Oct
02
2024
What Does Cost of Living Mean?

What Is Cost of Living?

By | Budgeting & Goals, money | Comments Off on What Is Cost of Living?

When planning a move to a new city or state, the cost of living is an important consideration. Here’s why: Cost of living tells you how much money it takes to maintain a basic standard of living in a given place. If you were offered your dream job in a city 1,000 miles away, you’d want to know whether the salary would allow you to live well…or whether you’d have to be on a super tight budget.

Location typically plays a major role in determining the level of income needed to finance your lifestyle. For instance, a dollar doesn’t buy as much in New York as it would in Des Moines. If the cost of living is higher because you live in a major city, you’ll likely have to allocate more of your budget toward everyday expenses, such as housing, food, and transportation.

It’s important to understand the factors that affect cost of living calculations and what a higher or lower cost of living means for your finances. Otherwise, you could wind up with an uncomfortable level of “sticker shock” if you relocate.

Cost of Living Definition

In simple terms, the cost of living is the cost to cover basic household expenses. The cost of living can vary from state to state and city to city. As you might guess, renting a 1,500-square-foot home is likely to be much more affordable in a small town in the middle of the country than doing so in a hip neighborhood in San Francisco.

That said, you can also have different costs of living within the same metro area. For example, someone who owns a home in the suburbs of a major city may have higher or lower expenses compared to someone who lives downtown.

In terms of what the cost of living is used for, it’s a gauge for determining affordability. Before moving to a new location, you might look at the cost of living in that area to help you decide if it’s realistic for your budget.

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How Does the Cost of Living Work?

Cost of living calculations work by measuring how much it costs to live in a specific location, using basic living expenses as a guide. The cost of living is not static; it can go up or down over time. Looking at cost of living trends for a certain city, region, or state can give you an idea which way consumer prices are trending.

There are a number of entities that perform cost of living calculations. The Council for Community and Economic Research, for example, maintains a cost of living index for participating cities across the U.S. Other organizations calculate cost of living for locations around the world.

On a personal level, the most important question to ask is, “What does the cost of living mean for me?” The simple answer is that cost of living can determine how far your income is able to go toward funding your lifestyle.

Factors That Determine Cost of Living

When discussing cost of living and expenses, you’re talking about necessities. In other words, the things you need to spend money on to live each month. According to the Economic Policy Institute, that includes:

•   Housing

•   Food

•   Childcare

•   Transportation

•   Healthcare

•   Taxes

•   Other necessities, such as clothing, household supplies, and personal care items

Cost of living calculators use prices for those types of expenditures in a particular area to determine how much it costs to live there on average. Consumer prices for goods and services are largely a product of supply and demand, and what’s happening with inflation. Inflation is a general upward trend in prices over time.

When inflation is higher, prices tend to rise across the board, which brings a higher cost of living. Even when inflation is lower, prices may still be higher in some areas than others if there’s higher demand for goods and services.

Calculating Cost of Living

Cost of living indexes collect information about various costs for different cities and locations, then use average prices to determine how much it costs to live there. If you’re comparing two cities, you can use a cost of living index to see which one is less expensive.

If you’d like to calculate your personal cost of living, you’d use your spending history to determine your average monthly expenses for these categories:

•   Housing

•   Food

•   Transportation

•   Utilities

•   Childcare, if applicable

•   Healthcare

•   Taxes

•   Other necessary expenses

Using those numbers can tell you how much it costs to maintain your basic standard of living each month. You can also add in your average monthly spending for debt repayment or non-essentials or discretionary expenses, like dining out, travel, or recreation, to get a sense of what your actual cost of living adds up to.

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What Is the Cost of Living Index?

Generally speaking, a cost of living index is a measurement of average prices. Similar to a stock market index, a cost living index is meant to provide a benchmark for comparison. The Consumer Price Index (CPI) is often referred to as a cost of living index, though that description isn’t entirely accurate.

The CPI measures the average change in prices over time for a market basket of consumer goods and services. That’s how the U.S. Bureau of Labor Statistics (BLS) defines the Consumer Price Index. The CPI isn’t a true cost of living index but an inflation index. Changes to the CPI can be an indicator of how inflation is changing; whether it is rising, falling, or remaining flat.

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Does Cost of Living Vary State by State?

The cost of living by state is not uniform and what you might pay to live in one state could be very different from what you’d pay to live in another. That’s important to keep in mind if you’re considering moving across state lines to a new location. The more expensive a state is, the less purchasing power your money holds.

For example, the California cost of living index is much higher than the Texas cost of living index. So why do some states have a higher cost of living? Again, it depends largely on things like supply and demand, though taxes and average incomes can also play a part.

When the average income in a state is higher and job opportunities abound, that can lead to an increase in people moving to the state. That means more demand for housing, which can send home and rental prices soaring. More people can also mean more demand for everyday goods and services, such as food or utilities. As demand rises, prices can follow suit.

So, in our example above, if you were living in Texas in a two-bedroom rental apartment and were offered a job at the same salary in California, you’d face a higher cost of living. If you moved there, you might have to rent a smaller home. Your groceries would likely be more expensive as well as your other monthly necessities. You might find you couldn’t eat out or go to concerts as often since prices are higher.

Recommended: What Percentage of Income Should Go to Rent and Utilities?

Which State Has the Lowest Cost of Living?

As of 2024, West Virginia had the lowest cost of living in the U.S., with a cost of living index of 84.3. For perspective, cost of living indexes are generally based on 100 as an average. So an index of 84.3 means that the cost of living in West Virginia is 15.7% less than the national average.

