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The length of time debt relief stays on your credit report depends on the type you use. Most negative items, including debt settlement, stay on your report for up to seven years. But the start time can vary depending on your situation.

What Is Debt Relief?

Debt relief is typically used as another term for settling your debt. That means negotiating with your creditors to lower your outstanding balances and pay them off for a lower amount. This debt payoff strategy is typically reserved for people with large amounts of debt who are struggling with payments and can’t foresee the ability to pay off their balances in the future.

While getting some of your debt wiped out seems like a great plan, there’s a large degree of risk involved, and you’ll also do damage to your credit score.

How Debt Relief Works

There are private companies that offer debt settlement services, but they charge expensive fees and recommend risky strategies while negotiating. Here’s how the process typically works:

•   A debt settlement company may tell you to pause payments on your credit cards. This causes late fees, penalties, and interest to accrue, not to mention major damage to your credit report.

•   In the meantime, you deposit the money you would have paid into a savings account. You may not use your credit cards during this time.

•   The debt settlement company eventually reaches out to your creditors and offers to pay them a settled amount using the funds you saved.

There is no guarantee that your creditors will agree to the settlement. You also have to pay the debt relief company a fee, usually either based on how much you saved or how much you settled. And if you do have any debts discharged, that amount is typically considered taxable income.

Types of Debt Relief Options

There are a few different debt relief options other than debt settlement:

•  Credit counseling: Work with a nonprofit counselor to review your finances and help create a payoff plan for your debt.

•  Debt management plan:” This may be a recommendation from your credit counselor. You pay into a savings account to the counseling organization, who then makes payments to your creditors on your behalf.

•  Bankruptcy: A personal bankruptcy discharges some of your debt, but it requires either a payment plan to creditors for up to five years or selling off your assets to pay your creditors.

How Each Debt Relief Option Affects Your Credit Report

There are multiple categories that affect your credit score, and each debt relief option is likely to cause damage in some way. Here’s what you can expect.

•  Debt settlement: This option can cause major damage to your credit report because payment history is the biggest contributing factor to your score. If you stop making payments, you will continue to accrue separate late payment entries. The debt will also be listed as “settled” on your credit report.

•  Debt management plan: A credit report may indicate any accounts you’ve enrolled in a debt management plan. While that doesn’t directly hurt your credit score, it can be seen by future creditors and may influence their decisions. And if your counselor requires you to close accounts so you don’t charge more, your available credit could drop, hurting your credit card utilization ratio.

•  Bankruptcy: A bankruptcy can cause your credit score to drop by as much as 200 points.

Check your credit score updates frequently as you navigate any type of debt relief.

What’s the Best Debt Relief for Me?

The Federal Trade Commission recommends starting off with strategies you can implement yourself. Making a budget, for instance, can help you track your spending and perhaps make different decisions about where your money goes. Try using a spending app to see what kind of progress you can make.

You can also talk directly to your creditor to create a new payment plan that works for your financial situation, especially if you’re having trouble paying your mortgage.

Debt Settlement vs. Staying Current

There are pros and cons to both options. You’re not guaranteed success with debt settlement, and your credit score could tank if you stop making payments on your accounts. Plus, any amount that is settled is considered taxable income. If you settle a large amount of your debts, that could bump you into a much higher tax bracket.

Staying current with your balances can preserve your credit. But if you’re just making minimum payments, you could see your balance grow as interest continues to accumulate. It’s best to talk to a credit counselor or other financial professional to help you weigh the pros and cons based on your personal situation.

How Long Does Debt Settlement Stay on Your Credit Report?

A debt settlement stays on your credit report for seven years. But your score should start to rebound before then, especially if you take proactive steps to build your credit.

The start date of the seven-year period depends on whether or not you have late payments associated with the account. If there were no late payments when you settled the debt, that settlement date starts the clock on seven years.

But if the account is delinquent or has late payments, the settlement stays on your report from the first late payment in delinquency.

How Debt Settlement Affects Your Credit Score



Debt settlement can hurt your credit score, but it may not cause as much damage as having the account go to collections. However, your accounts will be listed as settled, which is visible to lenders in the future. Although it takes time to improve your credit score after a debt settlement, it can increase before the settlement is removed.

How to Remove Settled Accounts from Your Credit Report

The only way to remove a settled account before the seven-year period is to file a dispute with one of the credit bureaus. This process doesn’t hurt your score, but is only successful if the account has incorrect information listed on your credit report.

How Long Does It Take to Improve Your Credit Score After Debt Settlement?

It depends on many factors, including how you handle your other finances in the months and years following a debt settlement. Proactively taking steps to rebuild your credit can help expedite the process.

