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Coming up with enough cash for a down payment to buy a house is often the biggest hurdle for prospective homebuyers. To avoid paying for mortgage insurance, you typically need to put down 20% of the purchase price. These days that can be a hefty sum: The median home sale price at the end of 2025 was $428,275, according to Redfin. That means a typical buyer who wants to put down 20% would need to accumulate at least $85,655.

If you don’t have that kind of cash sitting around, using a personal loan might sound like a great solution. Unfortunately, many mortgage lenders do not permit you to do this. Even if you can find one that does permit it, making a down payment with a personal loan may not be a good idea. Here’s what you need to know about using a personal loan for a down payment.

Why Can’t I Use a Personal Loan as a Down Payment?

As part of the mortgage application process, a lender will want to verify the sources for your down payment. Being able to provide documentation that you have enough money in savings to cover your down payment (and then some) gives the lender confidence in your strength as a borrower and your ability to repay the loan.

If you fund a down payment through a personal loan, however, a lender may see this as a sign of potential financial instability, which raises the lender’s risk. As a result, some types of mortgages — including conventional mortgages and FHA mortgages backed by the Federal Housing Administration — forbid the use of a personal loan as a down payment loan for a home.

💡 Recommended: How Personal Loans Impact Mortgages

Why Is It Bad to Use a Personal Loan for a Down Payment on a House?

Even if you are able to find a mortgage lender that allows you to use a personal loan for a down payment, doing so can have several negative consequences. Here are the primary reasons why it’s considered a bad idea.

•   It can increase your DTI: Having a personal loan on your credit reports impacts your debt-to-income (DTI) ratio — what proportion of your monthly income goes to repaying debts. A higher DTI ratio can make it more challenging to qualify for a mortgage or reduce the amount for which you can qualify.

•   It might increase your interest rate. Taking out a personal loan to cover a down payment signals to a mortgage lender that you’re financially stretched and may not be able to afford homeownership. This makes you a greater risk. To protect itself, a lender may offer you a higher rate than it would offer a borrower who is using savings for the down payment.

•   Higher monthly payments: Personal loans typically have shorter terms and higher interest rates than mortgages. Using a personal loan for a down payment on a house means additional debt on top of a mortgage, which could be difficult to manage and lead to financial strain.

•   Greater risk of default. If your budget is stretched due to multiple debts, you could potentially fall behind on your personal loan, mortgage payments, or both. If that happens, you risk defaulting on your debt, damaging your credit, and in a worst-case scenario, losing your home.

Recommended: Typical Personal Loan Requirements Needed for Approval

What Are Alternatives to a Personal Loan for a Down Payment?

Instead of using money from a personal loan for a down payment on a house, here are other ways to fund this milestone purchase. Consider these options as you prepare to buy a home:

Savings

If you’re not in a rush, you may want to ramp up your savings and put time to work for you. To ensure consistency with your savings, consider setting up an automated transfer from checking to a dedicated savings account for a set day each month. You might also want to put any windfalls — like a tax refund, work bonus, or cash gift — toward your down payment fund so that you can afford a down payment on your first home sooner.

Gifts From Family

Many mortgage lenders allow down payment funds to come from gifts provided by family members. If you have relatives who are willing and able to assist, this can be a viable option. Since a lender may ask you to substantiate any large deposits into your bank account, it’s a good idea to ask the giver to provide a letter to your lender detailing the amount and confirming that it is a gift and not a loan.

Down Payment Assistance Programs

If you’re still wondering can you get a loan for a down payment, look into local, state, and federal programs that offer down payment assistance to eligible homebuyers. These programs can provide grants, low-interest loans, or forgivable loans to help cover your down payment and closing costs. They’re typically geared toward first-time homeowners who are low- to middle-income. The Department of Housing and Urban Development (HUD) allows you to connect with a local home-buying counselor to learn about options on the HUD website.

Look Into Loans That Require a Smaller Down Payment

There are some types of mortgages that do not require a large down payment. FHA loans, for example, allow eligible borrowers to put down as little as 3.5%. USDA loans (targeted to certain suburban and rural homebuyers) and VA loans (designed for U.S. service members and their surviving spouses) don’t require any down payment.

Retirement Account Loans or Withdrawals

Some retirement accounts, like a 401(k) or IRA, allow you to take out a loan or make a withdrawal for a home purchase. While this option can provide the necessary funds, it’s essential to understand the implications, such as potential taxes, penalties, and the impact on your retirement savings. It’s a good idea to consult with a financial advisor to determine if this could be a good option for your situation.

Budget Changes and Side Income Opportunities

Making a budget that includes a line for savings for a down payment (and then sticking to it) is a good way to ensure you’re socking away money for your home purchase. Budgeting will entail taking a good look at recent bank and credit card statements and chronicling cash expenditures so that you can also look for opportunities to pare back on your spending so that more money can go to the home purchase.

You may also realize that in order to pay all your current bills and still save for a home, you’re going to need to increase your income. Adding a part-time job or a side hustle to your schedule could help you save for a down payment.

Extending Your Timeline to Save More

Giving yourself more time to save money can also help. Not only will you be able to put away cash, but if you place the money somewhere that it can earn some interest, your money can compound while it waits.

Recommended: Guide to Personal Loans for Beginners

How Much Down Payment Do You Really Need?

