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Using an Offer Letter as Proof of Income for Graduate Student Loans

Typically, when you apply for a loan, the lender wants proof of income, aka proof that you can pay them back. For graduate students, this can pose a catch-22, since they are going to school in order to become gainfully employed. The customary workaround: having a co-signer on the private student loan.

But some graduate students, perhaps MBA, law school or computer science students about to start their final year, may have offer letters of employment for when they graduate. Wouldn’t it be great if they could submit those offer letters as proof of income—a practice used in mortgage lending?

How Common Is the Practice of Using an Offer Letter as Proof of Income?

Certainly, accepting offer letters as part of graduate students’ applications is a break with custom. The only company currently doing so is actually SoFi. For graduate private student loans, SoFi now accepts an offer letter as a form of income for eligible borrowers.

When a loan applicant can submit an offer letter as proof of income, a co-signer may no longer be needed. Read on for more ways an offer letter may strengthen the loan application and empower the funding process for the student.

Using an Offer Letter as Proof of Income

Given how much a student likely already has on their plate—especially if they are a soon-to-be (or current) graduate student—chances are they want the student loan application process to be as straightforward as possible. Needing to supply an additional document might sound like an extra hassle.

But there can be plenty of benefits to using a job offer letter as proof of income on a student loan application—and doing so may even help save money in interest over the long run if the student qualifies for a lower rate. Here are a few other things to consider.

Qualifying Without a Co-Signer

A student loan co-signer is, as the name implies, a second person who signs a loan along with the borrower—and who is therefore also responsible for the debt should the borrower fail to pay. In the case of student loans, co-signers are often parents or guardians, though other relatives and even friends can be co-signers, depending on a lender’s criteria.

In many cases, it can be hard for graduate students to qualify for additional student loans without a co-signer, particularly if they’re young and newly graduated from college—which probably means their credit histories are short and their income is limited.

Some private loan companies even require a co-signer in order to apply, which can be a major pain if mom or dad have decided to cut off the gravy train once and for all.

Because a job offer letter demonstrates the applicant’s individual earning potential, using one in a student loan application may empower students to be able to qualify without a co-signer (if the loan company doesn’t expressly require one).

Even if the applicant does have a willing co-signer, it can be empowering to seek out educational funding completely on their own terms.

Increasing Approval Chances

Even if a graduate school student loan applicant does still elect to have a co-signer, using an offer letter as proof of income may help increase the chances of approval. When it comes to borrowing large amounts of educational funding, every little bit of qualification can help.

Potentially Qualifying for a More Favorable Rate

With or without a co-signer, additional income validation in the form of a job offer letter may be able to qualify you for a more favorable interest rate—which may potentially mean savings over time. It is important to remember that this is just one of the many factors that lenders take into account when determining which rate you qualify for.

This can be particularly valuable when graduate students are adding to an existing student debt total, and in the case of private student loans, which typically carry higher interest rates than their federal counterparts.

What’s the Process of Using a Job Offer Letter?

To use a job offer letter as part of your student loan application package, the applicant will need to include the letter in their application materials.

Depending on the loan company’s process, the letter may be uploaded directly online or a copy included in a mailed-in application. Offer letters typically include a start date and pre-tax pay rate so the lender can accurately assess how the offer augments the application.

Funding a Graduate Education with SoFi? Your Offer Letter Could Help

Students may already know that SoFi offers a range of private student loans—for undergraduates, graduates, and parents. The loans carry competitive interest rates and are free of origination, late, or insufficient funds fees, and they’re getting even better.

SoFi now allows graduate, law, and MBA students to use a job offer letter as proof of income in addition to, or instead of, adding a co-signer to their application.

While students should exhaust all their federal student aid options before considering a private student loan, sometimes additional assistance is necessary to handle the expense of graduate studies or professional graduate programs.

Getting a rate quote for a SoFi private student loan takes three minutes and won’t affect your credit score¹.

SoFi members can also qualify for perks like rate discounts on additional loans, career services, and more. With competitive rates and multiple repayment options, SoFi Private Student Loans might be just the thing for you and your budget.

Ready to take your education to the next level? Check out SoFi’s full range of private student loan options.


Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.¹
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Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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Can the President Cancel Student Loan Debt?

On the 2020 presidential campaign trail, Joe Biden ran in part on a student loan reform platform. On top of suggesting potential changes to existing federal student loan forgiveness programs, Biden floated the possibility—both in Tweets and in campaign speeches—that he supported a proposal to forgive $10,000 in federal student loan debt. All of this might lead borrowers to wonder, “Can the president cancel student loan debt?”

Still, the economic upheaval brought about by COVID-19 has underscored the demand for student loan reform—by members of both the Republican and Democratic parties. But, different governmental leaders have diverging ideas of how student loan reform might get addressed.

Presently, there’s no clear answer to how student loan relief will be handled—including whether the new president aims to forgive some federal student loan debts. Student loan reform is likely to remain a political lightning rod in the upcoming months and years.

Right now, the Congressional balance is in limbo until the Georgia runoffs for Senate on January 5, 2021. And regardless of the outcome of those races, new legislative proposals can often take months or years to wind their way through the US Congress. Proposals passed into law can often look quite different than the campaign talking points.

While the political environment is evolving quickly and there’s a lot of uncertainty, here’s an overview of some ways the next president might tackle the question of student loan forgiveness—including a discussion of which sorts of student loans could be impacted.

Can the President Forgive Student Loan Debt by Executive Order?

So, can the president unilaterally cancel student debt? Such sweeping federal student loan reform has not yet happened via an executive order. And, given the close partisan split in Congress, it’s uncertain whether the next president will opt to pursue student loan cancellation via executive action.

Recently, current Senate Minority Leader Chuck Schumer suggested that President-elect Biden could have the power of executive order to eliminate up to $50,000 of student loan debt. And, while it may technically be under the legal authority of a president to forgive federally-issued student debt, Biden has not indicated that this is something he would undertake by executive order.

An executive order cancelling student loan debt would likely be a controversial move. Consequently, it may be more likely that the next president would use executive orders to extend a pause in federal student loan repayments. As part of the CARES Act, which passed in March 2020, debt repayments to existing federal student loans were put into forbearance and interest was set at 0%.

President Trump then signed an executive order in August, which extended the suspension of payments and 0% interest through the end of 2020. Theoretically, President Trump could sign an additional executive order further extending the CARES Act’s provision for federal student loan forbearance.

If that does not happen, the next president could opt to sign a similar executive order—after being sworn in on January 20th, 2021.

Student Loan Relief As Part Of a New Stimulus Package

It’s possible that a lame-duck Congress will pass an additional stimulus bill in the upcoming weeks. The severity of the COVID-19 crisis in the country has prompted bipartisan calls for action.

And, congressional leaders have discussed resuming stimulus discussions in the upcoming weeks. But what’s still unclear is what additional federal stimulus money would be appropriated for. Right now, Congress is at an impasse as to the scope of new stimulus funds.

In October 2020, the House of Representatives passed an updated HEROES Act, addressing ongoing COVID-19 relief measures. The act extended federal student loan forbearance, while also expanding the types of educational loans eligible for relief to include:

•  Institutionally held Perkins loans
•  Federal Family Education Loans
•  Health and Human Service student loans

But, since then, the HEROES Act has stalled in the Republican-controlled Senate— with ongoing conversation between the parties focused on the size and scope of any potential stimulus relief in the near future.

Could Student Loan Relief Affect Private Student Loans?

Politicians championing relief, including $10,000 forgiveness options, have not specified what types of loans this forgiveness would cover.

Some legislation proposed by Democrats has proposed forgiving $10,000 in private loans (aka educational debt not held by the US government). But, it’s unclear how the mechanics for this sort of private student loan forgiveness policy would be enacted or funded.

Given that Senate Republicans have been actively pushing for a scaled-back stimulus package, it seems unlikely there will be comprehensive student loan reform in the next stimulus bill (assuming there is a next one).

Of course, a multitude of factors can impact the future of stimulus legislation—including which party will control the two chambers of Congress. Senate control will not be decided until after the Georgia runoff election on January 5, 2021.