Housing, which is typically the biggest expense most people have, is nearly 40% cheaper in West Virginia compared to the U.S. average. The median sale price for a home there was $284,000 as of January 2024.

Which State Has the Highest Cost of Living?

Hawaii is the most expensive place to live in the U.S., with a cost of living index of 188.4. Housing is more expensive there than in any other state in the country, with a median list price of $714,100 as of January 2024. A home buyer would have to shell out considerably more to live in Hawaii’s natural paradise than elsewhere in America.

But housing demand isn’t the only factor. Higher taxes and higher costs for transporting goods and materials to the state are some of the other factors that drive up the cost of living in Hawaii. Other states that rank among the most expensive include New York, California, and Massachusetts.

How Much Should Your Cost of Living Be?

Your cost of living should be a figure that, given your income, you can reasonably afford to pay. When your expenses exceed your income, that can cause shortfalls in your budget each month. You may need to use credit cards or loans to fill the gap, which can leave you with a pile of bills, wondering how to pay off high-interest debt.

When calculating your ideal cost of living, start with your income. Then work your way backwards to determine how much you should be spending on things like housing, food, transportation, utilities, and other necessities. If your income comfortably covers those things, you can then decide how much to allocate to savings, debt repayment, or “wants” like travel and entertainment.

Also, consider your household size. The cost of living for a single person can be very different from the cost of living for a family of four. So you may need to allocate more of your budget for necessities if you have a spouse, partner, or children in your household.

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Tips to Improve Cost of Living

If you’ve run the numbers and your cost of living is higher than you’d like it to be, you aren’t necessarily out of luck. There are some things you can do to try and bring it down. Here are some ideas for ways to reduce your cost of living:

•   Eliminate unnecessary spending from your budget.

•   Move your money to a different financial institution to avoid bank fees and/or earn higher interest.

•   Plan meals at home, and cut down on restaurant meals.

•   Consider refinancing student loans or your mortgage to lower your interest rate.

•   Consolidate credit card debt using a 0% balance transfer offer.

•   Shop around for better rates on auto, homeowners, or renters insurance.

•   Aggressively pay off debt.

•   Consider moving to a cheaper area.

•   Take on a roommate to share expenses.

•   Downsize into a smaller home.

•   Sell a vehicle if you own more than one.

Some of these money-saving ideas are relatively easy to implement; others may seem a bit more extreme. But the more you can cut your expenses, the easier it may be to improve your cost of living.

You can also research different ways to make more money. That might mean taking a different job, getting a part-time gig, or starting a side hustle. If you’re contemplating a move for a higher-paying role, remember to factor in the cost of living in a new location to see how far a higher salary might go. A higher cost of living could eat up the salary boost you’ll receive, and so you’d want to be prepared for that.

Managing Finances With SoFi

Achieving a manageable cost of living starts with keeping a close eye on your budget and spending. Even making small changes, such as cutting out high banking fees and earning more interest, can free up more cash that you can use to save and fund your financial goals.

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FAQ

What is a cost of living adjustment?

The Social Security Administration (SSA) applies a cost of living adjustment to Social Security benefits, based on changes to the Consumer Price Index. That means benefits can rise as the cost of living does. In other words, these adjustments are designed to ensure that recipients’ benefit payments are able to keep pace with inflation.

How can I compare the cost of living between two cities?

The easiest way to compare the cost of living between two cities is to use a cost of living index, which measures the relative cost of living in different areas of the U.S. You can subtract the cost of living index for the city that’s lower from the one that’s higher to figure out how much cheaper it is.

Which country has the highest cost of living?

Monaco is the most expensive country to live in. The average monthly cost of living there, as of 2024, is $6,538.

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SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

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Oct
02
2024

What Is a Loan?

By | Budgeting & Goals, Family Finances, personal_loan | Comments Off on What Is a Loan?

A loan is a sum of money that is borrowed and then paid back, both principal and interest, within a specific time frame. The interest you pay is for the privilege of getting that lump sum of cash in hand.

Whether it’s to continue your education or buy a house, borrowing money can be the key to meeting longer-term goals, both financial and personal. There are many different kinds of loans available, including unsecured personal loans, secured mortgages, and many other options in between.

Here, you’ll learn the basics of lending, including a few of the most common types of loans, what you’ll need to successfully apply for them, and what you should know before making the significant and at times risky decision to borrow money.

Definition and Basic Concepts

As soon as you start shopping for loans of any kind, there are a few terms you’re likely to hear, some of which may be unfamiliar. Get up to speed with this glossary of words commonly used to define and describe loans.

•   The principal is the amount of money you’re borrowing from the lender. For instance, if you take out a loan for $17,500, then the principal amount is $17,500. However, every time you make a payment, you’ll pay both principal and interest, which is why you’ll end up paying back more than $17,500 altogether. (It may also be possible to make additional, principal-only payments, which can help you pay the loan off more quickly and pay less interest overall.)

It’s worth noting that this concept of principal is a key way that loans vary from credit lines: With a loan, you typically get a lump sum of cash, while with a line of credit (such as a home equity line of credit, or HELOC, or a credit card), you borrow varying amounts as you need funds.

•   Interest is the money you pay to the lender for the privilege of taking out the loan — or the cost of the loan. Interest is often expressed as an annual percentage rate (APR), which includes any additional fees as well as the interest itself.

•   A loan’s term is the lifespan of the loan, or the length of time you’ll have to pay it back. For example, a personal loan might have a 60-month (five-year) term, meaning you’ll make 60 monthly payments to repay the loan in full (unless you pay it off early). Mortgages tend to have longer terms: typically 15 or 30 years.