And as you make a list of what do you need to buy a house, the down payment is only part of the picture. You’ll need cash on hand to cover closing costs, which tend to be 2% to 5% of your mortgage amount. Additionally, you’ll need to think about your loan type.

Typical Down Payment Requirements by Loan Type

How much is a down payment on a house will, to some extent, depend on what type of home loan you choose. A conventional mortgage loan can require as little as 3% down for qualified first-time homebuyers and 5% for repeat buyers. As noted above, you’ll need to put down 20% to avoid paying for private mortgage insurance. But the average first-time homebuyer down payment has ranged from 6% to 9% in recent years.

Government-backed loans tend to require a small down payment or none at all. FHA loans allow homebuyers with a credit score of at least 580 to put down as little as 3.5%. Those with a score of 500 to 579 will need a 10% down payment.

USDA loans and VA loans, as noted above, don’t require any down payment.

Pros and Cons of Putting More Money Down

So you can buy a home with far less than 20% down. But should you do so, or should you wait? The answer will depend on your personal situation, but here are some pros and cons to consider:

Pros

•   More equity from the start.

•   Quicker access to a home equity loan (after hitting 20% equity).

•   Lower monthly mortgage payment.

•   Avoid paying for private mortgage insurance (if 20% is put down).

Cons

•   You may have to wait longer to save the money.

•   You may be missing a good time to buy (e.g., end of a lease, good school district opportunity).

•   You may pay more in rent while waiting to save.

Putting more money down means you will have more equity in your home from the point that you purchase it. If you’re buying a home that needs some renovations, you’ll hit the 20% equity necessary for a home equity loan more quickly than you would if you put down very little.

More money down means a lower monthly mortgage payment. You can use a mortgage calculator to examine the effect of different down payment and loan amounts on monthly costs. And of course, hitting the 20% mark on a down payment allows you to avoid paying for private mortgage insurance.

But there are also a few reasons to move forward with a low down payment. If you’re renting and your lease is up, this could be the right time to buy. Ditto if your child is starting kindergarten and you’ve found a home in a desirable school district. And if your rent is the same as or more than you would pay to purchase a home with a small down payment, it might make sense to move forward. Putting down 3%, 5% or even 10% also allows you to begin building some equity in a property that you own, even if it can take years for that equity percentage to grow significantly.

Recommended: Guide to Getting a No Down Payment Mortgage

The Takeaway

Taking out a personal loan might seem like a good way to get the funds for a down payment on a home. The problem is that many mortgage lenders won’t permit you to use a personal loan for down payment and, if they do, may charge you a higher interest rate or lower your loan amount, as they will view you as a risky borrower.

Personal loans are generally better left for other purposes, such as covering emergency expenses, consolidating credit card debt, or making home repairs or improvements (once you become a homeowner). If you are considering getting a personal loan, be sure to shop around to find the right offer.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Can you use a personal loan for closing costs?

It may be possible to use a personal loan to cover closing costs when buying a home. These costs, which may include appraisal fees, title insurance, and attorney fees, can add up quickly. Just keep in mind that some mortgage lenders may not approve a borrower for a mortgage if they have recently taken out a personal loan, as it shows you may not be in a strong financial position to take on other new debt.

Do banks check what you spend your loan on?

Banks typically do not check or monitor what you spend the funds from a personal loan on. Once the loan is approved and the funds are transferred to your bank account, it is up to you to use the money as agreed upon in the loan agreement. Keep in mind that misusing the funds from a personal loan can have financial and legal consequences. If you use the loan money for something other than what was outlined in the loan agreement, you are technically in violation of the terms of the loan. This could potentially lead to penalties, legal action, or damage to your credit score.

What happens if you don’t use all of your personal loan?

If you don’t use all of your personal loan, you’re still responsible for repaying the full amount borrowed, along with interest. If your lender doesn’t charge a prepayment penalty, you might consider using the excess funds to pay off your loan ahead of schedule — this can reduce the total amount of interest you’ll pay for the loan.

Can a personal loan ever be used in the home-buying process at all?

It’s unlikely that you can use a personal loan for a down payment, but you might be able to cover closing costs with a personal loan. But remember that mortgage lenders will be looking at your total debt, so a new or recent personal loan might be a red flag. You’re better off using a personal loan either well before a home purchase, to consolidate and pay off debt so that your finances are healthy when you start home shopping. Or you could consider taking out a personal loan after buying a home to help cover renovation costs.

What are some ways to save for a down payment without borrowing?

To save for a down payment effectively, it helps to put your savings on autopilot. Arrange an automated transfer from your checking account to a home-buying specific savings account once or twice a month. And deposit any windfall funds, such as a work bonus or birthday gift into that special savings as well. Finally, audit at least a month of your spending to look for ways you might cut back in other areas of your life to make more room in your budget for savings.

Photo credit: iStock/whitebalance.oatt

SoFi Loan Products
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.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOPL-Q126-006

If you have high-interest credit card debt and are ready to put together a plan to pay it back, you might be considering one of two popular methods: credit card refinancing vs. debt consolidation.

Both involve paying off your debt with another credit card or loan, ideally at a lower interest rate. Still, the two methods are not the same, and both options require careful consideration. Below, we’ll discuss the pros and cons of each debt payback method, so you can make an informed decision.

What Is Credit Card Refinancing and How Does it Work?

