What Happens to Credit Card Debt When You Die?

What Happens to Credit Card Debt When You Die?

When you die, your credit card debt does not die with you. Rather, any remaining debt you have must be paid before assets are distributed to your heirs or surviving spouse. The debt is subtracted from your estate, which is the sum of your assets. If your debts exceed your assets, then your estate is considered insolvent. That could mean your loved ones don’t receive any funds at all.

Read on to learn what happens to credit card debt after death, including who is responsible for credit card debt after death and what steps you should take after a cardholder dies.

Who Is Responsible for Credit Card Debt When You Die

An unfortunate part of understanding how credit cards work is grasping who is responsible for credit card debt after death. Typically, relatives aren’t responsible for paying a family member’s credit card debts upon death.

However, you may be responsible for paying your deceased loved one’s credit card debt if you cosigned for a credit card, given the responsibility cosigning carries. Joint account holders also can be held responsible for credit card debt left after death since both account holders are equally responsible for paying the credit card balance.

Authorized users, on the other hand, are not usually responsible for the outstanding balance on a deceased person’s account — unless, that is, you live in a community property state. These states, which typically hold spouses responsible for each other’s debts, include:

•   Arizona

•   California

•   Idaho

•   Louisiana

•   Nevada

•   New Mexico

•   Texas

•   Washington

•   Wisconsin

If you live in one of these states, you may have to pay your spouse’s credit card debts if they die, even if you were only an authorized user on their card.

Next Steps After a Cardholder Dies

If you have a relative or loved one who recently passed and left outstanding credit card debt, theses are the steps you should take to make sure their debt is properly handled:

1.    Ask for multiple copies of the death certificate. You’ll likely need to send official copies to various credit card companies and life insurance companies. It may also be needed for other estate purposes.

2.    If you’re an authorized user on the deceased person’s credit card, stop using that card upon their death. Using a credit card after the primary cardholder’s death is considered fraud. If you make any payments on the authorized user card, the credit company will accept the credit card payments and can claim that you have taken responsibility for the entire balance of the card. If you don’t have another credit card of your own, you may want to explore how to apply for a credit card.

3.    Make a list of the deceased person’s financial accounts, including their credit card accounts. A spouse or executor of the deceased can request a copy of the person’s credit report to check for all accounts. This way, you’ll know which accounts you’ll need to handle.

4.    Notify the credit card companies of the death. You’ll want to make sure to close any accounts that were in the deceased person’s name.

5.    Alert the three consumer credit bureaus of the death. You’ll also want to put a credit freeze on the person’s account. This can help prevent identity theft in the deceased’s name. Only the spouse or executor of the estate is authorized to report this information to the credit bureaus, which include Experian, TransUnion, and Equifax.

6.    Continue to make payments on any jointly held credit cards that you aren’t closing. Making the credit card minimum payment can help prevent a negative effect on your credit score.

Assets That Are Protected From Creditors

If a deceased relative’s credit card debt exceeds their total assets, don’t panic. In the instance the estate doesn’t have enough money to cover all of the deceased’s debt, state law will determine which debt is the highest priority.

Credit cards are considered unsecured loans, which are lower in priority for loan repayments after death. Mortgages and car loans are secured by collateral, so they are considered higher priority. Often, unsecured debt may not even get paid.

It’s also important to know that some types of assets are protected from creditors in the event of death. This includes retirement accounts, life insurance proceeds, assets held in a living trust, and brokerage accounts. Homes may also be protected, though this will depend on state law and how title to the property is held.

Remember: Credit card companies can’t legally ask you to pay credit card debts that aren’t your responsibility.

Credit Card Liability After Death

The best way to keep your loved ones from having to deal with your credit card debt is to responsibly manage your credit card balances while you’re alive. For instance, you can avoid spending up to your credit card limit each month to make your balance easier to pay off.

You can also take the time to look for a good APR for a credit card to minimize the interest that racks up if you can’t pay off your balance in full each month.

Knowing your credit card debt won’t disappear after you die may also make you think twice before making a charge. For instance, while you can technically pay taxes with a credit card, it might not be worth it if it will just add interest to the amount you owe.

If a loved one has recently passed and you shared accounts in any way, keep an eye on your own credit reports and credit card statements. Make sure to dispute credit card charges that you think are incorrect.

How to Avoid Passing Down Debt Problems

If you want to avoid passing down the issue of sorting out your debt, you can have an attorney create a will or trust. A will or trust will offer your loved ones guidance on where you’d like your assets to go after your death, and, in some cases, could allow them to bypass the sometimes costly and time-consuming process of probate.