•   Collateral refers to an asset that, as part of the loan agreement, the lender can seize in the event you fail to repay what you owe. A loan with collateral is known as a secured loan, and common collateral items include vehicles (as with an auto loan) and houses (as with a mortgage).

•   Your lender might be a bank, credit union, or an online financial institution. It’s whichever business is lending you the money and collecting your payments.

•   The borrower is the person or entity borrowing money and paying it back as outlined in the loan agreement.

Types of Loans

While there are many different kinds of loans out there — home loans, auto loans, personal loans, and even holiday loans — they can all be separated into two main categories: secured loans and unsecured loans.

Secured Loans

As briefly mentioned above, secured loans are those that are backed by collateral.

Collateral gives the lending institution a guarantee that they’ll get a valuable asset out of the deal if the borrower fails to repay the loan in full. That means the loan is less risky for the lender, which may have slightly less stringent qualification requirements or might charge a lower interest rate.

Unsecured Loans

Unsecured loans, by contrast, are those that are not backed by collateral. Unsecured loans, like personal loans, are sometimes also called “signature loans,” since all you’re offering as collateral is your signed promise to repay the loan. Because they’re riskier for lenders, unsecured loans may have higher interest rates as well as more stringent eligibility requirements.

Unsecured loans can usually be used for just about any legal purpose, from home renovations to wedding costs. Many people take out personal loans for debt consolidation; say, as a path to paying off high-interest credit card debt.

Common Loan Terms

While the specific agreement of your loan will depend on multiple factors, including your lender and the type of loan you’re taking out, there are a few features that many different types of loans share.

APR

Your interest rate will likely be expressed as an APR percentage. APR includes not only the interest itself but also the other costs associated with the loan, such as origination fees.

APRs can vary tremendously depending on an array of factors, including the economy, the size of the loan, the type of loan, your credit score and history, and more. At the low end, some people who took out a mortgage in late 2020 or in 2021 may have an APR below 3.00%. Others who have less-than-stellar credit scores might currently have an APR of 30.00% if they are seeking out a personal loan on the larger, riskier side.

The higher your APR, the higher the cost of the loan. People with higher credit scores and positive financial profiles are more likely to qualify for lower-APR loans, which can save them substantial amounts of money in interest over time.

💡 Recommended: What Is A Personal Loan?

Fixed vs Variable Interest Rates

Along with APR, you should also understand the difference between fixed and variable interest rates.

•   As the name implies, fixed interest rates don’t vary over the entire lifetime of the loan. That means you can enjoy regular, predictable payments in the same amount every month.

•   Variable-rate loans, on the other hand, can fluctuate with the market (though are usually governed by caps that keep the rate from rising over a certain percentage). Variable-rate loans may have lower rates at first, making them attractive, but payments can rise substantially over the lifetime of the loan. Or in some economic climates, they might fall lower. In either scenario, a variable rate can make budgeting more difficult.

Amortization

Amortization describes the way a loan is gradually paid off (both principal and interest) over time. Payments are typically made over a particular schedule, such as monthly for a certain number of years.

For example, with a fixed-rate home loan, you’ll typically find that the mortgage amortization occurs so that, toward the beginning, the bulk of your payment is going toward interest rather than principal. (This helps ensure the bank gets paid for their service up front.) Over time, a greater and greater percentage of the payment will go toward principal. However, the actual amount you’re paying each month will never change.

You can see the effect of amortization for yourself using a mortgage calculator.

Prepayment Penalties

Prepayment penalties refer to costs the lender might charge if you pay off a large portion of your loan early or repay the entire loan before the term has elapsed. Prepayment penalties help lenders make money on loans where they won’t receive the full term’s worth of interest. Prepayment penalties can help compensate the bank for this loss of interest income.

For borrowers, though, these charges can feel like punishment for what is generally a positive financial behavior: paying off your debt early. Whenever possible, it can be wise to look for loans that don’t charge prepayment penalties.

Loan Process

So, now that you understand a bit more about how loans work, consider how you go about getting one.

While each lender will have their own specific procedures and policies, the basic loan process can be broken down into four basic steps.

•   Application. The lender will collect information from you about your employment history, income, and other financial factors, as well as verify your identity. These days, loan applications can usually be filled out online, though you may also be able to apply in person or over the phone.

•   Approval. Once your lender verifies all your information — usually including a hard credit check — they will either approve or deny your application. If you’ve been approved, you’ll be informed about the approval, though it still may take some time for the money to come through.
Timing on these steps can vary greatly; a personal loan might get same-day approval, while a home equity loan, which typically involves a home appraisal, could take weeks.

•   Disbursement refers to the money you’ve borrowed actually hitting your account. You may be able to set up direct deposit so the funds can find their way into your bank account without any additional steps, but in other cases the lender might cut you a physical check. With a home loan, a closing with various parties and/or their lawyers present might be required.

•   Repayment is the phase of the loan where you pay back the funds borrowed (the principal) and interest and fees over time. This typically reflects the agreement drawn up when your application was approved. As discussed above, the repayment period, or term, could be as short as a year or two or as long as several decades.

Factors Affecting Loan Approval

Applying for a loan doesn’t guarantee you’ll be approved. After all, before transferring a large sum of money, your lender is going to want to feel confident that you can repay the debt.

Some of the most important factors that affect loan approval are your credit score and credit history, income, debt-to-income ratio (DTI), and the value of any collateral you put on the table. Here’s a closer look.

•   Your credit score is the three-digit number (typically between 300 and 850) that summarizes your credit history and how well you have repaid debts in the past. You may actually have multiple credit scores due to different scoring models and the fact that each of the three major credit bureaus may report somewhat different information. Credit score monitoring can help you understand the health of your credit file over time.