Credit card refinancing is the process of moving your credit card balance(s) from one card or lender to another with a lower interest rate. The main purpose of refinancing is to reduce the amount of interest you’re paying with a lower rate while you pay off the balance.

Common Ways to Refinance Credit Card Debt

A common way to accomplish a credit card refinance is to pay off your existing credit cards with a brand-new balance-transfer credit card. This type of card offers a low or 0% interest rate for a promotional period that may last from a few months to 18 months or more. Can you refinance a credit card that you already have? Perhaps. You can always try to approach your existing credit card issuer and ask for a lower interest rate, possibly by doing a balance transfer to a lower-rate card issued by the same company.

What are the Benefits of Credit Card Refinancing?

We’ve discussed what is credit card refinancing and its goal: to lower your interest rate. Now let’s explore some of the benefits (and drawbacks) of refinancing.

Pros

•   You may qualify for a promotional 0% annual percentage rate (APR) during your card’s introductory period. If you can pay down your debt during this time, you could potentially get out of debt faster.

•   Depending on the interest rate you’re offered, you could save money in interest charges.

•   Bill paying would be streamlined if you decide to refinance multiple credit cards into one new credit card.

•   If monthly payments are reasonable, it may be easier to consistently pay them on time. This can help build your credit score.

Cons

•   The introductory 0% interest period is short-term, and after it ends, the interest rate can skyrocket to as high as 25%.

•   There may be a balance transfer fee of 3%-5%, which can add to your debt.

•   0% interest balance transfer cards often require a good or excellent credit score to qualify.

•   Your credit score may temporarily dip a few points when you apply for a new credit card or loan. That’s because the lender will likely run a hard credit check.

Recommended: What Is the 10% Credit Card Interest Rate Cap Act?

Who Should Consider Credit Card Refinancing?

Credit card refinancing isn’t right for everyone. That said, a balance transfer to a 0% APR card could be a good move if you have a smaller debt to manage or are carrying a balance on more than one credit card. Plus, transferring multiple balances into one card can streamline bills. All of the usual credit card rules apply when you transfer a balance, so you’ll want to make every payment on time with your new card.

Refinancing may make sense if you’re looking for better terms on your credit card debt, qualify for a 0% APR, and can pay off the balance before the promotional period ends.
So, as you’re weighing your options, you’ll want to consider a number of factors, including:

•   Your credit score and credit history

•   How much debt you have

•   Your personal finances and whether or not you can eliminate the debt fairly quickly

Recommended: The Risks of Payday Loans

What Is Credit Card Debt Consolidation?

Credit card debt consolidation is an alternative to credit card refinancing. The term “debt consolidation” refers to the process of paying off multiple credit cards or other types of debt (such as medical debt) with a single loan, referred to as a debt consolidation loan. The main purpose of consolidation is to simplify bills by combining multiple payments into one fixed loan payment, while ideally also saving on interest.

Types of Debt Consolidation

There are two primary types of debt consolidation loans: a personal loan and a loan secured by your home equity. The latter could be either a home equity loan or a home equity line of credit (HELOC). Not everyone owns a home or has enough equity to qualify for home equity lending, so let’s focus on what a personal loan is and how you might use it to consolidate debt.

A personal loan (sometimes referred to as a debt consolidation loan) will often have a lower interest rate than most credit cards (with the exception of the 0% APR period on a credit card, of course). However in order to qualify for a lower rate on a personal loan, you’ll need to have a strong credit score, which will largely determine your personal loan interest rate. Depending on your financial profile, you might be able to borrow anywhere from $5,000 to $100,000.

There are pros and cons to paying off multiple credit cards with a single short-term loan. Let’s take a look:

Pros

•   Personal loans often have lower interest rates than credit cards and can save you money on monthly payments as well as on interest charges over the life of your debt repayment.

•   You can pay off multiple debts with one loan, which can take the hassle out of bill paying.

•   The structured nature of a personal loan means you can make equal payments toward the debt at a fixed rate until it is eliminated.

•   With most personal loans, you can opt for a fixed interest rate, which ensures payments won’t change over time. (Variable interest rate loans are available, but their lower initial rate can go up as market rates rise.)

Cons

•   The terms of a loan will almost always be based on your credit history and holistic financial picture (another reminder to keep an eye on personal finance basics like making timely payments). Not every borrower will qualify for a low interest rate or get approved for a personal loan at all.

•   Some lenders may charge fees, including personal loan origination fees.

💡 Quick Tip: Wherever you stand on the proposed Trump credit card interest cap, one of the best strategies to pay down high-interest credit card debt is to secure a lower interest rate. A SoFi personal loan for credit card debt can provide a cheaper, faster, and predictable way to pay off debt.

Credit Card Refinancing vs. Debt Consolidation

To recap, the difference between debt consolidation and a credit card refinance is first a matter of goals.

With credit card refinancing — as with other forms of debt refinancing — the aim is to save money by lowering your interest rate. Debt consolidation may or may not save you money on interest, but will certainly simplify bills by replacing multiple credit card obligations with a single monthly payment and a structured payback schedule. This structure and simplification can be just what it takes to help some borrowers who are struggling with credit to get their debt paid off.

The other difference is that credit card refinancing typically utilizes a balance transfer credit card that has a 0% or low interest rate for a short time. This limits the amount you can transfer to what you can comfortably pay off in a year or so. Debt consolidation utilizes a personal loan, which allows for higher balances to be paid off over a longer payback period.

