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Using Your Credit Card During a Crisis—Pros & Cons

Even under so-called “normal” circumstances, some people may have an ambivalent-at-best relationship with credit card use. A person’s first card likely represents freedom and independence—as an adult, those cards might instead symbolize great stress.

Credit-reporting company Experian® says credit card debt is the second-fastest-growing debt behind personal loans, and that the average credit card debt for Americans is $6,194 (with an additional $1,155 on retail credit cards). And 43.9% of credit card holders are referred to as “revolvers” by the American Bankers Association, meaning they carry at least some debt from month to month.

Unfortunately, with the global coronavirus pandemic, there’s no doubt economic circumstances are not normal right now. Should the approach to using credit cards change during a crisis? Here are some ins and outs of using—and rethinking how to use— credit cards:

Is It Smart To Use Credit Cards Now?

Just as in pre-coronavirus times, credit cards aren’t magical “buy anything and worry about it much, much later” tickets. Many of the basics for using a credit card are still in effect: Don’t make purchases just to get reward points, report missing or stolen cards immediately, be in the habit of checking your statements every month, etc.

That said, many banks and lenders are offering relief in the form of rolling out new policies to ease the burden for card holders who are struggling with their payments. Some are waiving fees, offering payment deferral or forbearance, or increasing credit lines—some banks are even offering these three forms of support, and more.

Of course, it’s unwise to assume a bank or credit card company is focused on looking out for you during this time—the better option might be to contact your card issuer for information and any fine print that might go along with these possible perks. And while the ability to increase your credit line might sound good, it could also cause more headaches down the road.

Making minimum payments on credit cards can lead to four times the price of purchases paid back over decades. The interest—especially compounding interest, which is essentially interest on interest already due—can often be the big killer with credit cards. But there are ways to potentially avoid interest on credit cards, such as paying off a balance in full each month.

Even if your income seems stable, if there’s one thing we’ve all been learning through COVID-19 it’s that one can never really predict what is about to happen a week or two later. Now, more than ever, it might be a good idea to use your credit cards responsibly. Part of that responsibility now means knowing what responsibility means for you and your situation—while being one of the revolvers the American Bankers Association tracks isn’t necessarily something to be thrilled about, the costs might be worth enduring if it means you have the necessities you need for survival now. It obviously isn’t irresponsible to charge things you truly need to survive—after all, priorities shift during a crisis. But only you will know what you need.

Planning for the Future—Starting Now

Conversations about using credit cards, global pandemic or not, are really about responsible saving and spending. There is no blanket yes or no answer to whether it’s a good idea to use credit cards right now—although it’s certainly possible to be a little wiser about using a credit card.

FINRA, the Financial Industry Regulatory Authority, reported in 2018 that nearly a third of households would struggle to cover an unexpected $2,000 expense—and while credit cards might be a source of uncertainty or stress, it’s also true that they are not necessarily bad. After all, credit cards might be a key component of establishing and maintaining a credit history, and they of course come in handy for unexpected (and some expected) expenses.

If you’re looking to be spread less thin in the here and now, however, it might be worthwhile to hunt for credit cards that might offer more reasonable rates than your current cards. A good place to start might be with your current card issuers and see if they can lower the interest rate. These calls usually take just a few minutes, so it might be worth a shot. Even if a credit card company can’t do it now, they might be able to do it later—and if you do get a rate decrease, it’s possible to use that when negotiating on another card for a rate to at least match it.

Another alternative might be to consider a cash-back credit card, one that offers cash rewards in a small percentage back on each transaction. Depending on the issuer, the card might offer higher rates for certain categories of purchases, so it might be worth doing some research and strategizing if there is a big purchase you want to make. But, of course, it is not recommended to spend on purchases just to earn a little bit more. The idea with these cards is knowing that cash reward is there versus, say, points that can be redeemed from a catalog of items that might not be essential for survival right now.

There are also balance-transfer credit cards, or a card you would transfer existing card debt to, usually at a lower (or maybe even 0%) annual percentage rate (APR). The rationale and incentive for these cards is to lock your credit card debt in at a lower rate than it would be currently, to therefore make it less burdensome to work on paying it down.

There are wrinkles to employing this strategy, however, so you might want to consider reading the fine print. The idea is you can pay off that balance with no interest on a more compressed timeline than you might otherwise. That lower rate might change after the introductory period, which must be at least six months according to the Credit Card Act of 2009, but can last longer. If you are unable to pay your debt off before the introductory period is over, you may be saddled with an APR that could be even higher than the one you had to begin with. Also, you might want to watch out for any balance transfer fees. Usually, these cards have to be issued by a different company than one you already bank with.