•   Your income is the amount of money you have coming in, usually from employment (but also potentially from investment interest or other sources). Lenders generally want to see a reliable flow of income to help ensure borrowers will be able to continue making payments over the entire lifetime of the loan.

•   Your debt-to-income ratio or DTI is an expression of the amount of income you have every month compared to the amount of money that’s already promised to other creditors. Depending on the loan and the lender, you may be able to qualify for certain loans with a DTI of up to 50%, but generally, the lower, the better. Some mortgage lenders won’t offer a mortgage to borrowers with a DTI higher than 36%, for instance.

•   For secured loans, the value of your collateral, such as the car or home you’re financing, is also considered as part of the calculus. A high-value asset or collateral makes the deal substantially less risky for banks, since they’ll still get some value out of the loan even if you don’t repay it.

Pros and Cons of Borrowing

Sometimes, borrowing money really can be a smart financial move, but it almost always comes with costs, so it’s important to think through the decision carefully. Here are some of the basic pros and cons of borrowing money.

Pros:

•   Loans can help you access longer-term goals, like homeownership or college education, that might not be possible if you had to pay out of pocket.

•   In some cases, debt in the short term can help you increase your financial standing in the long term. For example, student loans can help you gain skills that increase your earnings; mortgages can allow you to own an asset that can appreciate over time; and personal loans used for loan consolidation could help you improve your overall financial standing faster.

•   With unsecured personal loans, you can use funds for just about any purpose — making them flexible and convenient.

•   Some loans are quick and convenient; certain types can send money your way in just days.

•   Making on-time payments can help build your credit score over time.

Cons:

•   In almost all cases, loans cost money. High interest rates can mean purchases could cost far more than they would in cash over time.

•   If you fall behind on payments or carry large balances of revolving debt, loans could have a negative impact on your credit score.

•   Loans payments can stretch your budget, making it difficult to make ends meet each month and accomplish other financial goals, such as saving for retirement.

•   Certain kinds of loan applications can be time-consuming and can leave you waiting a long while to learn whether or not you are approved.

•   If you have a secured loan, you risk losing your collateral if you cannot keep up with your payments.

•   If you have a lower credit score, borrowing money can be more expensive, which can make your loan debt burdensome.

Alternatives to Traditional Loans

While traditional loans from a bank have long been available to borrowers, there are alternative resources worth considering if you need cash.

•   Credit cards are a common way for people to pay for things today with money they hope to have tomorrow. However, it’s wise to avoid using a credit card to buy more than you can afford to pay off before the grace period ends. Credit cards tend to have high interest rates (and higher still if you take a cash advance), and compounding can get out of hand fast.

•   Lines of credit may be available, such as a personal line of credit or a HELOC, allowing you to borrow funds up to a limit, with interest accruing.

•   Cash advance apps can help you access money from your next paycheck early, though the amount available tends to be relatively small.

•   Peer-to-peer (P2P) lending platforms are an alternative way to borrow that’s funded primarily by private investors. Some people who’ve been turned down for traditional loans may still qualify for P2P loans.

•   Family loans can work in some instances — depending, of course, on your family finances and dynamics. To avoid putting strain on a relationship, it’s often a good idea to formally write up a loan agreement including any required interest, the expected loan term, and what happens if the borrower defaults.

•   Buy now, pay later options can allow you to purchase an item and pay it off in installments, sometimes interest-free. This could be a way to snag, say, a new kitchen appliance when you don’t have cash in hand.

•   Payday loans allow you to borrow against your next paycheck, but proceed with extreme caution. The APRs on these can add up to 400% in some cases.

The Takeaway

A loan involves accessing a sum of money that you repay over time with interest to the lender, according to the terms of your agreement. Borrowing money can help you achieve your dreams, such as owning your own home or getting a graduate degree — but it usually comes at a cost, so it’s always worth proceeding with caution before signing on the dotted line. Understanding the full cost of the loan and its pros and cons will help you make an informed decision.

Are you considering a personal loan for debt consolidation, travel, home renovations, or another purpose? See what SoFi offers.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.


SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

How does interest on a loan work?

Interest is the price you pay for the privilege of borrowing money. With most loans, interest is expressed as an APR, or annual percentage rate, which includes not only the interest rate itself but also any additional costs to the loan, like origination fees.

What’s the difference between a loan and a line of credit?

With a loan, you usually receive a lump sum of money up front which you then repay over the course of months or years. With a line of credit, instead of a lump sum, you receive a credit limit — the maximum amount you can borrow based on your financial credentials. From that amount, you borrow what you need up to your limit, and you can repay the line of credit and borrow again.

How do I choose the right type of loan for my needs?

The first step to choosing the right loan for your needs is to understand that there is a huge array of financial products available. What are loans can vary tremendously. For example, if you need money to buy a vehicle, a secured auto loan may have lower interest rates than a personal loan. If you need funds for a wedding, a personal loan may be the right option. It’s also worthwhile to shop around with different lenders once you know the type of loan you want. That can help you find the best possible loan terms, including the lowest interest rate.

Are there tax implications for taking out a loan?

There may be tax implications. The interest you pay on a mortgage is usually tax-deductible. In the case of personal loans, since they have to be repaid, they’re not considered income, so you won’t have to pay taxes on the disbursement. If the loan is forgiven, though, the cancellation of the debt may be considered its own form of income and may be subject to taxation on that basis. You may want to check in with a tax professional regarding your particular situation.