Identifying Existing Repayment Options

With uncertainty about whether a presidential executive order might extend federal student loan forbearance (or even cancel some student debts), some borrowers may feel as if their financial obligations are held in the hands of Congress.

For borrowers with student loans, it could be a good idea to focus on the aspects of their educational debt that they can control. One place federal borrowers can start is to determine if they qualify for existing federal student loan repayment programs—including income-driven repayment, deferment, and public service student loan forgiveness.

Those whose federal student loan repayments are (currently) scheduled to resume in January may want to come up with a plan for paying down what they owe in educational debt.

Federal borrowers whose financial circumstances have taken a hit may be eligible for an economic hardship deferment on federal student loans—even if there is no additional stimulus legislation surrounding forbearance.

Some borrowers are also taking cues from the economy. The Fed’s pledge to maintain a low interest rate for the years ahead has led some private lenders to lower their student loan interest rates. Some individuals may opt to explore the pros and cons of student loan refinancing.

When discussing student loan refinancing, it’s important to understand the refinancing process. For example, SoFi refinances private and federal student loans.

When federal student loans are refinanced through a private lender, the borrower forfeits eligibility for federal repayment programs as well as federal protections like forbearance and deferment. (With private loan refinancing, a new private loan replaces the borrower’s existing educational debt—generally including new loan terms and rates).

Certain private lenders offer hardship programs to provide a cushion for the unexpected—like being laid off for no fault of your own. (Not all lenders offer these programs, so it’s key to read the lender’s terms and fine print). For example, SoFi offers unemployment protection to eligible borrowers.

When weighing whether to pursue student loan refinancing, some borrowers find it useful to research the rates and terms offered by lenders, including any fees or penalties.

The Takeaway: Keep an Eye on Government Actions

Dramatic headlines can spread like wildfire on social media. But, it’s important to understand what legislation (if any) is behind politicians’ promises and press releases.

Until legislation passes both chambers of Congress, it’s unlikely that federal student loan debt will be unilaterally cancelled in the near future (but not legally impossible with a presidential executive order).

That said, federal COVID-19 stimulus discussions may yet fast-track certain changes, such as the possibility of continued forbearance on federal student loan repayments into 2021.

Keeping up to date on communication with lenders may help borrowers stay on top of any necessary payments or paperwork, if or when the laws or orders affecting student loans change.

There may also be ongoing legislation on a state level in regards to student loan reform. For example, after the CARES Act act was passed in March, New Jersey approved payment relief options for residents who hold private student loans. This included forbearance relief, waived late payments, and working with eligible borrowers on assistance programs.

Keeping an eye on national and state-specific legislation could help borrowers to understand any changes to how some types of student loans debts are calculated or repaid.

And, naturally, if a Tweet or rumor sounds too good to be true, borrowers can do due diligence—researching how much of the news is political rhetoric vs. enacted policies with legal weight behind them.


In our efforts to bring you the latest updates on things that might impact your financial life, we may occasionally enter the political fray, covering candidates, bills, laws and more. Please note: SoFi does not endorse or take official positions on any candidates and the bills they may be sponsoring or proposing. We may occasionally support legislation that we believe would be beneficial to our members, and will make sure to call it out when we do. Our reporting otherwise is for informational purposes only, and shouldn’t be construed as an endorsement.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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Tips for Creating Better Buying Habits

We’ve all been there. Standing in the checkout line at the grocery store, waiting patiently to check out. Suddenly, you see it—the candy bar of your dreams. So, of course, you add it to your cart.

Then, you see they’ve got that chapstick you like, and the magazine you enjoy reading, and oh yeah, you most certainly need that greeting card just in case someone’s birthday is coming up.

And yet, somehow, at the end of it all, you wonder why your grocery bill was so high this week.

It’s OK to give in every now and then and buy a little treat here or there, but, over time, these buying habits could get someone in trouble. And quickly. That’s why it may be a good idea to start developing better buying habits as early as possible.

Becoming a more prudent shopper and honing in on any potentially troublesome spending habits doesn’t have to be difficult either. All shoppers need to do is follow a few basic life tips and they will be on their way to saving, and making smarter buying choices, in no time flat.

9 Tips for Building Better Guying Habits

Here are nine tips for building better buying habits that can help those interested in becoming more mindful consumers.