Just be forewarned that while signing up for new cards can make things slightly easier right now by increasing purchasing power, it might only be worthwhile if it helps pay required monthly expenses. Extraordinary times can call for extraordinary measures.

Putting the Cards Down—For Now

If the idea of getting more plastic feels more like a problem than a solution, another route might be to consider a loan to consolidate your current credit card debt. Similar to balance-transfer credit cards, one common use for unsecured personal loans is to consolidate revolving and/or high-interest debt into one loan, ideally with lower interest rates and fees.

Personal loans might make it easier to manage debt all in one monthly bill, with a set end date when your debt will be repaid, and it could end up helping you save money in the long run. SoFi has fixed rate, unsecured personal loans with no fees that can be used to help cover expenses and keep moving forward. And if you’re looking to find ways to tame those credit card bills, SoFi also offers credit card consolidation loans, with no application or origination fees and no pre-payment penalties.

Ready to start vanquishing your credit card debt? Learn more about personal loans and consolidating credit card debt with SoFi.



SoFi Loan Products
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.

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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What Is a Good APR?

Sifting through credit card offers can be daunting. There are so many numbers and lengthy explanations that it can be easy to miss the most important details.

Though it’s always a good idea to read over every contract you sign, when it comes to picking a new credit card, there is one detail consumers should try not to miss: the card’s annual percentage rate, or APR.

Taking the time to find out what an APR is and how it might affect the monthly payment is a wise step before comparing credit card offers.

What Is an Annual Percentage Rate?

Is it the same as an interest rate? Not quite. An APR is the total cost of the loan expressed in annual terms—a small, but important, distinction. A credit card’s APR might include the interest rate as well as fees for late payments, foreign transactions, or returned payments.

The APR for a loan might include fees such as an origination fee, late fees, or other administrative fees. Taking these fees into account when applying for credit helps to provide a fuller picture of what the loan may actually cost over its lifetime.

Meanwhile, an interest rate is simply the additional cost of borrowing money. It is typically expressed as a percentage of the principal.

For example, if a consumer takes out a $1,000 loan with a 10% simple interest rate and a one-year term, the person will pay $1,100 over the lifetime of the loan—the principal $1,000 plus interest of $100.

While this example is extremely simplified, it’s helpful in demonstrating the difference between a simple interest rate and a not-so-simple APR calculation. If the consumer calculates the cost of the same $1,000 loan, considering the various fees that go into the APR, the number will likely be higher than the stated interest rate.

When It Matters to Look at APR

If a consumer is comparing two similar loan or credit card offers, they may want to also look at the offer’s APR. For example, the person has two loan offers. Each is a $1,000 loan with an interest rate of 10%. With just that information to compare the two, they seem equal to each other.

A little more digging, though, will uncover that Offer A has a $100 origination fee while Offer B only has a $50 origination fee, both of which could be calculated and accounted for in the offer’s APR. With credit cards it could be that two cards have the same interest rate, but Card A has no late payment fees, while Card B carries a 20% late payment fee, making its APR potentially higher. With APR, the devil really is in the details.

How to Evaluate and Compare APRs

To get a sense of an offer’s APR, try looking at the entire terms of the contract and compare those terms to other credit offers. For a fair comparison, make sure to look at the same type of credit card or loan offer. (For example, only compare travel rewards cards, or only compare personal loans, to ensure a balanced assessment.)

Then, get into the nitty-gritty of an offer and look at the APR for different types of transactions. Even one credit card can have different APRs on different transactions. For example, one card may have a different APR on late payment penalties than it does for balance transfers or cash advances.

Evaluate each APR and compare to any other offer you may have in front of you to ensure you pick the best option for your financial needs.

APR and Credit Cards

According to the Federal Reserve, the US national average credit card APR was 15.09% in February 2020. It’s reasonable to assume that an APR at or below the national average is considered “good.” That said, qualifying for a “good” APR may hinge on a consumer’s credit score.

APR and interest rates also change alongside federal interest rates changes, so it’s important for consumers to not only rely on an average that may be out of date, but rather, look at the offer presented to them at the time.

It’s a good idea for consumers to attempt to seek out the lowest rate possible for their financial situation.