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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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOPL-Q324-023

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Oct
02
2024
Businessman on cell phone

How to Roll Over Your 401(k): Knowing Your Options

By | Budgeting & Goals, Building Your Career, Growing Wealth, invest, Investing, Life & Career | No Comments

It’s pretty easy to rollover your old 401(k) retirement savings to an individual retirement account (IRA), a new 401(k), or another option — yet millions of workers either forget to rollover their hard-won retirement savings, or they lose track of the accounts. Given that a 401(k) rollover typically takes minimal time and, these days, minimal paperwork, it makes sense to know the basics so you can rescue your 401(k), roll it over to a new account, and add to your future financial security.

Whether you’re starting a new job and need to roll over your 401(k), or are looking at what other options are available to you, here’s a rundown of what you need to know.

Key Points

•   Rolling over a 401(k) to an IRA or new 401(k) is typically straightforward and your retirement funds will continue to have the opportunity to grow.

•   Moving 401(k) funds to another 401(k) is often the simplest option and allows you to continue to have a higher contribution limit.

•   Moving 401(k) funds to an IRA may provide more investment choices and control over those investments.

•   Leaving a 401(k) with a former employer is an option but may involve additional fees and complications.

•   Direct transfers are simpler and generally preferred over indirect transfers, which run the risk of incurring tax liabilities and penalties.

401(k) Rollover Options

For workers who have a 401(k) and are considering next steps for those retirement funds — such as rolling them to an IRA or another 401(k), here are some potential avenues.

Roll Over Money to a New 401(k) Plan

If your new job offers a 401(k) or similar plan, rolling your old 401(k) funds into your new 401(k) account may be both the simplest and best option — and the one least likely to lead to a tax headache.

That said, how you go about the rollover has a pretty major impact on how much effort and paperwork is involved, which is why it’s important to understand the difference between direct and indirect transfers.

How to Roll Over Your 401(k): Direct vs Indirect Transfers

Here are the two main options you’ll have if you’re moving your 401(k) funds from one company-sponsored retirement account to another.

A direct transfer, or direct rollover, is exactly what it sounds like: The money moves directly from your old account to the new one. In other words, you never have access to the money, which means you don’t have to worry about any tax withholdings or other liabilities.

Depending on your account custodian(s), this transfer may all be done digitally via ACH transfer, or you may receive a paper check made payable to the new account. Either way, this is considered the simplest option, and one that keeps your retirement fund intact and growing with the least possible interruption.

Another viable, but more complex, option, is to do an indirect transfer or rollover, in which you cash out the account with the expressed intent of immediately reinvesting it into another retirement fund, whether that’s your new company’s 401(k) or an IRA (see above).

But here’s the tricky part: Since you’ll actually have the cash in hand, the government requires your account custodian to withhold a mandatory 20% tax. And although you’ll get that 20% back in the form of a tax exemption later, you do have to make up the 20% out of pocket and deposit the full amount into your new retirement account within 60 days.

For example, say you have $50,000 in your old 401(k). If you elected to do an indirect transfer, your custodian would cut you a check for only $40,000, thanks to the mandatory 20% tax withholding.

But in order to avoid fees and penalties, you’d still need to deposit the full $50,000 into your new retirement account, including $10,000 out of your own pocket. In addition, if you retain any funds from the rollover, they may be subject to an additional 10% penalty for early withdrawal.

With all of that in mind, rolling over your money into a new 401(k) has some pros and cons:

Pros:

•   Often the simplest, easiest rollover option when available.

•   Should not typically result in any tax liabilities or withholdings.

•   Allows your investments to continue to grow (hopefully!), uninterrupted.

Cons:

•   New employer may change certain aspects of your 401(k) plan.

•   There may be higher associated fees or costs with your new plan.

•   Indirect transfers may tie up some of your funds for tax purposes.

Roll Over Your 401(k) to an IRA

If your new job doesn’t offer a 401(k) or other company-sponsored account like a 403(b), you still have options that’ll keep you from bearing a heavy tax burden. Namely, you can roll your 401(k) into an IRA.

The entire procedure essentially boils down to three steps:

1. Open a new IRA that will accept rollover funds.

2. Contact the company that currently holds your 401(k) funds and fill out their transfer forms using the account information of your newly opened IRA. You should receive essential information about your benefits when you leave your current position. If you’ve lost track of that information, you can contact the plan sponsor or the company HR department.

3. Once your money is transferred, you can reinvest the money as you see fit. Or you can hire an advisor to help you set up your new portfolio. It also may be possible to resume making deposits/contributions to your rollover IRA.

This option also has its pros and cons, however.

Pros

•   IRAs may have more investment options available.

•   You’ll have more control over how you allocate your investments.

•   You could potentially reduce related expenses, depending on your specifications.

Cons

•   May require you to liquidate your holdings and reinvest them.

•   Lower contribution limit compared to 401(k).

•   May involve different or higher fees and additional costs.

•   IRAs may provide less protection from creditor judgments.

•   You’ll be subject to new distribution rules – namely, you’ll need to be 59 1/2 before withdrawing funds to avoid incurring penalties.

Leave Your 401(k) With Your Former Employer

Leaving your 401(k) be – or, with your former employer – is also an option.

If you’re happy with your portfolio mix and you have a substantial amount of cash stashed in there already, it might behoove you to leave your 401(k) where it is.

You’ll also want to dig into the details and determine how much control you’ll have over the account, and how much your former employer might.

You might also consider any additional fees you might end up paying if you leave your 401(k) where it is. Plus, racking up multiple 401(k)s as you change jobs could lead to a more complicated withdrawal schedule at retirement.

Pros

•   It’s convenient – you don’t do anything at all, and your investments will remain where they are.