How to Improve Your Credit After Settling Debt

Here are some strategies to help increase your credit score after debt settlement.

•   Check your credit report regularly for accuracy. You can get a copy of your report for free once a week from each of the three major credit bureaus. Visit AnnualCreditReport.com to get started.

•   Pay your bills on time.

•   Get a credit card.

•   Pay down any remaining high-interest debt.

Credit Score Tips

Knowledge is power when it comes to managing your credit. Check your credit score without paying to know where you’re starting from immediately after your debt settlement is finalized. Then use a credit score monitoring app to get personalized advice on what tactics to take.

The Takeaway

Any type of debt relief will have some impact on your credit score and financial future. Weigh the benefits and drawbacks of each option to choose the right next step. No matter what you decide to do, regularly checking your credit reports is a smart way to better understand your overall financial health.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

Does debt relief ruin credit?

It depends on the type of debt relief you choose. Debt settlement will be listed on your credit report for seven years, but your score could start to rebound before then.

How long does it take to rebuild credit after debt relief program?

There’s no exact timeline for rebuilding credit after a debt relief program. Expect it to take up to two years to start seeing a noticeable difference. Using a credit monitoring service can help you track exactly how much progress you’re making.

Can debt settlement be removed from a credit report?

Debt settlement can be taken off a credit report only if the information is inaccurate. Otherwise, it will take seven years before the settled debt drops off your credit report.

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Photo Credit: iStock/Jelena Danilovic
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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 .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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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Agreeing to cosign a loan for someone is a generous thing to do, and risky. Such a noble deed will show up on your credit report, but the impact won’t always be positive. On the one hand, your credit score might improve if the primary borrower executes timely payments. On the other hand, if the primary borrower reneges on their financial responsibility, your credit score could take a huge hit.

But there’s more to it than that, so let’s examine what you should consider before cosigning a loan, whether for a friend, family member, or business associate.

What Does It Mean to Cosign a Loan for Someone?

Cosigning a loan means that you agree to be responsible for the debt if the borrower does not or cannot repay the loan. You are not the primary borrower, but you could become the primary payer. You can cosign any type of loan — a personal loan, auto loan, mortgage, home improvement loan, or student loan. You can also cosign a lease or make someone an authorized user of your own credit card, which may have a similar effect on your own financial situation.

Why Would a Loan Need a Cosigner?

Typically, a loan requires a cosigner if the primary borrower cannot qualify to borrow the funds on their own. The reason could be that their credit score is too low, they haven’t built up a credit history, or they don’t have a sufficient or steady income. If any of these apply, a lender will consider them to be at high risk of default and choose not to qualify them for a loan.

How Does Being a Cosigner Affect My Credit Score?

Although you are not the primary borrower when you cosign a loan, your credit score could be impacted. Depending on how good a job the primary borrower does at tracking their money, budgeting, and making payments, cosigning a loan could either boost your score or damage it. Therefore, it’s important to understand how cosigning will affect it.

Risks of Cosigning a Loan

There are serious financial and personal consequences to cosigning on a loan. The biggest risk: Cosigners assume legal responsibility for the debt. If the primary borrower defaults, the cosigner may have to pay the full amount of what’s owed.

If you cosign a loan, it will impact your debt-to-income (DTI) ratio, which is an important factor lenders consider if you apply for a loan. Your ratio may go up if you cosign a loan, making you appear more risky as a borrower, and limiting your ability to obtain credit in the future.
Cosigning may also impact your credit utilization ratio (how much of an allowed line of credit you have used), which is an important factor in computing your credit score.

But there are other potential impacts:

•  If a lender conducts a hard inquiry (a type of credit check) on your credit report as part of the loan application process, this may cause a temporary drop in your score, particularly if you apply for other loans or credit cards within a short period.

•  If a payment is over 30 days past due, the creditor might report the late payment to the credit bureaus, lowering your credit score.

•  If a cosigned vehicle is repossessed, your credit may suffer even if you do not use the vehicle.

•  If the account is sent to collections, your credit score will drop.
The relationship you have with the primary borrower also could be damaged if they fail to meet their end of the deal.

The relationship you have with the primary borrower also could be damaged if they fail to meet their end of the deal.

When Cosigning May Improve Your Credit

Your payment history, credit utilization ratio, and credit mix are three factors used to calculate your credit score, and these could all be impacted when you cosign a loan. Cosigning can positively affect your credit score when a primary borrower makes timely payments and pays back the loan according to the terms.

•   On-time payments by the primary borrower can have a positive impact on your credit score because they add to your payment history.