Low vs. High APR Cards

Some credit cards tend to have higher APRs than others. For example, rewards credit cards tend to have higher APRs, but provide value via perks, discounts, points, or other benefits.

On the other hand, many low-interest cards come with fewer perks, but again, can save someone money in the long run if they need to carry a balance.

Low-interest cards also tend to be reserved for those with higher than average credit scores, so they may be harder to qualify for with lower credit.

How to Avoid Paying APR

There is one way to avoid paying an APR altogether, at least with credit cards, and that is by paying off the balance each and every month. By paying off the balance a consumer will never have to pay interest or any APR-related fees.

However, it’s still a good idea to seek out a good APR offer just in case a large purchase means carrying a balance for some time.

Tips for Qualifying for a Better APR

The APR a person qualifies for typically depends on his or her individual credit score. This means, those with credit scores on the higher end of the scale might qualify for lower APRs. If a consumer has a lower credit score, that doesn’t mean they are totally out of luck, but might be offered the same card at a higher APR.

There are a few ways a person can improve their chances of qualifying for a lower APR and that starts by doing the work to improve their credit score.

One step is to check their credit report regularly for accuracy. US federal law allows consumers to get one free credit report annually from each of the three credit reporting agencies.

Consumers can also improve their personal credit scores by making debt payments on time and trying to use only 30% of their available credit at any given time. Payment history accounts for 35% of the total credit score, and credit utilization—how much of a person’s total credit is being used at a given time—accounts for 30% of the total credit score.

Reparing a poor credit score can take some time, but it’s worth the work.

Personal Loans and Credit Card Debt

If you’re currently carrying credit card debt on multiple cards and feel as though you may be paying too much in interest and APR-related fees, it may be time to look into consolidating that debt with a personal loan.

Consolidating credit card debt essentially allows a person to pay off their existing debt with a personal loan. Only one monthly payment instead of several could mean less to worry about.

Consolidating debt may mean qualifying for more favorable terms, such as a lower APR, which could help you pay less over the life of the debt. When considering consolidating debt, it’s a good idea to look at the fine print on any loan application to find out what fees a lender might be charging.

SoFi personal loans come with no hidden fees, such as those pesky origination fees, making it clearer to understand just what you’re paying for with a loan.

Learn more about consolidating credit card debt with a SoFi personal loan.



SoFi Loan Products
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.

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.
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.
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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How to Report Identity Theft

Anyone noticing strange activity on their account statements, such as credit card charges or cash withdrawals they know they didn’t make, or if they’re getting bills for services they never used, may be a victim of identity theft. Consumers can take several steps to report suspicions that their identity has been stolen.

And the sooner they report the problem, the faster they may be able to fix it.

There’s no sugarcoating it: Depending on the type and extent of the fraud, an identity theft victim could be in for a few challenging days (or months or even years). The nature and severity of identity theft will differ from person to person. But there are steps consumers can take to help minimize current and future damage to their finances and reputation.

What Is Identity Theft?

Identity theft occurs when someone wrongfully accesses another person’s personal data and uses it to assume their identity—usually for financial gain.

A thief might steal from the victim’s existing bank accounts, make purchases using their credit cards, open new accounts using the victim’s information, or even file for a tax refund with the victim’s Social Security number.

According to data gathered by the Federal Trade Commission’s Consumer Sentinel Network , more than 650,000 cases of identity theft were reported in 2019. Credit card fraud topped the list of identity theft reports to the FTC that year.

How to Spot Identity Theft

It isn’t always possible to pinpoint how, when, or where a thief got access to personal information, and some crimes may take longer to spot than others.

It might take years to notice that a child’s identity has been compromised, for example, or to realize that someone has stolen personal information to file false medical claims. But both can damage a victim’s credit standing and cause other problems if incorrect information gets into school or medical records.

However, there are signs of identity theft that consumers can watch for as they manage their day-to-day finances.

You might notice pretty quickly if there are unusual charges on your credit card, or your bank balance is lower than you thought. Other red flags might include:

•   Debt collectors are calling about unpaid bills that aren’t yours.
•   There are new and unfamiliar accounts on your credit report.
•   Your credit or debit card is declined when you try to use it to make a purchase or cash withdrawal, or your checks bounce.
•   You don’t receive bills you normally get, or you get bills for purchases that aren’t yours.
•   The IRS informs you that a tax return has already been filed in your name.
•   Your health insurance statement shows charges that aren’t yours.
•   Your loan application is turned down because of negative information on your credit report.