Which strategy is right for you? That depends on a number of factors, including the amount of debt you have, your current interest rates, and whether you’re able to stick to a structured repayment schedule. Of course, it’s important to regulate your use of credit cards in either scenario. The last thing you want is to be paying off a personal loan or facing the expiration of a 0% interest rate when you’ve racked up more credit card debt.

The chart below sums up the credit card refinancing vs. debt consolidation story.

Side-by-Side Comparison of Key Features

The Takeaway

Credit card refinancing is when a borrower pays off their credit card(s) by moving the balance to another card with a lower interest rate. A popular way to do this is with 0% interest balance transfer credit cards. However, borrowers typically need a high credit score to qualify for the best rates on these cards. Debt consolidation, on the other hand, is when a borrower simplifies multiple debts by paying them off with a personal loan. Personal loans with a fixed low interest rate and a structured payback schedule are a smart option for consolidating debts.

If you have a relatively small balance that can be paid off in a year or so, refinancing with a balance transfer credit card may be right for you. If you have a larger balance or need more time to fully pay it off, personal loans are available.

Credit cards have an average APR of 20%–25%, and your balance can sit for years with almost no principal reduction. Personal loan interest rates average 12%, with a guaranteed payoff date in 2 to 7 years. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. See your rate in minutes.

FAQ

Which is better: credit card refinancing or debt consolidation?

There are advantages and drawbacks to both strategies. Credit card refinancing can help you lower your interest rate, which can save you money. Debt consolidation might save you money on interest, but it will definitely simplify bill paying by replacing multiple cards with one monthly bill.

Is refinancing a credit card worth it?

Refinancing a credit card may be worth the effort because it can lower your interest rate, potentially save you money, and make payments more manageable.

Is refinancing the same as consolidation?

Though refinancing and consolidation can both help you manage your debt, they serve different purposes. Refinancing involves moving credit card debt from one card or lender to another, ideally with a lower interest rate. Paying less in interest while you pay off your debt is the main goal of refinancing. When you consolidate, you settle multiple debts with one loan. Simplifying bills into one fixed loan payment is the main reason to consider this strategy.

How do credit card refinancing and consolidation affect my credit score?

Credit card refinancing and debt consolidation might temporarily reduce your credit score because your lender will likely do a hard credit check to qualify you for the account. But with time and consistent, on-time payments, your credit score should rebound. Consolidating several credit cards into one personal loan might also help improve your credit utilization ratio, which in turn should nudge your score upward. Opening new credit accounts, however, can reduce the overall age of your credit accounts, as can closing old accounts. Both of these can ding your credit score. If you aren’t applying for other forms of financing, such as a mortgage, none of this should be a huge concern so long as you are using the credit card refinance or consolidation to reduce debt and better manage your finances.

What should I consider before refinancing or consolidating?

The most important thing to consider when thinking about credit card refinancing or debt consolidation is whether you will save money when interest and fees are factored in. It’s also important to have a good look at your credit habits. If you think having a new credit card with 0% introductory financing might result in you charging even more and falling more deeply into debt, you might want to consider a personal loan and/or explore credit counseling, in which you will work with a professional to help change unhealthy habits and develop a strategy to reduce debt.

SoFi Loan Products
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.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOPL-Q126-002

Almost half of all Americans carry a balance on their credit card, month after month. If you’re among their ranks, you know that the combination of high prices and high credit card interest rates can make it challenging to pay that debt off in full.

Many cardholders have seen their interest rates creep up in recent years, in line with the Federal Reserve’s recent rate increases. That means interest payments are gobbling up a bigger share of credit card balances. And those credit card balances can be major. This kind of debt hit a staggering $1.23 trillion in late 2025, according to data from the Federal Reserve Bank of New York.

But the situation isn’t hopeless, however. If you’re one of the cardholders who can’t pay credit card debt in full, here are five steps you can take to address it.

Step 1: Check your Credit Card Interest Rate

If you haven’t carried a credit card balance before, you may not be aware of what interest rate your credit card is charging. But it’s important to know exactly how much you’re getting charged so if you need to, you can budget for interest expense as well as your purchases.

Average credit card interest rate ranges from 20%-25% currently. (Depending on what type of credit card you have, your credit score, and your credit history, you may have a higher or lower interest rate than the average.)

With interest rates this high, it can be a real financial setback to carry a balance for an extended length of time, making only the minimum credit card payment. You may find that you are only paying interest and making little headway in paying off what you actually spent.

💡 Quick Tip: With credit card interest rates rising in recent years, calls for credit card interest caps have been in the spotlight. Those carrying high-interest credit card debt, however, may find debt relief by switching to a fixed, lower-interest personal loan. A SoFi personal loan for credit card debt may provide a cheaper, faster, and predictable way to pay down debt.

Step 2: Understand How Your Grace Period Works

If you pay your credit card statement balance in full by the due date, a credit card grace period will usually take effect for the next billing cycle. That means you won’t owe interest on new purchases until the due date for the next billing cycle. If you pay that statement balance in full by the next due date, the grace period will continue into the next cycle, and on and on.