•   If the loan is paid off according to the terms, this can show that you use credit responsibly.

•   The new debt may add to your credit mix. Successfully managing a mix of debt, such as credit cards and installment loans, can boost your credit score. Maybe you don’t have an installment loan. If you cosign on a well-managed installment loan, such as an auto loan, it indicates to lenders that you are a responsible borrower.

Recommended: Why Did My Credit Score Drop After a Dispute?

Pros and Cons of Cosigning a Loan

The pros and cons of cosigning a loan depend on the situation.

When Should I Become a Cosigner on a Loan?

The decision to become a cosigner on a loan is a personal one, and it depends on the circumstances of everyone involved. You might want to cosign a loan to help someone achieve their financial goals. Perhaps your son or daughter needs you to cosign on a loan for a car, or someone you want to help needs you to cosign on a personal loan to start a business. It’s up to you to understand the risks involved and to assess the borrower’s ability to honor the payments.

Does being a cosigner show up on your credit report? Yes. So it is not a decision to be taken lightly. Before you agree to cosign on someone else’s loan, it would be wise to check your own credit score to make sure it is healthy. If you decide to cosign, implementing a free credit score monitoring app can help you track the impact on your score.

What Are the Responsibilities of a Cosigner?

The cosigner on a loan is legally bound to pay the debt if the primary borrower defaults. The cosigner is just as responsible for the loan as the primary borrower, even though they may not directly benefit from the loan. This is the case even if the primary borrower files for bankruptcy. If you used assets as collateral to help the primary borrower secure the loan, the lender can sell them to recoup the debt.

It is the cosigner’s responsibility to discuss with the primary borrower their ability to manage their budgeting and spending, pay back the loan in a timely manner, and plan what to do if they find themselves unable to meet their financial obligations.

The Difference Between an Authorized User and a Cosigner

Authorized user is a designation used for credit cards. Cosigners aren’t typically accepted for credit cards. Instead, a person can be designated as an authorized user of another person’s credit card. The credit card owner is the person responsible for the debt, and they give permission for the authorized user to also receive a card and use the account.

Here are the main differences between a cosigner and a credit card-authorized user.

Cosigner	Authorized User
Typically used for loans, such as personal loans, auto loans, mortgages	Typically used for credit cards
Only the primary borrower accesses the funds	Both the primary credit card owner and the authorized user access the funds

What to Consider Before Cosigning a Loan

You will have your own reasons for cosigning a loan. However, here are some things you might want to consider before you take on the risk of another person’s debt.

The Consequences for You

Consider the consequences for your credit score and ability to borrow in the future. If your debt-to-income ratio goes up, your ability to get financing may be reduced.

If you have to assume the payments, creditors can sue you and garnish your wages or bank accounts to collect the outstanding debt. Your credit score updates periodically but the negative impact can persist for up to seven years.

Your Relationship with the Primary Borrower

If the primary borrower benefiting from your generosity manages the payments responsibly, it could strengthen your relationship with that person, However, the opposite could happen if they do not manage the debt well.

How to Monitor the Loan

If you do go ahead and cosign the loan, it’s a good idea to monitor whether the primary borrow is making the payments on time. You might be able to intervene if a problem occurs before the debt is sent to a collection agency. The Federal Trade Commission (FTC) recommends asking the lender or creditor to notify you if the borrower falls behind on their debt. You’ll also want to add the loan to your own personal debt summary so you remember to keep track of it as time passes.

Recommended: How to Check Your Credit Score Without Paying

The Takeaway

Cosigning on a loan can be a way to help another person access credit. However, cosigning a loan can also ruin a relationship and your finances if the primary borrower fails to hold up their end of the bargain.

Before cosigning on a loan, understand what the consequences could be for your credit standing, financial situation, and your relationship. If you decide to go ahead, be clear about the expectations and get an agreement in writing. An agreement won’t absolve you of the responsibility to pay the debt, but it might help in getting the primary borrower to pay you back at a later date when they may be in a better financial situation.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

Will my credit score go up if I have a cosigner?

Your credit score could go up if you have a cosigner, because if you are approved for a loan with a cosigner and you make timely payments, it will add positively to your credit history, which will also favorably impact your credit score. Having that cosigned loan could also improve your credit mix, another plus where your credit score is concerned.

Is cosigning bad for your credit?

It can be. If the primary borrower does not make payments on time or if they default on the loan, it will negatively affect your credit. It could also be bad for your credit if your credit utilization ratio increases. However, cosigning for a loan could also be good for your credit if payments are made on time and/or your credit mix improves.