And, of course, if you’ve been notified that there’s been a data breach at a business that has your personal information, you also may want to take steps to monitor and limit your exposure.

How to Report Identity Theft

Because identity theft is so common, the government and many individual businesses have established efficient, consumer-friendly processes for reporting problems. Here are some steps consumers can take if they suspect their identity has been stolen.

Contact a Protection Plan If You Have One

If you’re paying for identity theft insurance (through LifeLock, Experian, Allstate, or some other provider), you can contact that company for guidance. (You may even have received the first notification of potential trouble through your plan.)

An agent should be ready to assist you through the reporting and remediation process. If you aren’t sure you have a plan, you might check with your human resources department to see if you have coverage through your employer.

Call Any Company Where Fraud May Have Occurred

Call your credit card issuer, financial institution, and any other company that might be involved in the theft and share your concerns about suspicious behavior.

You might be able to head off a whole lot of trouble by acting as soon as you notice something unusual: The federal laws that cover credit and debit card theft offer more protections if you act quickly.

The person you speak with is likely to offer tips for what to do next, so taking notes is a good idea. And you should be ready to change any passwords or PINs attached to your account.

If you suspect that someone has stolen your identity for tax fraud, contact the IRS. And if something seems sketchy about your health care statements, call your insurance provider. (If you aren’t sure who to call for a specific issue, the Federal Trade Commission offers checklists to help consumers report just about any type of identity theft.)

Add a Fraud Alert and Maybe a Freeze

Next, you can broaden your protection by placing a free, one-year fraud alert on your credit reports. A fraud alert requires creditors to verify your identity before processing credit applications.

It isn’t necessary to contact all three major credit bureaus to get an alert; you only have to ask one bureau (your choice) to place the alert, and that company must tell the other two. You should receive a letter from each bureau confirming the alert.

•   experian.com/fraud/center.html or 888-397-3742
•   transunion.com/fraud-alerts or 888-909-8872
•   equifax.com/personal/credit-report-services/ or 800-685-111

You don’t have to wait for suspicious activity to place a fraud alert. If you lost your wallet or a credit card, or if your personal information was exposed in a data breach, a fraud alert can make it more difficult for someone to open new accounts in your name. A fraud alert also allows you to access one free copy of your credit report from each the credit bureaus.

The alert does not negatively affect your credit report, credit scores, or ability to get a loan or credit card. However, it may make it more difficult to get instant approval if you’re applying for a credit card at a store register or if you’re applying for a card online.

You can further lock down your credit by asking each credit bureau for a free credit freeze. When you have a fraud alert, businesses must verify your identity before issuing credit, but with a freeze, access to your reports will be completely blocked.

No one will have access except your existing creditors (or debt collectors acting on their behalf) and government agencies that are responding to a subpoena, search warrant, or a court or administrative order.

If you want to apply for credit or give a potential landlord or lender access to your credit reports, you’ll have to ask the credit bureaus to temporarily lift the freeze. You may be issued a PIN or password for this purpose.

File an Identity Theft Report With the FTC

If you find you’re the victim of identity theft and you haven’t already checked in with the FTC’s identity theft website to take advantage of its tips and checklists, you can log on to create an identity theft report and generate a recovery plan.

When you create an account, the site can guide you through each step, track your progress, and even help you fill out forms and letters.

If someone is, indeed, using your personal information to impersonate you, you can use the report to show businesses that your identity was stolen, and the report guarantees certain rights.

Possibly File a Report With Law Enforcement

As part of the paper trail you build to prove you were a victim, the FTC says you may choose to report the identity theft to your local police department.

If the theft was local, the report may help the police track down the culprits. And even if the personal data was stolen online, you’ll have more documentation to back up your claim.

Go prepared with a copy of your FTC identity theft report, a government-issued photo ID, proof of address, and backup paperwork that can serve as proof of the theft (an IRS notice, credit card or bank statements, etc.). And you may want to print out and bring along a copy of the FTC’s Memo to Law Enforcement , which explains how the FTC’s report and the law enforcement report can work together to help a victim.

Ask for a copy of the police report when it’s completed. (You may need it later.)

Start Fixing the Damage

With your FTC identity theft report in hand and a police report for backup, you can call the fraud departments at any business where there’s a problem and:

•   Ask them to close any fraudulent account that isn’t yours and confirm it with a letter.
•   Ask them to remove any fraudulent charges to your account and confirm that with a letter as well.