1. Having a Financial Goal in Mind

Motivation is a wonderful tool. To kick off new buying habits people may want to think about what their financial aim is and what they want to save money for in the first place.

This could be as small as wanting to save money for a handbag they really want or to save up to go to a fancy restaurant instead of their usual haunt.

Or, it could be something much larger like saving for a vacation, a wedding, a home, or even for retirement somewhere down the line.

Having a financial goal, might make it easier for consumers to prevent an impulse purchase or spend money on something they don’t actually need.

To double down on this habit try writing down any and all financial goals in a notes app, diary, or even on a piece of paper. Then, stick it in a wallet so it’s with you wherever you go.

2. Giving Every Purchase—Big or Small—a Little Time

Sometimes all it takes to reverse a buying decision is to just sit and think about it for a second. Is this magazine really worth the read, or can the articles be found online? Is this new dress really all that great, and will it be worn more than once?

For larger purchases try to employ the “take a walk” method, which is to literally leave a store, go for a walk, and think about the item a bit more. This way, the initial adrenaline rush and excitement wear off just a bit so a consumer can clearly consider the purchase with fewer emotions attached.

Then, come back, look at the item again. If it still elicits butterflies then it could be worth the purchase. If not, that’s great. Confidently walk away.

If anyone is looking to take this habit to the next level, try employing the 30-day rule. Just as the name implies, those looking to purchase anything nonessential must put the product back on the shelf and step away for a full 30 days.

If at the end of that time he or she still wants the product badly enough they can then return and purchase knowing full well it will bring them a little more joy.

Here’s one more trick to try when using the 30-day rule. Over the 30 days, try saving little by little to purchase the item. At the end of the month, if the person decides that product no longer needed, that cash could be put right into savings.

3. Coming Up With a Personal Spending Mantra

If taking a walk just isn’t an option it may be time to come up with a personal spending mantra. Think things like “keep the memory, get rid of the object.” or Marie Kondo’s, “does this spark joy?”

Use Kondo’s phrases, or come up with a unique one to use before making any purchase. By repeating the phrase over and over again it will help determine if that object really deserves to take up space in your life and in your monthly budget.

4. Learning to be a Comparative Shopper

Here’s the really good news about living in 2020: We live in the digital age, where information is just a click away. That means consumers likely never have to settle for the first price tag they see as finding a better deal could require just a quick Google search.

To become great comparative shoppers consumers can start small by investigating prices on their everyday purchases like groceries.

Try looking up a price comparison for milk between high-end grocery stores versus the neighborhood grocer. Then, think about monthly expenses like the internet, cable, telephone bills, and even things like gym memberships or subscriptions.

Can you find a better price for any of these items or negotiate the price down? Go for it and save along the way.

5. Falling in Love With Coupons and Discount Codes Again

Again, consumers simply do not have to settle for the first price tag they see. A better price can likely be found by utilizing the comparison shopping habit above, or by finding a few coupons to use in physical stores and discount codes to use online.

There are a number of coupon websites such as RetailMeNot and The Krazy Coupon Lady that can help shoppers hunt down a few discounts when they need them.

There are even services like Honey , which is a plugin all consumers can add to their internet dashboard that will automatically scour the web for discount codes and plug them right in at checkout.

Long story short, don’t settle for the first price.

6. Maintaining the Things You Already Have

A hole in a sweater, a scratched coffee table, and a tiny crack in a dish can be enough for some people to run out and purchase an entirely new item to replace the old.

However, rather than tossing something just because it’s a little faded it’s time to learn how to give things a new life. Or, find an expert who can.

For example, rather than buying all new shoes just because the tread is a little worn down try bringing them to the local cobbler.

They may be able to replace the thread for a fraction of the price of new shoes. This same idea goes for big-ticket items too.

Consider keeping a maintenance calendar for things like a car’s oil changes, a home’s roof inspections, and more. That way, things will always stay in tip-top shape for longer.

7. Understanding Shopping Triggers

To create better spending habits consumers may have to take a bit of time to self-reflect and discover why they like to spend money in the first place.

Do they suffer from FOMO (fear of missing out) spending and buying things because their friends, family, or favorite influencer is sporting it on social media?