Who gets the credit on a cosigned loan?

Both the primary borrower and cosigner are impacted by the cosigned loan. A cosigned loan typically appears on both credit reports, and the cosigner is responsible for paying back the loan if the primary borrower fails to do so.

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Photo Credit: iStock/flzkes
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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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When you stop making payments on a loan or credit card, the creditor may eventually close the account and label it a charge-off, which can stay on your credit report for up to seven years. This can be extremely damaging to your credit report and doesn’t get you off the hook for repaying what you owe. Your debt may still be handed over to a collection agency.

Here’s what you need to know about how long a charge-off stays on your credit report and other financial implications.

What Is a Charge-Off?

A charge-off is a type of credit account closure that happens when the lender has no expectation of receiving payment. The creditor writes off the loan or credit line as a loss. Once you’re past 120 to 180 days delinquent on your account, a lender may write off your account.

But this doesn’t mean your legal responsibility as a borrower is over. The account can still be transferred or sold to a collection agency, which can take over the collection process. They can even initiate a lawsuit to recover the outstanding balance, along with fees.

How Much Does a Charge-Off Affect Your Credit Score?

A charge-off can have a considerable negative impact on your credit score. One reason why: Your payment history, meaning making timely payments, is the single biggest contributor to your credit score at 35%.

What’s more, the charge-off may be listed twice on your credit report, causing double damage. Your original charged off account with the creditor will be listed, and then it may show up as a separate account with a collection agency.

On top of that, all of the late or missed payments leading up to the charge-off could show up separately. So if you missed six loan payments before the account was closed, each could ding your score. And, as noted, since payment history is one of the most important factors affecting your credit score, this can hurt your score significantly.

It’s hard to put an exact figure on the toll this can take on your credit score. Some estimates say it could negatively impact your score by up to 100 points or possibly more, depending on the particulars.

If you end up paying the charge-off, either to the lender or a debt collector, that will show up on your credit report and could help improve your score compared to leaving the account unpaid.

How to Remove a Charge-Off

There are two reasons a charge-off will be removed from your credit report: Either the information is inaccurate, or it comes from a fraudulent account. Here’s how to handle removing a charge-off from your credit report:

•   If you see a credit score update that shows an incorrect charge-off, you can file a dispute directly with the credit bureau. They’re required to investigate and respond within 30 days, but you’ll have a better chance of success if you submit documentation to support your case.

୆   There’s usually no risk of lowering your credit score because of a dispute. The process itself should not decrease your score. However, if information comes to light that has a negative impact (such as your credit limit being lower than it was believed to be), then it might knock your score down somewhat.

If the charge-off seems like it’s from a fraudulent account due to identity theft, there are a few steps you should take:

•   First, consider freezing your credit and adding a fraud alert to your credit report to prevent more damage. Then report the event to the Federal Trade Commission and your local police; after all, financial fraud is a crime.

•   After that is complete, you can submit any relevant paperwork to the credit bureau to initiate the dispute and get the fraudulent charge-off removed.

When Removing a Charge-Off Isn’t Possible

It’s not possible to remove a charge-off if it’s accurate. You can contact your lender to get more information about the account, including how to bring it to good standing if possible. If the account has been sold to a debt collection agency, you may want to contact them and work out a payment plan to avoid legal issues.

But even though the entry stays there for up to seven years, your credit score will begin to improve before then, which you can track with a credit score monitoring service.

How to Rebuild Your Credit Rating

It can take time to build credit when dealing with a charge-off. But you can start taking simple steps to improve your credit score.

•   First, consider addressing the debt you owe, even if it has gone to collections. Even though the original account is considered a charge-off, you could face legal repercussions if you don’t work out a repayment plan with the collection agency. You may be able to negotiate with the creditor.

•   How long a charge-off stays on your credit report after it’s repaid can still be seven years. You can’t usually alter or remove the fact that this occurred. However, you’ll likely have an easier time building your credit score and avoiding a potential lawsuit if you pay it off.

The next step for how to build credit is to stay or get up-to-date on any other credit accounts. Some tips:

•   Reduce your spending by using a money tracker app or other budgeting tool, and prioritize debt payments to ensure additional late payments aren’t added to your credit report.

•   Plus, lowering your credit card utilization is another major contributor to a better credit score. The debt utilization category in general accounts for 30% of your score. The lower your amount of debt compared to your available credit, the more positive impact you may see when you go to check your credit score.

These steps can have a positive impact on your credit score after a charge-off or other negative event.

Recommended: How to Check Your Credit Score for Free

Does Removing a Charge-Off Improve Your Credit Score?