Then you can write to each of the credit bureaus and ask them to block the information on your reports that came from the identity theft.

Sign Up for Credit Monitoring

If you want a little help keeping an eye out for suspicious activity on your accounts, a credit score monitoring company can watch your credit reports and send alerts if there’s something unusual or if a new account is opened.

This service may be offered for free (for a limited time) if your information was exposed during a data breach. And there are several companies that offer credit monitoring if you want to pay for it yourself.

You also might want to check to see if some type of credit monitoring is offered by your financial institution. For example, with SoFi Relay, members can track their credit score at no cost with weekly updates.

Tighten Up on Money Management

Even if you have a service to monitor your accounts for problems, you can also help yourself by keeping watch over your finances. A few ways to do that might include:

•   Review your credit reports for items you don’t recognize. Generally, you can request a free credit report from each of the three credit bureaus once a year (by law) at annualcreditreport.com . (There are other sites that offer free reports, but that is the official site.)
•   Check credit card statements, bank statements, and medical statements regularly. You can check old statements for past suspicious activity. (Don’t forget older accounts that you don’t use but keep open.) And, going forward, it could help to review online statements frequently to make sure nothing new is popping up.
•   Consider consolidating your credit card debt. If you have a few credit cards and you don’t want to monitor them constantly, or you’d like just one manageable payment, you might want to look at paying off those cards with a consolidation loan. With a SoFi® credit card consolidation loan, for example, you may be able to combine all those bills into one new loan with a lower interest rate.

Is There Any Way to Prevent Identity Theft?

While identity theft can happen to anyone, there are some things you can do that might reduce your risk. Besides taking the steps above, you could:

Toughen Up Your Password Game

Try to find passwords that have some meaning to you but would be difficult to hack. (Don’t use the word “password” as your password!) Change passwords occasionally. And you might want to avoid keeping a file with all your passwords on your computer’s desktop.

Use Secure WiFi and Secure Websites

Try to avoid using public WiFi when checking financial accounts, paying bills, and so on. And if you can, even when you’re at home, stick to websites that are secured (look for the padlock and URLs that start with https). Keep your devices updated with the latest software.

Set Up Alerts

Take advantage of free fraud protections and alerts your credit card company might offer.

Shred Old Documents and New Credit Card Offers

Get rid of anything thieves might be able to use to get your personal information or set up an account in your name, including statements, receipts, and old credit and debit cards. (Need an incentive? Picture your documents sitting in a dumpster or landfill, where anyone could see them.)

Protect Your Social Security Number

Don’t carry your Social Security card in your wallet. And don’t give out your number (even if a form asks for it) unless it’s absolutely necessary.

Pay Attention to Current Scams

Watch the news for the latest scams and data breaches to head off trouble before it happens.

Cybercriminals are good at what they do. And they’re always working to come up with new schemes to get to your money.

But you might be able to make it harder for them by staying vigilant and acting swiftly if your personal information has been compromised.

Check out how SoFi® can help members prevent or recover from identity theft with free credit report tracking or with a credit card consolidation loan that could make managing high-interest debt easier.



SoFi Loan Products
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.

SoFi Relay is offered through SoFi Wealth LLC, an SEC-registered investment advisor. For more information, please see our Form ADV Part 2A, a copy of which is available upon request and at www.adviserinfo.sec.gov . For additional information on SoFi Wealth LLC, SoFi Relay, and products and services of affiliates, see SoFi.com/legal.
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.
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
website
.

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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What Are the Effects of Carrying a Balance on Credit Cards?

There’s no doubt that most Americans love their plastic.

Because many credit cards have low barriers to entry, they are often an easy way to obtain a credit line and build credit. So credit cards are considered a good tool for beginners to use when building their credit history. Additionally, if used responsibly, credit cards can be an important part of building a credit history.

But unfortunately, many people struggle to pay off balances.

More than 60% of U.S. adults had a credit card in 2019, according to Experian . And among households with revolving credit card debt, the average balance was more than $6,800, costing about $1,160 in annual interest, according to a 2019 survey.

Although carrying the balance isn’t necessarily an issue, not paying it off every month may cause interest accrual that can make a balance more challenging to pay off.

So, if you’re like the millions of Americans who carry a credit card balance every month, understanding the effects can help you determine how to reduce your credit card debt.