But, if you make only the minimum payment or a partial payment on the full statement balance by the credit card due date, you’ll get charged interest on the remaining balance and lose your grace period for the next billing cycle. This means you’ll owe interest on any purchase immediately. Even if you go back to paying the full balance, your grace period may not renew for several more cycles, depending on the specific terms of your credit card.

If you’re in a position where you can’t pay credit card bills and must move to partial payments, make sure you’re aware of the additional interest expense you’ll incur on the remaining credit card balance. Try your best to stop making new purchases with that card since interest will be charged on those purchases immediately.

Recommended: What Is a Charge Card

Step 3: Look at Changing Your Due Date

If you’re feeling overwhelmed because many of your bills are due at the same time, talk to your credit card company about changing your due date. You might be able to move your credit card due date to a day of the month that works better for your budget, so the payments you owe are a bit more staggered.

While this switch might not help immediately to pay down credit card debt, it could offer some relief in the long run.

Recommended: How to Avoid Interest On a Credit Card

Step 4: Explore Ways to Pay Off Your Balance Faster

You may find that with higher interest rates and inflationary spending, you need a more efficient way to pay off your credit card debt, such as by refinancing credit card debt. Luckily, there are some options for how to pay off credit card debt, though keep in mind the best way to pay off credit card debt will depend on your financial specifics.

Balance transfer credit cards that offer a limited time low or sometimes even 0% interest rate can help — especially if you think you can pay the balance in full during the promotional low-rate period.

Another option you might consider is applying for a low-interest personal loan to pay off credit card debt in full. This could help you secure a lower interest rate, and by consolidating your credit card debt, you’d have fewer due dates to keep track of. Keep in mind, however, that there are pros and cons of personal loans to pay off credit card debt.

Recommended: Tips for Using a Credit Card Responsibly

Step 5: Consider Using a Budgeting Tool

If you’re finding it hard to make your credit card payments, that can be a signal it’s time to take a close look at your spending, perhaps with the help of one of the many online budgeting tools available.

Personal finance tools can help you understand just how much your cost of living has risen in recent months and make it easier to flag places you can cut back. Some can help to pinpoint fees you may be paying unwittingly or the automatic payments you’re making on your credit card that could get trimmed. Cutting these costs can then make it easier to pay off credit card debt.

The Takeaway

If you’re struggling with a credit card balance you can’t pay off, taking steps to pay off credit card debt faster and budget smarter can help. These can involve understanding your rate, changing your payment due date, and other moves.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

What is a fast way to pay off credit card debt?

You might be able to use a balance-transfer credit card and pay down your debt during the 0% APR promotional period. Or you might consider securing a personal loan to pay off the debt. You would then pay off the personal loan, which could have a lower interest rate.

Can you change your credit card payment due date?

You may be able to change your payment due date. See if your card’s website or app allows this kind of shift, or contact customer service.

Do most Americans carry credit card debt?

According to recent data, approximately 49% of Americans carry credit card debt.

Photo credit: iStock/Sneksy

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.

SoFi Credit Cards are issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SOCC-Q324-010
3491509-07

If you’re overwhelmed by credit card debt, you might consider credit card debt forgiveness, which can involve paying less than you owe. This type of credit forgiveness is rare, however, and it usually comes with some financial consequences.

Still, if you’re unable to repay your credit card balance, it may be an option worth exploring. Read on to learn how to get credit card debt forgiven and what options there are to credit card forgiveness.

What Is Credit Card Debt Forgiveness?

Credit card debt forgiveness occurs when a portion of your credit card debt is effectively erased. However, this rarely happens. And when it does, it usually comes at a high cost.

As part of the terms and conditions you agreed to when signing up for a credit card, you likely committed to repaying your credit card debt accrued from swiping your card to make purchases. For this reason, it’s unlikely the credit card company will forgive your debt unless you have a compelling reason for why you don’t have to repay it.

(If your identity was stolen and a fraudster ran up your credit card bill, for instance, you’re probably not responsible for repaying the outstanding balance. In this case, you may consider disputing a credit card charge.)

When you don’t pay your credit card bill for an extended time, the credit card company may sell your debt to a debt collector. At this point, the debt collector will reach out to try to get you to repay all or a portion of the debt you owe. However, if you agree to repay a portion of your debt, they may forgive the rest, resulting in credit debt forgiveness.

When Can Credit Card Debt Be an Issue?

Credit card debt can more technically be an issue when your credit utilization ratio — the percent of your available credit line used — is above 30%, which can signal to lenders you may be overextended. Practically, however, credit card debt is an issue when you’re unable to pay the minimums and struggling to pay down the balance.

Credit card interest rates averaged 22.30% in November 2025, and tend to be higher than other types of loans. Since credit card interest is often compounded daily, debt can snowball rapidly. In response to high rates, a bipartisan bill proposed a temporary 10% cap on credit card interest rates in early 2025, and more recently President Trump made headlines for his proposed 10% credit card cap. However, there are other options available, such as a fixed, non-revolving credit line, for pursuing lower interest rates and debt relief.

How Does Debt Forgiveness Work for Credit Cards?

If a debt collector forgives your debt, you’ll generally still have to pay off a portion of the amount you racked up. Here’s a look at how credit card debt forgiveness works:

•   Say that you owe $10,000 in outstanding credit card debt. If you haven’t paid your bill for the last six months — not even your credit card minimum payment — your credit card company may have sold the debt to a debt collector.