Your credit score should improve once a charge-off falls off your credit report after seven years pass or is removed because it’s either inaccurate or fraudulent.

But even before the seven-year period ends, you should be able to build your score over time by handling your debt responsibly, such as making on-time payments and keeping your credit utilization ratio to no more than 30% (preferably no more than 10%).

Do Charge-Offs Go Away After 7 Years?

Yes, a charge-off stays on your credit report only for seven years. The good news is that typically the start date is the first missed payment associated with the account, not the date the account is actually charged off. In other words, if your payment is reported past due on January 1st but it isn’t charged off for a few months (often 90 to 180 days), the seven years on your credit report would likely begin with the January 1st date.

However, the debt itself goes away at a certain point, based on the type of debt and statute of limitations in your state. Typically, a debt is deemed uncollectible after about three to six years, though the time frame could extend longer. Also, a collections agency may not be able to pursue legal action once the state’s statute of limitations is up, but they may still contact you to try and get payment.

What If the Charge-Off Is Inaccurate?

If the charge-off listed on your credit report is inaccurate, you should file a dispute with the credit bureau. Here’s how the process works.

•   Identify the specific incorrect item on your credit report.

•   Explain why you think the charge-off is incorrect.

•   Include copies of any supporting documentation.

A dispute can be submitted online or via mail. The Federal Trade Commission recommends disputing the charge-off with each credit bureau that has incorrect information.

Recommended: Budgeting App to Spend and Save Smarter

The Takeaway

A charge-off typically stays on your credit report for up to seven years, and it can have a significant negative impact on your credit score. If a charge-off is inaccurate, it’s usually a smart move to work on having it removed from your credit history. If it’s accurate, it’s wise to work on remedying the debt and taking other steps to rebuild your credit.

Tracking your credit score and your money can help improve your long-term financial health.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

How many points does a charge-off drop credit score?

A charge-off can cause a significant drop in your credit score, but the exact number depends on your personal credit profile. For instance, the number of late payments leading up to the charge-off will affect how many points your score decreases in total.

Does your credit score go up after charge-off?

Your score will eventually begin to rebound after an account is listed as a charge-off if you use credit responsibly. You may see a faster jump if you pay the debt owed on a charged off account instead of leaving it unpaid (and potentially taken over by a debt collection agency).

Is a charge-off worse than a collection?

It’s not straightforward to compare the two because a charge-off can still be in collection if the account is sold to a debt buyer. A charge-off may be worse because the debt can be listed twice: once from the original lender and once from the debt collection agency.

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Photo Credit: iStock/nortonrsx
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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 .

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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Credit card debt can go from zero to thousands with one quick swipe. Or it can build slowly like rising water — a nice dinner here, some retail therapy there. Before you know it, your balance is uncomfortably high. You’re not alone. Almost half of American households carry credit card debt. Of those consumers, the average balance is $6,501, according to recent Experian® data.

If you’ve vowed to pay off your credit card balance, you’re making a smart financial move. Doing so can save you money on interest, build your credit history, and help you achieve other financial goals. Here, learn the top tips and strategies for getting it done, from the snowball strategy to hardship plans to the boring but effective debt-focused budget.

What Is a Realistic Payoff Schedule?

If you’ve been carrying a balance on one or more cards, it may take longer than you’d like to pay off the debt. Determine how long you need to become debt-free while still covering your monthly bills comfortably. 

You’ll want to consider these facts:

•   A longer payoff term can allow you to continue to save and invest while paying down debt. 

•   A shorter payoff term can save you a considerable amount in interest.

Worth noting before moving on to tactics: If there’s no scenario in which you can cover your living expenses and pay off your credit card debt in five years, the standard payoff strategies may not be enough. It may be time to consider applying for credit card debt forgiveness.

7 Credit Card Payoff Strategies and Tips

There are numerous ways to tackle debt and pay off credit cards. The approaches below may work best when you mix and match several to create your own custom debt payoff plan.

1. Create a Debt-Focused Budget

Achieving financial goals usually starts with a budget. Making a budget is designed to help you discover extra cash you can put toward your credit card bill.

•   First, make a list of your monthly bills that reflect the “musts” of your life. Along with your rent or mortgage, phone, gas, food, and other required living expenses, include your credit card payment and other minimum debt expenditures. You can leave the amount blank for now. This is your “Needs” column.

•   Next, look at your “wants.” These are things that you can survive without — restaurant meals, new clothes, gym membership, travel — but that often make life better. Which items can you do without temporarily so you can put their cost toward your credit card bill? The idea is to trim spending so you can pay down your debt.