•   You’ll have the same protections and fees that you previously had, and won’t need to get up to speed on the ins and outs of a new 401(k) plan.

Cons

•   If you have a new 401(k) at a new employer, you could end up with multiple accounts to juggle.

•   You’ll no longer be able to contribute to the 401(k), and may not get regular updates about it.

Cash Out Your Old 401(k)

Cashing out, or liquidating your old 401(k) is another option. But there are some stipulations investors should be aware of.

Because a 401(k) is an investment account designed specifically for retirement, and comes with certain tax benefits — e.g. you don’t pay any tax on the money you contribute to your 401(k), depending on the specific type — the account is also subject to strict rules regarding when you can actually access the money, and the tax you’d owe when you did.

Specifically, if you take out or borrow money from your 401(k) before age 59 ½, you’ll likely be subject to an additional 10% tax penalty on the full amount of your withdrawal — and that’s on top of the regular income taxes you’ll also be obligated to pay on the money.

Depending on your income tax bracket, that means an early withdrawal from your 401(k) could really cost you, not to mention possibly leaving you without a nest egg to help secure your future.

This is why most financial professionals generally recommend one of the next two options: rolling your account over into a new 401(k), or an IRA if your new job doesn’t offer a 401(k) plan.

Pros

•   You’ll have immediate access to your funds to use as you like.

Cons

•   Early withdrawal penalties may apply, and there will likely be income tax liabilities.

•   Liquidating your retirement account may hurt your chances of reaching your financial goals.

When Is a Good Time to Roll Over a 401(k)?

If there’s a good time to roll over your 401(k), it’s when you change jobs and have the chance to enroll in your new employer’s plan. But you can generally do a rollover any time.

That said, if you have a low balance in your 401(k) account — for example, less than $5,000 — your employer might require you to do a rollover. And if you have a balance lower than $1,000, your employer may have the right to cash it out without your approval. Be sure to check the exact terms with your employer.

When you receive funds from a 401(k) or IRA account, such as with an indirect transfer, you’ll only have 60 days from the date you receive them to then roll them over into a new qualified plan. If you wait longer than 60 days to deposit the money, it will trigger tax consequences, and possibly a penalty. In addition, only one rollover to or from the same IRA plan is allowed per year.

The Takeaway

Rolling over your 401(k) — to a new employer’s plan, or to an IRA — gives you more control over your retirement funds, and could also give you more investment choices. It’s not difficult to rollover your 401(k), and doing so can offer you a number of advantages. First of all, when you leave a job you may lose certain benefits and terms that applied to your 401(k) while you were an employee. Once you move on, you may pay more in account fees for that account, and you will likely lose the ability to keep contributing to your account.

There are some instances where you may not want to do a rollover, for instance when you own a lot of your old company’s stock, so be sure to think through your options.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Help grow your nest egg with a SoFi IRA.

FAQ

How can you roll over a 401(k)?

It’s fairly easy to roll over a 401(k). First decide where you want to open your rollover account, then contact your old plan’s administrator, or your former HR department. They typically send funds to the new institution directly via an ACH transfer or a check.

What options are available for rolling over a 401(k)?

There are several options for rolling over a 401(k), including transferring your savings to a traditional IRA, or to the 401(k) at your new job. You can also leave the account where it is, although this may incur additional fees. It’s generally not advisable to cash out a 401(k), as replacing that retirement money could be challenging.

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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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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Oct
01
2024
How to Make End of Year Donations

Tax-Deductible or Not? Your Guide to End-of-Year Donations

By | Budgeting & Goals, Financial Independence, money | Comments Off on Tax-Deductible or Not? Your Guide to End-of-Year Donations

At the end of the year, when holiday celebrations and expressions of gratitude are in full swing, many people think about making a charitable donation. If you donate to a qualifying organization, not only can your funds do good, they may also be deductible when you pay your taxes.

Maybe it’s the animal shelter around the corner from your home, or perhaps it’s a scholarship fund at your alma mater that does amazing work. Whatever pulls at your heart and makes you feel like you’re doing the right thing can be a good cause for donations. The organization you give your money to benefits. Read on to learn if your contribution could also lower your tax bill.

What Qualifies as Charitable Giving?

In the eyes of the Internal Revenue Service (IRS), a charitable donation is a gift of money, property, or other asset that you give to a qualifying organization, known as a 501(c)(3).

To find out if an organization you’d like to support is eligible to receive tax-deductible contributions, you can search for it on the IRS’s database .

You may want to keep in mind that money or assets given to political campaigns or political parties do not qualify as tax-deductible donations. In fact, no organization that qualifies as a 501(c)(3) can participate in political campaigns or activities.

Organizations that engage in political activities without bias, however, can still sometimes qualify. So, a group can educate about the electoral process and remain within guidelines. They just have to go about it in a nonpartisan way.

Can I Deduct My Year-End Charitable Donation?

Currently, charitable donations could only be deducted by tax filers who itemized their deductions. That means that rather than take the standard deduction on their income tax return, they chose the more complicated path of listing all of their eligible expenses.

Recommended: 26 Tax Deductions for College Students and Other Young Adults

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How Much of a Charitable Donation Is Tax-Deductible?

The IRS sets limits on how much of a charitable contribution you can deduct from your taxes, and these are frequently updated. The amount is typically expressed in terms of the percentage of your adjusted gross income (AGI) that you may claim.

In 2024, this limit for cash contributions (say, money debited from your checking account) is 60% of a person’s AGI. The top figure is 20%-50% of AGI if you make a non-cash contribution, such as stock shares or a vehicle. The exact figure will vary with both the type of organization to which you are making the donation as well as the kind of item you are donating.