•   At this point, you’ll no longer communicate with your credit card company about debt negotiations since the debt collector is now responsible for recouping the loss.

•   If you agree to repay $5,000 of the debt, your debt collector may require you to make a lump sum payment or installment payments over a set period of time.

•   This means that the other $5,000 of your outstanding credit card balance is now forgiven, meaning you don’t have to pay it.

While this may seem like a relief, here’s one important point to note: You’re still responsible for paying taxes on the amount of credit card forgiveness you receive in most cases. Essentially, you will claim the forgiven debt as taxable income and report it on your tax return.

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When Does Credit Card Debt Forgiveness Work Best?

When you’ve fallen behind on your credit card payments and your creditor sells your debt to a debt collector for a fraction of the total balance, this is usually the best time to request credit forgiveness. Typically, debt collectors are more willing to settle some of your debt since they purchased your debt for a portion of what you owe. In other words, any debt you agree to pay back will help the debt collector make a profit from the transaction.

However, if your debt has not yet gone to a debt collector and the creditor is about to charge-off your account, you could still consider credit card forgiveness. A charge-off means that the creditor is accepting your debt as a loss. Therefore, they can recoup the funds by selling your debt to a debt collector. So, before they sell the debt, they might be willing to negotiate credit card debt forgiveness with you.

How Credit Card Debt Forgiveness May Affect Your Credit

The most significant financial implication of credit card debt forgiveness is the negative impact it can have on your credit. When you don’t pay your credit card bill for an extended amount of time, the creditor may report this as a charge-off to the three major credit bureaus (TransUnion, Equifax, and Experian). A charge-off indicates that you didn’t follow through with your financial commitments to a lender, and it can stay on your credit report for up to seven years.

Because credit bureaus use this information to calculate your credit score, a charge-off could lower your score for a while. A lower credit score may make it challenging to qualify for future loans or credit cards. And if you do qualify, you may have to pay a higher than average credit card interest rate, which can make borrowing more expensive.

To avoid this situation, it’s best to contact your credit card issuer as soon as you get behind on payments. Credit card companies may be willing to help you if you’ve fallen on hard times. They may offer a hardship plan, which can lower your monthly payments or reduce your interest for a set amount of time and ultimately help you get back on your feet. This is only a temporary solution though, so if your financial issues are more significant, you may need to explore another solution.

💡 Quick Tip: Credit card interest caps have become a hot topic, as the total U.S. credit card balance continues to rise. Balances on high-interest credit cards can be carried for years with no principal reduction. A SoFi personal loan for credit card debt may significantly reduce your timeline, however, and could save you money in interest payments.

Pros and Cons of Credit Card Debt Forgiveness

If you can’t make your credit card payments, credit card forgiveness might be a viable option. But, while getting your debt forgiven can help alleviate the financial burden, it also can harm your credit and cost you financially.

Here’s a breakdown of the pros and cons of pursuing credit card debt forgiveness.

Alternatives to Credit Card Debt Forgiveness

An alternative to credit card debt forgiveness may make more sense for your financial situation. Exploring all of your options in advance can help ensure that you make the best decision for your needs.

Debt Management

Third-party credit counseling agencies offer debt management plans that help you establish a plan for debt repayment. Working with one of these agencies may help you lower the fees you owe as well as your interest rate. However, you usually must agree to repay the total amount of outstanding debt before moving forward.

With a debt management plan, you’ll make one monthly payment to the credit counselor, who will then distribute the funds among the creditors you owe. Most plans help you repay your debt within three to five years. During this time, your account will still accrue interest, though your creditor might be willing to offer a lower rate.

To use one of these plans, you usually have to close your credit card account. This can negatively impact your credit score since it lowers your total credit card limit, thus increasing your credit utilization rate. Your credit utilization ratio is one of the most significant factors credit bureaus use when calculating your credit score.

Also, you will likely have to pay a monthly fee to your credit counselor. If considering this option, carefully vet the counselors you are considering and make sure the one you are working with has a good reputation.

Debt Settlement

Working with a debt settlement company can help you to lower the amount of debt you owe. For example, if you owe $10,000 as your credit card balance, the credit debt settlement company may try to help you settle your debt for $5,000 instead. But, of course, this strategy will only work if the creditor would rather have some of your debt repaid instead of having you default on the account.

Debt settlement also can harm your credit. Usually, debt settlement companies require you to stop making credit card payments while they negotiate with your creditor. At this time, your payments will go toward the debt settlement company so they can offer your creditor a lump sum payment as an incentive to settle your debt. However, pausing payments can negatively impact your debt since payment history is another factor used to calculate your credit score.

While debt settlement may sound good in theory, you should use it as a last resort option before filing bankruptcy. This solution is risky since it doesn’t guarantee that you’ll settle your debt. Your creditor could reject the offer.

Debt Consolidation

If your credit isn’t damaged too much, you might be able to qualify for a debt consolidation loan. While this isn’t technically a debt relief option, it can help you to consolidate your debt and potentially lower your interest rate, allowing you to save money.

To consolidate your debt, you’ll apply for another loan, ideally one with better terms than your existing debt. You’d use the loan to pay off your outstanding credit card debts. Then, you will make installment payments to the lender instead of paying the creditors.