It’s OK if your budget isn’t the same from month to month — flexibility is good. While you’re at it, build the following into your budget:

•   Look ahead for unavoidable big purchases (that upcoming destination wedding) and occasional bills (annual home insurance premiums, for instance, or holiday gift shopping). 

•   Leave some wiggle room for unexpected expenses. You might need to dip into your emergency savings for this kind of cost, but it’s good to have a cushion in your budget (say, for a rent increase).

•   Recognize that your credit card payment may be lower some months to accommodate the fluctuating costs noted above. Just always pay at least the minimum payment.

Your new budget should prioritize your credit card payment on par with other bills and above nonessential treats. One way to make budgeting easier on yourself is to download a financial insights app, which pulls all of your financial information into one place.

2. Zero-Interest Credit Card

The frustrating thing about credit cards is how interest can take up more and more of your balance. Zero-interest credit cards, also known as 0% APR cards, allow card holders to make payments with no interest on transfers and purchases for a set period of time. The promotional period on a new credit card can usually last from 12 to 21 billing cycles, long enough to make a large dent in the card’s principal balance.

Consolidating your credit card debt on one zero interest card serves to simplify your monthly bills while also saving you money on interest payments. The key here, of course, is to avoid racking up even more credit card debt.

One drawback to these cards is that you often need a FICO® Score of 670 or above to qualify. And once the promo period expires, the interest rate can climb to 29% or higher. In an ideal world, you’ll want to achieve your payoff goal before the rate rises.

A credit card interest calculator can give you an idea of how much your current interest rate affects your total balance.

3. The Snowball, the Avalanche, and the Snowflake

The snowball and avalanche debt repayment strategies take slightly different approaches to paying down debt. Both involve maintaining the minimum payment on all but one card.

•   The debt snowball method focuses on the debt with the lowest balance first, regardless of interest rate, putting extra toward that payment each month until it’s paid off.

Then, that entire monthly payment is added to the next payment — on top of the minimum you were already paying. Rinse and repeat with the next card. It’s easy to see how this method can quickly get the snowball rolling.

•   The debt avalanche is based on the same philosophy but targets the highest-interest payment first. Getting out from under the highest debt can save a lot of money in the long run. Just like the snowball method, applying that entire payment to the next highest interest debt can lead to quick results.

•   The third snow-related strategy, the debt snowflake, emphasizes putting every extra scrap of cash toward debt repayment. If you have extra money to throw at your debt, even $20, that can still make a difference in your overall amount owed. So this method encourages you to chip away at debt with any small amounts available.

4. Make More Money

Sure, increasing your income is easier said than done. But if you have the time to spare, it can make paying down debt a whole lot easier. Here are the top ways that people can bring in more cash:

•   Start a side hustle (or monetize an existing hobby)

•   Get a part-time job (on top of your current job). Two shifts a week can help you bring in another $500 to $1,000 per month.

•   Sell your stuff. Reselling clothes, books, old electronics, and jewelry can help bring in cash.

•   Negotiate a raise. In some cases, labor shortages may give workers extra leverage to ask for more.

5. Negotiate with Your Credit Card Company

If your large credit card balance is the result of unemployment, medical bills (yours or a loved one’s), or another financial setback, inform your credit card company. You may be able to negotiate a lower interest rate, lower fees and penalties, or a fixed payment schedule.

Hardship plans have no direct effect on your credit rating. However, the credit card company may send a note to the credit bureaus informing them that you’re participating in the program. 

One point to be aware of: Your credit card issuer may also close or suspend your credit card while you’re paying off the balance. This can leave you without a means to pay for purchases and could also ding your credit score.

6. Change Your Spending Habits

Changing how you spend your money is key to paying down debt — and to avoid racking up more in the future. You can approach this in two ways: as a temporary measure while you pay off your cards or a permanent downsizing of your lifestyle.

•   The advantage of the temporary approach is that people are generally more willing to give things up when it’s for a limited time. For instance, can you suspend your gym membership during the warmer months when you can work out outdoors? Perhaps you can challenge yourself to cook at home for 30 days to save on restaurants. Or you might go without paid streaming services for six months.

String enough of those small sacrifices together to cover a year or two, and see how quickly you might be able to increase your credit card payments. That in turn can make your payoff term shrink.

•   Downsizing your lifestyle for the long term has its own appeal, even for people who aren’t paying down debt. Living below your means is key to accumulating wealth. How exactly you accomplish that isn’t important. For instance, you can frequent cheaper restaurants, reduce the number of times you go out each month, or merely avoid ordering alcohol and dessert. The bottom line is to save money, avoid debt, and enjoy the financial freedom that results.