Do they buy things when they are happy, sad, bored, or triggered by something else? It can be important to delve into why a person may be triggered to buy something so they can avoid it in the future.

At the very least, even being aware of the trigger could hopefully help people think twice about a purchase before it is made.

8. Getting in on the Financial Buddy System

Everything’s better with friends—including creating better spending habits. Just look to working out for inspiration.

According to a 2016 study by researchers at the University of Aberdeen, people who work out with a friend are more likely to hit the gym more often than those who choose to work out alone. That lesson can easily be applied to finances too.

Find a trusted friend or family member who can offer real advice when it comes to creating better buying habits.

Make a pact to call one another every time either of you needs a second opinion when it comes to making big purchases, or when you need someone to talk you out of making a silly purchase.

Don’t worry, odds are you’ll return the favor for your financial buddy in no time.

9. Knowing Where Money Is and Where It’s Going

A major part of creating better buying habits is understanding where your money is right now and where it’s going at all times.

Luckily, that’s a fairly easy proposition thanks to products like SoFi Money®. SoFi Money, a mobile-first cash management account, allows users to do just about anything with their cash at all times.

On the app, users can transfer money when they need to pay bills directly online, and track weekly spending right in the app’s integrated dashboard.

In the app, users can create better buying habits by setting up specific budgets and savings goals (see tip number one in case you forgot) using Vaults.

(Not sure where to start on creating a budget? Don’t worry, we’ve got your back on that too.)

SoFi members gain access to SoFi Relay®, where they can track all their incoming and outgoing cash, set up goals, and ensure they aren’t spending above their means.

The best part? SoFi Money comes with no account fees.

Want to create better buying habits? Joining SoFi Money could be a first step to help you get there.


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SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.

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Tips for Reducing Credit Card Debt

Americans are carrying more credit card debt than ever, and when the average credit card annual percentage rate (APR) for purchases hovers around 20% as of this writing, the interest on debt can be as crushing as the balance alone.

On top of a high APR, credit card companies generally charge what is referred to as compounding interest, a calculation that can make them even more challenging to pay off. Compounding interest means interest on a card that is charged not on the outstanding balance alone, but also the interest accrued.

In addition to compounding interest, forgetting to pay at least the minimum by the statement due date could result in a late fee penalty, which in most caseso is also added to the balance accruing interest. Forgetting to pay on time twice in a row, could result in a higher rate of interest charged on the account referred to as a higher penalty rate.

With all the above considered, a small debt could balloon quickly if a person isn’t paying attention to terms and due dates—or simply making only minimum payments.

The ever-increasing bottom line of credit card debt can be enough to keep some persons awake at night. But, working to reduce debt can help alleviate that burden, and could result in things like paying cards off sooner, saving money, a good night’s sleep, improved finances and more, in the process.

Read on for some tips on how different methods might help a person reduce credit card debt.

Creating A Budget

If eliminating credit card debt is the destination, creating a budget is like the road map that gets a person there. About a third of Americans say they have no budget at all, but implementing even a simple budget might help make managing money easier, and could help bring a goal like reducing credit card debt to a more attainable level.

When creating a budget, it’s recommended to start simple. Budgeters can start small with these simple steps:

  1. Gathering financials. It might be a little painful to comb through bills and account statements, but the more information a person has from the start, the more empowered they are to budget accordingly. For example, consider collecting your most recent monthly statements either digitally or physically. These may include, but are not limited to:

◦  Mortgage/Rent

◦  Utilities (water, gas, heat, internet, cable, HOA, etc)

◦  Pay stubs

◦  Credit card or auto loan statements

◦  Student loans or other miscellaneous recurring loans and bills

◦  Subscription services (Amazon, Netflix, Spotify, etc)

Taking the time to gather these documents could help give a person a clearer picture of what they’re spending month over month, but also might serve to highlight recurring or duplicate charges that should be eliminated (like when someone forgets to end their gym memberships months after they’ve stopped going).