The Upshot on Carrying a Balance

In addition to remaining in the debt cycle, there are other financial consequences of carrying a balance on a credit card. Here are a couple of things you can expect when you don’t pay your balance off every month.

Effect on Credit Score

Carrying a high balance on a credit card relative to its credit limit could lower your credit score because it increases the credit utilization ratio, or balance-to-limit ratio, which shows the amount of available credit a person has.

To calculate your ratio, divide your total credit card balances by your total available credit. Ideally, you want to keep your credit utilization ratio under 30%. When you exceed this percentage, your credit scores may decrease a lot faster.

Borrowers trying to decrease their credit utilization should know that it can take two or three credit statement cycles for credit utilization levels to decrease when debt is being paid off.

Accrued Interest

Credit card users who don’t pay off balances every month accrue interest based on the annual percentage rate specified in the credit card terms.

The rate is the approximate interest paid on any balance that’s not paid off when the credit card bill is due, plus any fees. While APRs vary across credit cards and depend on credit history, the average credit card APR ranges from around 13% to 23%.

Most credit cards charge compounding interest. In simple terms, this means that credit card users with a balance that’s carried over from billing cycle to billing cycle end up paying interest on the interest that accrued.

Therefore, if they don’t pay off the balance every month, interest continues to accumulate and is tacked on to the balance.

The majority of credit cards compound interest daily. Therefore, if anything is owed after the payment due date, the balance can easily start climbing.

You can use a credit card interest calculator to get an estimate of how much interest has added to your balance. It might come as a surprise.

Reducing Credit Card Debt

Repaying credit card debt can seem like an uphill battle. But fortunately, with planning, commitment, and tools, it can be achieved. While it might not be an easy feat, taking small steps can help to chip away at credit card debt.
Here are a few options to tackle debt.

Budgeting to Repay Credit Card Debt

No matter how much credit card debt you have, you may want to start with revamping your budget. If you don’t already have one, this is the perfect time to create one. You’ll want to make a list of your monthly expenses and income.

You can record this information in a spreadsheet or a budgeting app, whichever makes it easier to track expenditures.

Once you have a list of the money you have coming in and going out, identify areas where you might be able to cut back on your spending habits. For example, do you find yourself overspending on clothes or eating out more often than not? Wherever you might be overspending, take this opportunity to eliminate some unnecessary expenses.

You may also want to incorporate a debt repayment strategy into your budget to accelerate the process. If you’re someone who is motivated by seeing fast results, you may want to consider the snowball method of repayment.

This strategy prioritizes paying off credit cards with the smallest balances first. Once you pay down the smallest balance, you move on to the second smallest balance, etc.

On the other hand, the avalanche approach could help you save more money in the future, because the goal is to repay credit card balances with the highest interest rates. Once you pay off the balance with the highest interest rate, you move on to the next highest interest rate, continuing until all debt is repaid (while making at least minimum payments on all other balances, of course).

Both debt repayment strategies have advantages and disadvantages, so you may want to consider which method you’ll be most able to stick with or use them as inspiration to create a plan that will work for you.

Opening a Balance Transfer Credit Card

Another option to consider is to open a balance transfer credit card. The idea is to open a new credit card with an introductory interest rate that is significantly lower than your current credit card interest rate. This can allow you to pay off your credit card balance at a lower rate as long as you pay it off in the introductory time frame.

You can potentially pay off your balance within a shorter time while saving money on interest. It’s important to note that the low-interest rate on balance transfer credit cards is usually only offered for an introductory period, usually between six and 18 months. Once that period expires, the rates typically increase.

If you plan to repay the balance before the introductory period ends, a balance transfer credit card might be worth pursuing. Make sure to account for a balance transfer fee—usually 3% to 5%.

As with any other credit card application, your credit history will determine if you qualify and what rate you’ll receive. If your credit isn’t ideal, this might not be an option.

Making Extra Payments

If you don’t want to open a new credit card, you can make extra payments to reduce interest costs. Again, credit card interest is calculated on the account’s daily average balance. Therefore, by making one or more extra payments throughout the month, you can lower the total interest accrued by the time your bill is due.

Even if you can only put a few extra dollars toward each payment, it can help minimize the interest cost.

Using a Personal Loan

If you have high-interest credit card debt, a debt consolidation loan can be an option worth considering. Consolidating all of your debts into a personal loan may help you streamline your finances.