7. Personal Loan

Similar to a zero-interest credit card, a personal loan is a form of debt consolidation. Personal loans tend to have lower interest rates than credit cards, saving you money. And if you’re carrying a balance on multiple credit cards, a personal loan can allow you to simplify your debt with one fixed monthly payment.

Personal loans can be a great option for people with good to excellent credit. That’s because your interest rate is determined largely by your credit score and history. You can typically borrow between $1,000 and $100,000, and use the money for just about any purpose, from paying off debt to funding travel or a home renovation.

You will usually find fixed-rate personal loans, though some variable-rate ones are available as well. Terms usually run from two to seven years for personal loans.

The Takeaway

Credit card debt can sneak up on you. If you’re carrying a balance on one or more cards, there are numerous ways to approach paying down your debt. You might start with a new budget that prioritizes your credit card payment along with your other monthly bills, and trim your spending accordingly. You could then combine a broad payoff strategy (the snowball, the avalanche) with other tips and tactics (zero-interest credit cards) to minimize your interest payments and shorten your payoff term. And remember: You’re not alone, and you can do this!

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

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

FAQ

How to pay off a huge credit card bill?

There are a variety of ways to pay off a large credit card bill. These include making (and sticking to) a budget, trying the debt avalanche or snowball method, applying for a zero-interest balance transfer card, or taking out a personal loan.

How to get rid of $30,000 credit card debt?

To pay off a $30,000 credit card debt, it’s wise to create a smart budget, look into cutting your expenses, develop a repayment plan, and see about consolidating your debt. If these don’t seem likely to lead to getting rid of your debt, you might talk to a certified credit counselor and/or consider a debt management plan.

What is the best tip to pay off credit cards?

The best tip for paying off credit card debt will depend on a variety of factors, such as how much debt you have vs. your available funds. For some people, the debt avalanche method of putting as much available cash toward the highest interest debt can be a smart move. For others, consolidating debt with a personal loan may be a good option.

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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.

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 .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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.

Third-Party Brand Mentions: No brands, products, or companies 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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It’s common knowledge that a person’s credit score can have a significant impact on their ability to get the best deals on loans and credit cards. And those opportunities can potentially save borrowers many thousands of dollars over a lifetime. But exactly what the credit rating scale involves is a mystery to many people. That’s a problem for potential applicants who’d like to build their score before shopping around for a loan.

Read on to gain insights into how credit scores are calculated, what the different credit ranges mean, and what you can do to qualify for the best interest rates.

The Three Major Credit Bureaus

Credit bureaus are independent agencies that collect and maintain consumer credit information and then resell it to businesses in the form of a credit report. The Fair Credit Reporting Act allows the government to oversee and regulate the industry.

There are three major credit bureaus that most lenders pull data from:

•   Equifax®

•   Experian®

•   TransUnion®

Commonly used credit scoring systems are FICO® and VantageScore, each of which ranges from 300 to 850.

What Actually Factors into Your Credit Score?

Here’s a closer look at the popular FICO Score system, which uses a scoring model that sources data from credit bureaus to calculate your score. Elements used in the FICO scoring model (as of this writing, the latest version is FICO Score 10) include:

•   Payment history: 35%

•   Credit utilization: 30%

•   Length of credit history: 15%

•   Credit mix: 10%

•   New credit: 10%

Wondering what those terms mean? Here’s a closer look:

Payment History

Payment history looks at whether you pay your bills in a timely manner. Do you have a history of paying bills a couple weeks late, or are you the type who always pays your cable bill even before it is due? That’s the kind of thing that will come into play here.

Credit Utilization

“Amount owed” is pretty self-explanatory — it’s how much total debt you’re currently carrying. Your “credit utilization ratio” may not be quite so clear. That’s the amount of credit you actually use compared to the amount of credit available to you. Lenders generally like to see a credit utilization ratio of 30% or lower. Some even recommend no more than 10%.

Here’s an example: Say you owe $500 on each of two credit cards, and one has a credit limit of $1,000 and the other has a limit of $3,000. The amount you owe is $1,000 out of a credit limit of $4,000. So you are using 25% of your available credit. Your credit utilization is therefore 25%. 

Length of Credit History

This factor looks at the age of your oldest and newest accounts and the average age of all your accounts. To lenders, longer is better.

Credit Mix

Credit mix considers the variety of your debt — is it primarily credit card debt? Do you carry student loan debt or have a mortgage? A desirable mix is a combination of revolving debt (lines of credit, credit cards) and installment debt (loans with fixed repayment terms like student loans and car loans).