  2. Determining expenses vs. income. Once financials are all laid out, a person may have enough information to determine current expenses versus income each month. Using the information you have gathered, such as a recent pay stub, could help a person determine their exact monthly income, post-tax–that’s the net amount they actually take home after taxes, health insurance, and other deductions. After calculating net income, try tallying up monthly expenses you identified (from the documents above) to help determine the average monthly expenses. Hopefully, the amount a person spends is less than they take home for income each month.

  3. Implementing budgeting guidelines. Calculating the above two steps could result in an actual budget creation. There are various ways to perform this task, from spreadsheets to apps; there’s seemingly limitless ways to help create a budget. One good idea is tailoring the budget to the person. One size usually doesn’t fit all when it comes to income and living expenses.

Feeling adrift? There are many tools to choose from but one common type of budgeting method for beginners can be the classic 50/30/20 budget. It doesn’t require complicated spreadsheets, or tricky apps to get started. The 50/30/20 method simply stipulates:

•  Half a person’s take-home pay should go towards “essential spending.” This could mean anything from housing costs and health insurance to groceries and utilities. It can be anything you need to live on a monthly basis.

•  One-third of a person’s post-tax pay should be tagged for “discretionary spending.” This spending is services a person could cut if there were in a pinch, like meals out, monthly streaming service bills, or gym membership.

•  Finally, 20% of post-tax income should be set aside for saving. The rest of a person’s paycheck is ideally reserved for retirement, emergency savings, or in the case of higher interest credit card debt, one idea could be to set aside funds each month to be used in making larger principal payments.

The 50/30/20 budgeting method is common for beginners because of its simplicity and flexibility. Trying to adhere to the percentages can sometimes show budgeters their blind spots, or perhaps highlight areas where they might need to improve. But, it can also be flexible, with percentage points waxing or waning based on an individual’s needs month over month.

The bottom line with budgeting? Something simple can be better than nothing at all. Some may consider that any budgeting structure that helps a person identify things like spending patterns is an improvement from sticking their head in the sand.

Paying More Than The Minimum

When a person has multiple credit card accounts racking up charges and interest, it can sometimes feel overwhelming. They might be unsure of which to prioritize for payoff, if at all, and end up paying the minimum due on every card each month.

But, if a person makes the minimum payment due alone, they might be surprised to learn how much more they may end up paying in interest as the account balance accrues. Paying more than the minimum amount owed each month could lead to saving in the long run since there’s a smaller balance to charge compounded interest on.

It might be tempting to keep paying the minimum balance owed, but a person could end up paying much more for interest charges in the long run because of the compounded interest. Just how much? Check out SoFi’s credit card interest calculator to get a general idea of how much you could possibly save on interest by calculating different repayment options.

Debt Payoff Strategies

Paying off more than the minimum each month is great, but coming up with a payoff strategy could offer a better outcome in the long run. Employing a method that works for your lifestyle could result in things like building momentum, alleviating stress, possibly making it simpler overall to conquer debt.

There are a number of budgetary methods online to help reduce balances on things like credit card debt, but here a few of the most well known are outlined below. Each method generally includes wiggle room in a person’s budget, to help facilitate repayment on outstanding balances.

•  Snowball. Like a snowball rolling down a hill, this method starts with the smallest debt balances first, then builds towards the larger balances. You’d start by determining the balance of debt, from smallest to largest, without considering interest rate. Then, pay the minimum on each bill, with the exception of the smallest—all extra cash is put towards paying off the smallest loan until it’s eliminated. From there, roll that payment amount into the next smallest debt, until it’s gone. Keep the pattern going until all debt is gone.

  Snowball method sometimes gets a bad rap because focusing on small debt balances first could mean paying more interest in the long run. But, the Snowball Method may have a positive psychological effect. Repaying smaller debts faster could lead someone to feel a sense of accomplishment that may then help them power through the rest of the debt repayment process.

•  Avalanche. If small wins off the bat don’t matter much, then some might turn to the Avalanche Method. This strategy starts with paying down the biggest interest rate debt first, paying minimums on all other debts, and contributing all free cash to the bill with the highest interest charges until it’s paid down or off. Continue, paying down debt with the next highest interest rate. Keep going until all debt is gone.

  One benefit of this method could be saving on interest payments over the life of each credit card balance, but the downside could be that it takes longer to see any “wins.” But, once things start moving, it should have an avalanche effect, with each loan toppling.