Of course, you are welcome to donate as much as you like. Just keep in mind that any charitable giving above those figures is not eligible for a deduction at tax time.

Recommended: How to Reduce Taxable Income for High Earners

Tips for Making End-of-Year Donations

To ramp up both the impact and benefit of a charitable donation, here are some strategies you may want to keep in mind:

Making a Timely Donation

Don’t lose track of your timing: The deadline for charitable donations is December 31. If you’re looking to deduct the donation in the current tax year, you will want to make sure your charity has ownership of whatever asset you are donating by the close of business on the 31.

You may also want to make sure that your preferred payment method is accepted by the charity so it doesn’t get kicked back and cause delays. Putting a reminder in your calendar for, say, mid-December can be a good way to make sure you don’t run late with your giving. (Of course, you also want to make sure you don’t miss the tax-filing deadline come April, either.)

Taking Advantage of Company Matching Programs

Your place of employment might have a matching program for charitable giving. They might, for example, match your donation amount dollar for dollar up to a certain amount. If so, it could significantly bump up the amount you could otherwise afford to give.

If you’re unsure about whether your company has a program, it can be worth reaching out to your HR department for further information.

Giving Rewards on Your Credit Card

If you are making a contribution on a budget, you might consider donating credit card rewards you earn, such as hotel points or airline miles. This can be a great way to use points or other rewards that would otherwise just expire. Many credit card companies, hotels, and airlines will make it easy to give your rewards to nonprofit organizations.

Donating Assets from Your Brokerage Account

If you’re looking to lower your taxes, you may want to consider donating assets from your brokerage account to a nonprofit. This may take some time and planning, but the benefits of donating an over-allocated position that’s outperforming can be worth it.

You may be able to receive tax advantages and rebalance your portfolio, while also helping an organization increase its assets.

Recommended: What Tax Bracket Am I In?

Setting up a Recurring Donation

You can get a headstart on next year by creating a recurring contribution now. Many organizations allow you to donate monthly through their websites using a credit card, so you might be able to earn rewards at the same time. By establishing your donation plans now, you won’t have to even think about end-of-the-year giving next year.

Keeping Good Records

If you want to deduct your donation on your taxes, you’ll want to make sure you have the right receipts to back up the transaction.

You’ll want to keep records of your donations. For cash donations under $250, you’ll either need a bank record (like a canceled check or bank statement) or a written acknowledgment from the charity which includes the date and amount of your contribution. (The exception is goods dropped off at, say, a clothing donation bin.)

For cash donations over $250, a bank record isn’t insufficient. Instead, you’ll need something in writing from the charity which includes the date and amount of your donation.

If you are making noncash donations valued at $500 or more, you’ll need to fill out one or more of the IRS Form 8283 . If the donation exceeds $5,000 in value (say, if you gift a car you no longer need to a favorite local organization), you’ll also need to get a written appraisal from a qualified appraiser. In addition, know that donations of $250 or more will also require what is known as a “contemporaneous written acknowledgment.” This is a document that describes the property, states whether the organization provided the donor with goods or services as a result of the contribution,and share an estimate of the value of any such goods or services provided.

Speaking with a Professional

Working with a personal accountant can help answer any questions you may have about how tax laws will impact your tax contribution, as well as help you make the most strategic and efficient charitable donation.

Recommended: Are 401(k) Contributions Tax Deductible? Limits Explained

The Takeaway

Giving can be a good idea for a number of reasons. In addition to helping a nonprofit organization meet its operating costs for the year, you can feel good about what you are doing with your money, and you may also benefit from tax deductions.

Giving can also help you get the new year started on the right foot. If you’re looking for other ways to get your financial life in order, consider a new bank account.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.50% APY on SoFi Checking and Savings.

FAQ

Should donations be deductible?

Charitable contributions are usually tax-deductible, but there can be limitations as well as exceptions, so it can be wise to inquire in advance. Contributions can often take the form of cash, artwork, cars, and other items of value.

Are charitable contributions no longer tax-deductible?

Charitable contributions can be tax-deductible. However, they must be claimed as itemized deductions; you would do so on Schedule A of IRS Form 1040. Keep in mind that there’s a limit on charitable cash contributions: For 2024, it’s 60% of the taxpayer’s adjusted gross income.

Can you deduct $300 in charitable contributions without itemizing?

The short answer is no. Currently, you must itemize charitable contributions in order to claim them as deductions.

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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 8/27/2024. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.

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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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SOBNK-Q324-060

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Sep
30
2024
Budgeting for Residents

Budgeting as a New Resident

By | Budgeting & Goals, Life & Career, student_loan | Comments Off on Budgeting as a New Resident

Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.


The member’s experience below is not a typical member representation. While their story is extraordinary and inspirational, not all members should expect the same results.

As a resident, Dr. Saira Z. worked in one of the most expensive places in the country—the New York City area. Besides managing the high cost of living on a residency budget, Saira was also paying back loans from medical school.

Figuring out how to stretch her $65,000 a year medical resident’s salary wasn’t easy, even after she got married. She and her husband tried to be as frugal as possible. When they took stock of their spending, however, they found places to cut back.

The couple drew up a budget to help them stay the course through Saira’s three-year residency and when her medical fellowship salary dipped. It also allowed them to set good habits that still serve them well. Saira and her husband now have twins, and she’s in a private practice.

As Saira learned, residency can test your finances. While you’re finally drawing an income—the average annual salary of a first-year resident is less than $63,000, according to 2023 data from the Association of American Medical Colleges—a residency budget needs to cover a lot. Your medical school finances likely include considerable student loan debt. The median medical school debt for the class of 2023 is $200,000, according to the Association of American Medical Colleges, which doesn’t include undergraduate student loans, credit card balances or other debt.