New Credit

New credit looks at what accounts have recently been opened in your name, or if you’ve taken out any new debts. Trying to access a considerable amount of credit in a short period of time can have a negative impact on your credit score.

Recommended: Credit Card Utilization: Everything You Need To Know

How’s Your Credit?

Where your credit score falls on the scoring table determines how “good” your credit is. Here’s a breakdown of the credit rating scale according to FICO standards.

•   Excellent or Exceptional: 800-850

•   Very Good: 740-799

•   Good: 670-739

•   Fair: 580-669

•     Poor: 300-579

Ready for a plot twist? Your credit score may not be consistent. Some reasons why:

•   There are different scoring systems, and variations in how various lenders and creditors report information. 

•   Also, FICO can tweak their algorithm depending on the type of loan you’re applying for. If you’re looking to get an auto loan, your industry-specific FICO Score may emphasize your payment history with auto loans and deemphasize your credit card history. In effect, each consumer has multiple credit scores.

•   You may also hear the phrase “educational credit score.” This can refer to the proprietary scoring models used by TransUnion and Equifax, not necessarily to be used by lenders, which can help educate consumers about their credit scores. Since they may or may not reflect the credit score that potential lenders use, it can be wise to make sure you know what kind of credit score you are viewing.

You are probably curious how your credit score stacks up to the national average. The average three-digit number in the U.S. is currently 714. 

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Trying to Build Your Credit Score With Credit Card Debt

You’ll notice that a lot of information around improving your credit scores focuses on debt reduction. After all, 30% of your FICO Score is based upon outstanding debt. By paying that down on time, you may be able to build your credit score. For this reason, one potential action item for those trying to have a positive impact on their credit history is to work on paying down credit card debt.

Credit card debt may be the highest-interest debt you’re carrying. Compare these numbers:

•   The average credit card interest rate on interest-accruing accounts with balances was 22.76% mid-2024, according to the Federal Reserve. 

•   A rate of 6.53% was established for federal undergraduate student loans for the 2024-2025 school year.

•   The average mortgage rate was 6.37% in September 2024 for fixed-rate, 30-year conforming loans. 

That means if you have credit card debt, it could be your fastest growing debt. By getting rid of it, you may be able to significantly reduce your outstanding debt. Here are a few techniques:

•   One way to get out of credit card debt is to consolidate it into a lower-interest option. With a balance transfer credit card, you can move your high-interest debt to a 0% interest card. The catch is that the 0% interest is temporary, and after a given amount of time (typically 12 to 21 months), the interest rate shoots up.

•   Another option is to take out a personal loan, which can consolidate multiple high-interest credit card debts into one monthly payment, often at a lower interest rate. For example, in September 2024, the average personal loan rate was 12.38% vs. almost 23% for credit cards, as noted above. Personal loans are typically unsecured loans with a fixed interest rate and terms of two to seven years. This could help you pay off your debt more quickly, which might help build your score. 

•   One other tip for potentially building your credit score: Thoroughly review your credit report for errors. Mistakes happen, and some of them can bring down your score. You can file a dispute online to correct or remove the information.

Recommended: Using a Personal Loan to Pay Off a Credit Card

The Takeaway

Credit scores, calculated based on information in your credit report, influence the interest rates you qualify for on loans and credit cards. The higher your score, the less you’ll likely pay in interest. The factors that determine your score include your history of on-time payments, your total debt compared to the amount of credit available to you, the types of debt you have managed, how much credit you have recently sought, and the age of your accounts. 

One of the best ways to build your credit score is to pay down credit card debt. A common way to consolidate high-interest credit card debt is with a low-interest personal loan. 

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

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

FAQ

What are the levels of credit ratings?

The levels of credit ratings are typically:

•   Excellent (or Exceptional): 800-850

•   Very good: 740-799

•   Good: 670-739

•   Fair: 580-669

•   Poor: 300-579

How does the credit rating scale work?

Credit rating scales typically work by factoring in various indicators of an individual’s creditworthiness. For example, common components of your credit score will be your history of on-time payments, your credit utilization ratio, the length of your credit history, your credit mix, and how many new accounts you have applied for and how recently. These can indicate how well you have managed debt in the past and how likely you are to be responsible with credit in the future. 

How rare is a 700 credit score?

The current average credit score in the U.S. is 714, so a score of 700 or higher is not that rare. To be more specific, recent reports indicate that 17% of Americans have a score between 700-749, 24% are between 750-799, and 23% are between 800-850. In addition, credit scores tend to be higher among older generations.

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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.

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 .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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.

Third-Party Brand Mentions: No brands, products, or companies 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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