Consolidating Multiple Debts

If a person’s carrying high-interest debt on multiple credit cards, it can feel overwhelming. Multiple bills, due dates, and accounts could lead to confusion of amounts due, missed payments, and possibly the penalties that can come with missing payments. For some, a credit card consolidation loan might help to cut through the confusion by rolling all their revolving debt into one unsecured personal loan.

How can a personal loan possibly help? If a person has an outstanding amount owed on multiple cards, they may be able to consolidate all the debt into one personal loan with a single fixed rate payment.

What’s more, unsecured personal loans oftentimes come with a fixed interest rate that’s lower than the average credit card rate, which means less interest charges could accrue month over month.

Depending on how quickly a person pays off a personal loan, they could save money on interest over the life of the loan with a lower fixed APR. Streamlining debt might also lead to peace of mind for some—as does a set term with a final payment date, instead of a revolving debt like a credit card. It’s one payment a month, with one rate and a payoff date; instead of multiple open-ended debts of differing amounts with varied APRs.

Unsecured personal loans aren’t for everyone. While their APRs are generally lower than credit cards, not everyone will qualify for the lowest possible rates. And taking out a personal loan is still taking out additional debt, so it’s important to weigh the ramifications of adding a loan to one’s credit history.

Fortunately, applying for a personal loan doesn’t have to be complicated. With SoFi, you can check your personal loan rates online in minutes. You can rest easy with, no fees and a fixed rate and monthly payment.


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SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
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APY vs. Interest Rate

When you want to borrow money, perhaps for a car loan or home mortgage, you may research and compare rates among financial institutions to get the best deal. If so, you can be provided with interest rates and annual percentage rates (APRs) of current loan programs being offered by the institution.

If you want to save money, you might shop around for the best interest-bearing account. In that case, you’ll likely be given the interest rate for an account, along with the annual percentage yield (APY).

When given these numbers, you might think that there isn’t much of a difference, numerically speaking, between the interest rate and APY, or the interest rate and APR. Those differences, though, can be significant difference-makers when you want to maximize your money.

With a loan, the interest rate is a percentage charged by a lender for the use of money, with calculations based upon the loan’s principal. In the context of a savings account, a financial institution agrees to pay you a certain amount of interest based upon the money you have deposited in that institution.

Now, here’s more about how APRs and APYs are calculated, and much more!

High-Level Definitions

If you deposited money into an interest-bearing account, then you would earn an annual percentage yield on those dollars. The APY calculation takes into account the interest rate being offered, and then factors in any account fees and costs, as well as whether the financial institution offers simple interest or compounded interest—if the latter, then it also matters how often the financial institution compounds that interest—perhaps monthly or quarterly.

If the bank offers simple interest, then the interest is simply calculated on the principal balance. If, for example, you invested $10,000 at an interest rate of 1.5%, at the end of the year, you’d earn $150. Compound interest, meanwhile, is interest calculated on the principle, plus any accrued interest—so, when compound interest is paid, it includes interest paid on interest.

Switching gears, when you borrow money from an institution and are quoted an annual percentage rate, this figure factors in the interest rate charged, along with fees and costs, but compounded interest is not part of the APR calculation.

One of the key differences in how APY and APR are calculated, then, is that one takes compounded interest into account, while the other one doesn’t.

The APY Formula

Figuring what you could earn on, say, your savings or certificate of deposit using simple interest is a reasonably straightforward calculation. The APY, meanwhile, provides a picture of what you would earn on a deposit-based, interest-earning account over a period of one year.

The actual formula for APY calculation is as follows: (1 + r/n)ⁿ – 1.

The “r” stands for the interest rate being paid, while the “n” represents the number of compounding periods within a year. If, for example, the interest rate paid was 1.5%, then that’s what you’d use for the “r.” If interest is compounded quarterly, then “n” would equal four.

So, the frequency of interest compounding can cause savings accounts with the same interest rates to have different APYs. For example, if two different banks offered a CD with the same interest rates, and one of them compounded annually, that institution would have a lower APY than the institution that compounded quarterly, or daily.