Before you apply for a debt consolidation loan, compare your options to identify the loans with the most competitive terms and interest rates. While credit card APRs are usually higher and variable, personal loan APRs, for example, are generally lower and fixed, offering predictable payments.

Declaring a Chapter 7 or Chapter 13 Bankruptcy

Depending on your situation, declaring Chapter 7 or Chapter 13 bankruptcy may make the most sense. For instance, if you can’t make the payments with a debt management or debt settlement plan, bankruptcy could be an option to avoid going deeper into debt. But before you declare bankruptcy, consider speaking with a bankruptcy attorney to weigh out the pros and cons of this solution.

Bankruptcy should be one of your last resorts since it can drastically harm your credit. Also, it will stay on your credit report for up to 10 years after the filing date. To settle your debts with bankruptcy, you may also be forced to sell some of your assets.

The Takeaway

Credit card debt forgiveness involves paying less than the full amount you owe. While this prospect may sound great in theory, in reality it can harm your credit and end up costing you financially. If you find yourself starting to struggle with debt repayment, contact your credit card company to see if they will offer a hardship plan. If they’re unwilling to help or your financial troubles require a more long-term solution, you can explore credit debt forgiveness and other alternatives.

While credit cards can land you in a heap of debt, they can also be a great financial tool when used responsibly.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

How long does it typically take before a debt is forgiven?

Depending on the route you go, the time frame for debt forgiveness may vary. For example, bankruptcy can take four to six months, while debt settlement can take 36 months or more.

Does debt forgiveness hurt your credit score?

Yes, once you become delinquent on payments, your credit score can be negatively impacted. Then, when your credit card company sells your debt to a debt collector, they may report your balance as a charge-off or a complete loss, which can also impact your credit drastically.

How do you get your credit card balance forgiven?

Usually, once a creditor sells your outstanding debt to a debt collector, the debt collector may agree to forgive some of your credit card debt. But, you must agree to repay a portion of the debt for this to happen.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

Photo credit: iStock/damircudic
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Closing a credit card with a balance remaining is possible to do. However, keep in mind that even if your credit card account is closed, you’ll still have to pay off the remaining balance. Additionally, you’ll need to cover interest that’s accrued as well as any fees, and you could face other consequences, including losing out on rewards and seeing potential impacts to your credit score.

Still, there are instances when closing a credit card can be the right move. If you’re thinking about closing a credit card account with an outstanding balance, you’ll want to weigh these considerations — and also ensure you have a plan for paying off your remaining balance.

What Happens If You Close a Credit Card Account With a Balance?

Once you’ve closed a credit card account with a balance, you’ll no longer be able to use that card to make purchases. Beyond that, here’s what else you can expect after your account closure.

Payment of Balance and Interest

Perhaps the most important thing to keep in mind when a credit card is closed with balance is that you’re still liable for the credit card balance you’ve racked up. You’ll also owe any interest charges that have accrued on your outstanding balance.

As such, expect to continue receiving monthly statements from your credit card issuer detailing your balance, accrued interest, and minimum payment due. And until you’re absolutely positive your debt is paid off, keep on checking your credit card balance regularly.

💡 Quick Tip: Credit card interest caps have become a hot topic, as the total U.S. credit card balance continues to rise. Balances on high-interest credit cards can be carried for years with no principal reduction. A SoFi personal loan for credit card debt may significantly reduce your timeline, however, and could save you money in interest payments.

Loss of Promotional APR

If the card you closed offered a promotional interest rate, this offer will likely come to an end. If you’ve been carrying a balance on a credit card, your balance could start to accrue interest. Plus, you may have to pay the standard APR (annual percentage rate) on the remaining balance rather than the lower promotional rate.

Loss of Rewards

Before you move forward with canceling a credit card that offers rewards like points or airline miles, make sure you’ve redeemed any rewards you’ve earned. That’s because you may forfeit those rewards if you close your account.

Policies on this can vary from issuer to issuer though, so just make sure to check with your credit card company to be safe rather than sorry.

How Closing Credit Cards With Balances Can Impact Your Credit

There are a number of ways that closing credit card accounts with a balance can adversely affect your credit score given how credit cards work. Closed accounts in good standing will remain on your credit report for 10 years, whereas those with derogatory marks may fall off after seven years.

•   For starters, closing your account could drive up your credit utilization ratio, one of the factors that goes into calculating your score. This ratio is determined by dividing your total credit balances by the total of all of your credit limits. Financial experts recommend keeping your ratio below 30% and preferably closer to 10%. Losing the available credit on your closed account can drive up this ratio.

•   Closing your account can impact your credit mix, as you’ll have one fewer line of credit in the mix.

•   Closing a credit card could decrease your length of credit history if the card you closed was an old one. This too could potentially decrease your credit score.

That being said, the impacts can vary depending on your credit profile and the credit scoring model that’s being used. If, after closing your account, you pay off your account balance in a timely manner and uphold good credit behavior across other accounts, your score can likely bounce back.

Recommended: What is the Average Credit Card Limit?

Is Keeping the Credit Card Account Open a Better Option?

In some scenarios, it may make sense to keep your credit card active, even if you don’t plan on spending on the card. Here’s when opting against closing your credit card account might be the right move:

•   When you can switch credit cards: If your card carrier allows it, you might be able to switch to a different credit card it offers rather than closing out your account entirely. This might make sense if you’re worried about your card’s annual fee, for instance. You’ll still owe any outstanding debt on the old credit card, which will get moved over to the new card (the same goes if you happen to have a negative balance on a credit card).

