000 a year so you can send $1,000 less to Uncle Sam. "This is ridiculous. Of course some companies don't pay taxes each year. Off the top of my head, NOL's (net operating losses) can be carried forward 20 years and will definitely reduce tax liability. For that matter, a loss during any year prevents paying income tax (though sales, property, ad valorem and other taxes may apply). Other companies may get capital credits, green credits, or other subsidies that might prevent a tax liability. None of these indicate that a corporation is getting away with anything. The IRS is a lot better at its job than most people think.  The point is, you can't look at any individual year and make an accurate assessment of a company's (or even an individual's) tax burden. It's completely dishonest reporting.  Source: I'm a state tax auditor, and my job is to make sure corporations pay what they are supposed to.  EDIT: additionally, 2010 was the heart of the recession for a lot of companies. There were a LOT of corporations that took losses that year. So to say that ""GE took in 14.2 billion and paid no taxes"" is misleading: you have to say WHY they paid no taxes or you're just blowing hot air. Taxes are assessed on **income**, not **revenue**. There is a big difference." I wonder if this comment would be better under a conspiracy. But you know the banks can claim your income tax for payment of your college loans, and that the government is increasing how much you can get back on your income tax. Basically, isn't that just to get government money and giving it to the big banks?