The good news is that if you want to compare savings rates from one financial institution to another, you don’t need to perform these in-depth calculations. Each institution would need to provide you with the APY and you could simply compare the figures. And, here’s the heart of it all: the higher the APY, then the more quickly the money you deposit can grow.

More About the APR vs. APY

Like the APY, calculating interest on a loan is fairly straightforward, with the APR providing a better snapshot of the true cost of the loan to you on an annual basis. It may take into account the points you paid, for example, to get a mortgage loan, and/or other fees and loan-related costs.

However, here’s where APR calculations differ from APY ones. The APR does not take into account how often interest is compounded on a loan. And, the more often it’s compounded, the more you’ll ultimately pay back on your loan.

So, besides comparing APR to APR from different institutions, to get a better understanding of what would be a better deal, also ask how often interest compounding takes place at each one.

Here’s how an APR might be calculated: Fees and interest paid over the loan’s life would be divided by the original loan amount. Take that answer and then divide it by the number of days in the term of the loan. Multiply that number by 365, and then by 100. Ta-dah! That’s your APR.

Although that’s the basic calculation, there’s one more factor to consider—how APR is calculated can differ by loan type. Credit cards, for example, can have different APRs for purchases vs. for cash advances.

Summing Up the Main Differences

In short, here’s the answer to this question: “What is APY vs. APR?”:

•  APY calculates money paid to you on depository bank accounts such as savings and certificates of deposit. It factors in the interest rate, plus any fees, costs, and compounding interest frequency.
•  APR calculates the money you would owe to pay back loans, such as car loans and house mortgages. It factors in the interest rate, plus any fees and costs, but it does not take into account the impact of compounding interest.

When your goal is to maximize your dollars, a good foundational step can be to get the most interest on your savings dollars.

Types of High Interest Accounts for Savings

When you’re saving money, perhaps to buy a house or go on an ocean cruise, there are several types of interest-bearing accounts that may be the right choice for your goals, with different APYs, fees, ready access to cash, and withdrawal terms.

Traditional checking and savings accounts don’t usually fit the bill when you’re looking for a high-yield account, although there are interest-bearing ones that might fit your needs quite well. Other choices can include money market accounts, certificates of deposits, and other forms of investments.

With a money market account, your money is typically invested in a reasonably safe way, perhaps in government securities. If you don’t need regular access to this money, this could be a good choice, as there are often limits on how many withdrawals you can make monthly.

You typically need at least $1,000 to open a money market account—for higher investments, incentives might be offered.

Certificates of deposits (CDs) are investments with fixed maturity dates, ranging from one month to 20 years—typically, you can’t easily withdraw money before that date. Some CDs are traded on the market as securities. Others are offered by banks, and aren’t securities. Interest rates tend to be higher on longer-termed CDs than ones with shorter terms.

Some CDs require a minimum deposit, while others don’t. Some CDs don’t charge penalties for early withdrawals, but many do, so read the fine print. A penalty can put a real dent in any APY earned.

If you want easy access to your CD dollars, you might seek out one with fewer withdrawal restrictions, or invest in CDs at regular intervals, helping to ensure that one will mature when you need funds.

High Interest Checking Accounts

These are accounts designed to give you the flexibility of a traditional checking account, but with high-interest returns. Rates vary, but are typically much higher than savings accounts. Many of these accounts, unfortunately, come with fine print, perhaps limitations on monthly debit card usage, or on minimum balances required, or mandated bill-pay automation.

What you really want to look for in the fine print, though, is whether or not there’s a balance cap on your interest earnings. This would basically limit how much money you can earn at the high interest rate. For example, perhaps a bank would pay 3% on checking accounts, but you’d only earn that interest on the first $2,000.

What SoFi Money Offers

If you don’t want your interest-earning potential to come with a ceiling, you might want to look at SoFi Money®, a cash management account where you can spend, save, and earn all in one place. We work hard to give you high interest and charge zero account fees. With that in mind, our interest rate and fee structure is subject to change at any time.

You’ll have the ability to write and deposit checks and you can use a debit card, send and receive money, and use ATMs, with the added benefit of earning interest.

SoFi Money is a great way to spend and save. Get started today.


SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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