•   When you have unused credit card rewards: With a rewards credit card, closing the account may jeopardize the use of earned rewards. Avoid that scenario by keeping the credit card active until you’ve used up all the rewards earned on your current credit card or at least until you’ve transferred them to a new credit card, if that’s an option.

•   When you don’t use the credit card: Even if you don’t use your credit card or use it sparingly, keeping the card open could build your credit score. This is because creditors and lenders usually look more favorably on credit card users who don’t rack up significant credit card debt, which is why maintaining a low credit utilization ratio is one of the key credit card rules to follow.

Nevertheless, there are certainly some scenarios when it can make sense to say goodbye to your credit card account. Here’s when to cancel your credit card, or at least consider it:

•   You want to avoid the temptation to spend.

•   You want to stop paying your card’s annual fee.

•   You’d like to have fewer credit card accounts to manage.

•   The card’s interest rate is rising.

A high interest rate can be an issue if you carry a balance on your card, particularly if a promotional interest rate has ended. The average credit card interest rate in the U.S. in late 2025 was close to 22%, and with balances typically compounding daily, debt can expand rapidly. (Credit card interest rate caps have recently been proposed to help mitigate debt, though the benefits and risks of these are being debated.)

If you’re planning to pay off a balance over a certain period of time, rather than in full, securing a lower interest rate may be a good idea, depending on your circumstances.

Recommended: How to Avoid Interest On a Credit Card

Guide to Paying Off a Credit Card Balance

No matter what you do with your credit card account, you’re going to have to pay down your credit card debt. Here are some options you can explore to pay off your closed credit account with a balance as soon as possible.

To avoid making that mistake, here are some options you can explore to pay off your closed credit account with a balance as soon as possible.

Debt Consolidation Loans

A personal loan at a decent interest rate can make it easier to curb and eliminate your card debt. Once the funds from the loan hit your bank account, you can use the cash to pay off all your credit card debts. Then, you’ll only have to keep track of paying off that one loan with fixed monthly payments, making it easier to manage.

Keep in mind that you’ll generally need good credit to secure a personal loan with competitive terms, though.

Balance Transfer Credit Cards

A balance transfer card with a 0% introductory interest rate can buy you some time when paying down debt. You can transfer your existing debt to the new card, allowing you to pay down credit card debt at a lower interest rate, without racking up any additional interest payments during the promotional period.

Just make sure to pay off the entire balance before the card’s introductory interest rate period ends and the interest rate rises significantly. Otherwise, you may be right back where you started — with high credit card debt and a high interest rate. That’s not likely to be a good way to use credit responsibly. Also note that a ​​ balance transfer fee will likely apply.

Debt Avalanche or Snowball

For credit card debt repayment, consider the debt avalanche or snowball approach.

•   With the avalanche debt repayment method, you prioritize paying off your credit card with the highest interest rate first. Meanwhile, you’ll maintain minimum payments on all of your other debts. Once your highest-rate debt is paid off, you’ll roll those funds over to tackle your balance with the next highest interest rate.

•   The snowball method, on the other hand, is all about building up momentum toward debt payoff. Here, you pay as much as possible each month toward your credit card with the lowest outstanding balance, while making minimum payments on all of your other outstanding debts. When the smallest debt is paid off completely, repeat the process with the next smallest balance.

Debt Management Plan

If you’re still having trouble paying down your credit card either before or after you close the account, that could be a red flag signaling that you need help. In this case, consider reaching out to an accredited debt management counselor who can set you on the right path to credit debt insolvency.

In addition to helping you create a debt management plan, a credit counselor can help by negotiating a better deal on interest rates and lower monthly payments. That could result in paying down your credit card debt more quickly, which not only saves you money, but also helps protect your credit score.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

The Takeaway

If you decide to close your credit card account with a balance, it’s critical to do so in a way where your debt obligations are covered and your credit score is protected. The key to doing the job right is to work with your card company, keep a close eye on outstanding balances and payment deadlines, and work aggressively to pay your card debt down as quickly as possible.

Since closing a credit card can have consequences, it’s especially important to consider a credit card ‘s pros and cons carefully before you apply.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

Can you close a credit card with a balance?

Closing a credit card with a balance is possible. However, you’ll still be responsible for the outstanding balance on the card, as well as any interest charges and fees.

Does it hurt your credit to close a credit card with a balance?

Closing your credit card with a balance remaining has the potential to impact your credit score. However, the exact implications for your score can vary depending on your overall credit profile and which credit scoring model is being used.

Is it better to close a credit card or leave it open with a zero balance?

That depends on your personal situation. Closing a card for good may impact your credit score, but you also won’t be able to use the card again and risk racking up unwanted debt in the process.

What happens if you close a credit card with a negative balance?

If you close a credit card with a negative balance, that means the card issuer owes you money instead of vice versa. In this situation, the card issuer will typically refund you that money before closing out the account.

How do I close a credit card without hurting my credit score?

You can mitigate the impacts of closing your account by paying off the balance on that account and all other credit card accounts you have. If you have $0 balances, then closing your account and losing that available credit won’t affect your credit utilization rate.

Photo credit: iStock/staticnak1983

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.

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 .

SoFi Credit Cards are issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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