Having a financial plan is a way to make the most of your income and set up for the future. These tips for budgeting for residents may help you get started.

Identify Your Biggest Budget Busters

A budget can serve a variety of purposes. It can help you make progress toward your savings goals, adopt healthier spending habits, and pay down debt. It can even allow you to spot the biggest drains on your money so you can look for ways to curb spending.

For Saira and her husband, meals out with friends were a top budget buster. But they had no idea that was the case until they reviewed their finances. “You don’t realize eating out is such a huge expense until after the fact,” Saira says. As a result, the couple decided to temporarily stop going to restaurants, which allowed them to put that money into their savings.

Build Your Financial Foundation

Budgeting for medical residents should include working on your financial foundation, says Brian Walsh, CFP, senior manager, financial planning for SoFi. “These foundational pieces are so critical to establish,” Walsh says. “Then, once you get that big paycheck, it will be much easier to sock away 25% or more of your income toward retirement.”

Here are a few steps he recommends:

•  Pay off “bad debt.” Walsh defines “bad debt” as anything that accelerates consumption and comes with a high interest rate (such as credit cards).

•  Build up an emergency fund. This stash of cash should cover three to six months’ worth of your total living expenses and be placed in an easy-to-access place, like money market funds, short-term bonds, CDs or a high-yield savings account.

•  Protect your income. There are two types of protection you may want to consider. Disability insurance covers a portion of your income in the event you’re unable to work due to an injury or illness. Monthly premium amounts vary, but generally, the younger and healthier you are, the less expensive the policy. You may also want to consider purchasing a life insurance policy if other people depend on your income.

Recommended: Short Term vs. Long Term Disability Insurance

Start Saving for the Future

Next, Walsh suggests putting any leftover funds into retirement. Over time, as your emergency fund grows and “bad debt” diminishes, you’ll be able to put more money into retirement.

One simple way to build up savings now is to contribute to your employer’s 401(k) or 403(b) retirement plan, if one is available, and tap into any matching funds program. There’s a limit to how much you can contribute annually to either plan. In 2024, the amount is $23,000; if you’re 50 or older, you can contribute up to an additional $7,000, for a total of $30,500.

There are other investment vehicles Walsh suggests exploring if you have additional money to save, don’t have access to a 401(k) or 403(b), or simply prefer to have more control over your money. These include an individual retirement account (IRA), such as a traditional IRA or Roth IRA, both of which can offer tax advantages.

Contributions made to a traditional IRA are tax deductible, and no taxes are due until you withdraw the money. Contributions to a Roth IRA are made with after-tax dollars; your money grows tax-free and you don’t pay taxes when you withdraw the funds. However, there are limits on how much you can contribute each year and on your income.

Another option is a health savings account (HSA), which may be available if you have a high deductible health plan. HSAs provide a triple tax benefit: Contributions reduce taxable income, earnings are tax-free, and money used for qualified medical expenses is also tax-free.

Recommended: Budgeting as a New Doctor

Come Up With a Plan to Pay Student Loan Debt

As a resident, you have several priorities competing for a piece of your paycheck: lifestyle expenses, long-term savings goals, and medical student loan debt. Loan repayment typically starts six months after graduation, and options vary based on the type of loan you have.

If you have federal student loans and need extra help making payments, for example, you can explore a loan forgiveness program or an income-driven repayment (IDR) plan, which can lower monthly payments for eligible borrowers based on their income and household size. You also have the option to postpone payments during residency, but the interest will continue to accrue and add to your total balance.

Your medical student loan debt may feel overwhelming, but there are a couple of ways to consider tackling it. With the avalanche approach, you prioritize debt repayment based on interest rate, from highest to lowest. With the snowball approach, you pay off the smallest balance first and then work your way up to the highest balance.

While the right approach is the one you’ll stick with, Walsh often sees greater success with the snowball approach. “Most people should start with paying off the smallest balance first because then they’ll see progress, and progress leads to persistence,” he says.

Find Out If Refinancing Is Right for You

You may want to consider refinancing your student loans as part of your repayment strategy. When you refinance, your existing loans are paid off and you get one new loan. You may be able to get a lower interest rate, which could potentially reduce your monthly payments. Some lenders, including SoFi, also provide benefits for residents and other medical professionals.

Though the refinancing process is fairly straightforward, “People overestimate the amount of work it takes to refinance and underestimate the benefits,” Wash says. A quarter of a percentage point difference in an interest rate might seem small, but if you have a big loan balance, it could save you quite a bit.

However, refinancing may not be right for everyone. By refinancing federal student loans, you could lose access to benefits and protections, such as income-driven repayment and student loan deferment. Your best bet is to weigh all of your options and decide what makes the most sense for your situation.

The Takeaway

After years of medical school, you’re finally starting to make some money. But you also likely have a lot of student loan debt that you need to start paying back during your residency. Having a solid plan for repaying your loans, and using a few key strategies to start saving money for your future, can help position you for long-term financial success.

If part of that plan includes refinancing your student loans, SoFi can help. With our medical professional refinancing, you may qualify for a special competitive rate if you have a loan balance of more than $150,000. You can also reduce your monthly payments to as low as $100 during residency, for up to seven years.

SoFi reserves our lowest interest rates for medical professionals like you.

Photo credit: iStock/Andrei Orlov

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.


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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

The member’s experience below is not a typical member representation. While their story is extraordinary and inspirational, not all members should expect the same results.
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