SoFi® offers unsecured personal loans with low, fixed interest rates and fixed monthly payments, so borrowers may be able to save money and enjoy the ease of one predictable payment.

Checking your interest rate and terms will not affect your credit score.1 If the new rate and terms make sense for your financial situation, you can apply for a new loan with no fees, including no origination fees or late fees.

If high-interest debt is causing a revolving sense of dread, a SoFi® personal loan could be the solution.


1Checking 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.
SoFi Loan Products
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.

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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Credit Card Late Payment Consequences

Missing a credit card payment can happen to anyone. Unfortunately, paying your credit card bill late can come with certain consequences, such as late fees, interest accrued on the credit card balance, and potential negative impacts to your credit score. The longer your credit card payment is past due, the more consequences you may experience.

Exploring the potential consequences of a missed credit card payment and solutions to help prevent this from happening may, therefore, help you avoid the negative financial impact of a missed payment.

When is a Credit Card Payment Considered Late?

As soon as you fail to pay your credit card bill by the due date assigned, it’s considered past due. If you miss a payment, your credit card company may send you notices about it in the form of calls, emails, letters, or texts.
In the chance you don’t hear from your credit card company, you may still face some financial consequences.

What Happens if You Make a Late Credit Card Payment?

The Credit Card Balance Could Increase

Even if you didn’t use the card to make new purchases during a particular billing cycle, making a late payment could increase your balance in several ways.

With even the first missed due date, the credit card company can charge a late fee of up to $28. If you miss another payment within the next six billing cycles, the late fee can go up to $39.

The silver lining here is that the late fee can’t be more than the minimum amount due on the account. Credit card companies typically calculate the minimum payment due on a set fee plus a percentage of the new balance for that billing cycle. So if you have a low balance, your minimum payment is likely to be lower than if you have a high balance.

There’s also a chance the creditor will increase your interest rate. For example, let’s say your credit card payment is 60 days late, at which time your credit card company may decide to increase your interest rate.

Increasing your interest rate will also increase your total credit card balance because that new, higher rate (generally referred to as a “penalty APR”) will apply to the entire unpaid balance.

Not all credit card companies have penalty APRs for late payments, so check with your credit card company to verify.

Your Credit Score Might Be Affected

Since your credit score includes information about your credit history, such as your payment history and the standing of your accounts, a late payment may negatively impact your score. However, the amount of time it’s impacted may vary.

Generally, creditors send information to credit bureaus using different codes to indicate if a payment is current or late. Since there is no credit code for payments that are one to 29 days late, they may use a “current” code.

Once the payment passes 30 days late, creditors generally use the “late” code, which is considered a delinquent payment. But different creditors will send different codes at different times so there’s no way to know for sure when you will see the late payment reflected in your credit report.

Creditors may not report a late payment to credit bureaus at all until a full billing cycle has gone by with no repayment (typically 30 days). With this in mind, if your payment’s due date was the 11th and you paid on the 13th, there’s a chance your credit won’t take a hit.

Although every situation is different, a late payment might end up staying on your credit report for several years. And because credit history is only one of the factors used to determine your credit score, it’s hard to predict exactly how a late payment will impact your score.

The Balance Could Be Charged Off

Another consequence of not paying your credit card bill is that the credit card company may not allow you to continue to use your card for other purchases until your account is in good standing.

Also, if your payment is 180 days past due, the credit card company can close your account and charge off the balance. “Charging off” means the credit card company will permanently close the account and write it off as a loss, but the debtor still owes the balance remaining.

Sometimes, credit card companies will attempt to recover what’s owed through their own collection department, but charged-off debts are sometimes sold to third-party collection agencies, which then attempt to get payment from the debtor.

Credit card companies do have leeway to work with their customers. Under FDIC regulations governing retail credit, the creditor can help customers who have had financial setbacks—like job loss or the death of a family member—get back on track.

This leniency is typically shown to people who are willing and able to repay their debt, and the FDIC encourages creditors to proceed with this step with a structured repayment plan and to monitor the progress of the plan.

Consolidate your credit card debt
and get back in control.


How to Resolve a Credit Card Late Payment

Paying it Right Away

If the payment just slipped your mind, don’t panic—there are a few solutions for tackling a late credit card payment. Contacting your credit card company when you realize you’ve missed a payment is a smart move.

Paying the credit card balance in full immediately helps avoid accruing interest charges and potentially saves your credit score from dropping. Alternatively, you might want to ask about arranging a payment plan to minimize the damage.

Negotiating Fees

Even though your credit score may not drop because of one missed payment, you may incur late fees or an interest rate increase. Additionally, the late payment may result in a penalty interest rate (or, more accurately, a penalty APR as mentioned above), which will likely increase your total balance.

But, even if you do incur additional fees, sometimes credit card companies are willing to work with you to waive the fees.

Calling your credit card company to request a waiver of late fees could be a first step. If you’re unsure what to say when calling your credit card company, Experian suggests something like the following script.

“I missed a payment on my card recently, but I’m up to date now. Would you consider waiving the late fee? As you can see, I’m normally a good customer who always pays my bills on time.”

If the representative doesn’t seem willing to make any changes, you may want to request to speak with a manager. But if you’re not a repeat offender, credit card companies may be willing to waive fees.

Some credit card companies may not be as willing to waive interest increases. So, if your credit card company seems unwilling to change your rate back to the original amount, you might consider asking if they will do so once you show responsible payment history.

Automating Your Credit Card Payments

To help prevent any late credit payments in the future, one option might be to set up autopay to cover the minimum payment on your credit cards.

This way, if a payment slips your mind, you shouldn’t face any late payment consequences. Setting your bill to be automatically paid in full a few days before the payment is due can ensure you pay your balance by the due date.

If you would prefer not to sign up for autopay, many credit card companies have an option to sign up for notifications that remind you when your payments are due.

Getting Out of Credit Card Debt

To avoid late credit card payments once and for all, you may want to consider solutions for getting out of credit card debt entirely. Strategies depend on your unique financial situation, of course, but here are several for getting rid of debt for good.

Budgeting to Get Out of Debt

First, you may want to put together a budget. Creating a budget can help you better manage your money so you know what you have coming in and going out.

You can use either a simple spreadsheet or a budgeting app to simplify your efforts. Once you have a handle on how much extra money you can put toward your debt, you may want to select a debt repayment strategy such as the snowball method or avalanche method.

With the debt snowball method, the focus is on paying off the smallest debt balance first and then moving on to the second smallest debt balance, and so on, while still making minimum payments on all debt. This type of method is meant to give a psychological boost.

The debt avalanche method tackles the most expensive debt first—the one with the highest interest rate. Since you’re starting with the most expensive debt, this strategy can be a big money saver.

Opening a Balance Transfer Credit Card

If your credit is in good standing, you may want to consider opening a balance transfer credit card as a solution. Usually, these types of credit cards come with low or 0% APRs for a certain period.

Some companies may offer up to 21 months of interest-free payments during the promotional period. But, while the introductory period might be interest-free, you may still have to pay a balance transfer fee between 2% and 3%.

Ideally, you would pay your credit card balance in full by the time the introductory period is over, which would allow you to avoid interest payments on the debt.

Keep in mind, however, many balance transfer credit cards have restrictions. For example, if you make a late payment, you may lose your introductory rate.

Another limitation may be that your introductory APR only applies to the transferred balance and all other transactions may have a higher rate.

Before taking out another line of credit, understand that it can impact your total credit score. Credit scores are calculated using several factors, including credit history and new credit, both of which could be affected when opening a new account.

Consolidating Debt with a Personal Loan

Another option may be to consolidate your credit card debt with an unsecured personal loan. Essentially, when you consolidate your credit card debt, you take out a loan to pay off that existing debt, then make payments on the one new loan.

There are several reasons for choosing consolidation to help eliminate debt. For starters, you might be able to get a lower interest rate with a new personal loan, which could enable you to pay off your debt faster.

For example, very few credit cards have fixed interest rates, and the average variable APR for credit cards is about 17%. In contrast, for a person with better-than-average credit, the average rate for a credit card consolidation loan is currently lower. Depending on how much you owe and what your credit score is, you could save some money.

But, it’s important to note that personal loan rates and terms will vary. The rates and terms an applicant is offered are usually determined by their credit history and other financial factors. Essentially, different borrowers may qualify for different rates. With this in mind, consolidation might only be ideal for those in good financial standing.

With SoFi, It takes just a few minutes to check eligibility and possible rates—and there’s absolutely no obligation to continue if you don’t wish to. Applying for a personal loan can be a useful step to help you regain control of your finances.

See if a credit card consolidation loan from SoFi can help you get your finances back on track.


SoFi Loan Products
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
website
.

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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