However, making a will or trust won’t necessarily stop debt collectors from contacting your family members after your death — even if those family members aren’t responsible for the debt. Keep in mind that the Fair Debt Collection Practices Act does prohibit deceptive and abusive contact by debt collectors, so your loved ones will have some legal protections from excessive collections efforts.

Still, it’s important to share as much information as you can about your debt with family members so that they’re aware of your finances after you are no longer there. You don’t need to share information as personal as the CVV number on your credit card or your credit card expiration date, but it is helpful for your loved ones to have an idea of how many accounts you have and what the general state of them is.

The Takeaway

Unfortunately, you don’t get automatic credit card debt forgiveness after death. While your loved ones generally won’t be held responsible for your debt — unless you have a joint account, served as a cosigner, or live in a community property state — your debts are still deducted from your estate. If you want to avoid leaving your loved ones with a mountain of debt, the most important step you can take is to responsibly manage your credit cards while you’re still here.

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.

FAQ

Do I have to pay my deceased parent’s credit card debt?

You don’t have to pay your deceased parent’s credit card debt unless you were a cosigner on their credit card. If you were an authorized user on your parent’s credit card, you are not responsible for their debt.

Do credit card companies know when someone dies?

You should notify the credit card company when your close relative dies to close any accounts in their name. You should also notify the three consumer credit bureaus of the death to put a credit freeze on the person’s account to prevent identity theft.

Can credit card companies take your house after death?

Homes are usually protected from creditors in the event of death, though this does depend on state law and how the title of the property is held. In general, however, credit card companies usually can’t take your house after death.

Is my spouse responsible for my credit card debt?

Your spouse is not responsible for your credit card debt unless they were a cosigner on your credit card. If they were an authorized user on your credit card, they generally are not responsible for your credit card debt unless you live in a community property state (California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin).

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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

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.

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

Photo credit: iStock/PixelsEffect
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Differences and Similarities Between Personal Lines of Credit and Credit Cards

Differences and Similarities Between Personal Lines of Credit and Credit Cards

Credit cards and personal lines of credit both allow you to borrow money over time until you hit a credit limit. You typically pay back what you owe on a monthly basis, paying interest on your balance.

Each method has its pros and cons (for example, while a line of credit may have a lower interest rate, it likely won’t offer rewards and may be tougher to qualify for). Here, you’ll learn the ins and outs of a personal line of credit vs. a credit card so you can decide which is right for you.

What Is a Personal Line of Credit?

A personal line of credit operates under the same concept as a credit card, with slight differences. It’s a type of revolving credit that allows you to borrow a set amount, which is typically based on your income. Here are details to know:

•   The majority of personal lines of credit are unsecured, meaning there’s no collateral at risk if you default on payments. However, you can obtain a secured personal line of credit at some institutions if you put down a deposit. This deposit will be used to pay your balance due if you default on payments, but it can also help you achieve a lower interest rate. Personal loans secured by a deposit are typically used as a method for building credit.

•   A home equity line of credit (or HELOC) is similar to a secured personal line of credit in that your house acts as the collateral in the loan. You’re borrowing against the equity in your home. If you default on payments, your house could be foreclosed on to make up the difference.



💡 Quick Tip: A low-interest personal loan can consolidate your debts, lower your monthly payments, and help you get out of debt sooner.

How Does a Personal Line of Credit Work?

Get acquainted with how a personal line of credit works:

•   As with any other credit transaction, personal lines of credit are reported to the three major credit bureaus. You will have to provide details about your financial standings in order to qualify for a personal line of credit. Typically, this comes in the form of demonstrating your income, in addition to other requirements.

•   The interest rate for a personal line of credit usually fluctuates with the market conditions, such as the prime rate. You may also have to pay a fee each time you use your personal line of credit.

•   Some banking institutions may require you to have a checking account established with them before offering you a personal line of credit. This is critical for using your personal line of credit, since the money can be transferred to a linked checking account. (In some cases, you might receive funds via a payment card (similar to a debit card) or use special checks to move the funds.

•   Personal lines of credit contain what’s called a “draw period.” During this predetermined amount of time, you can use your available credit as you please, as long as you don’t go over the limit.

•   Once the draw period reaches its end, you may be required to either pay your remaining balance in full or pay it off by a certain date after that.

What Is a Credit Card?

Is a credit card a line of credit? Not exactly. A credit card is a type of unsecured revolving credit that includes a credit limit. This limit is determined by your financial situation, which requires a hard credit check. There are credit cards for practically all types of credit scores, from poor all the way up to excellent.

Many credit cards offer rewards in the form of cash back or travel rewards. You may also receive a bonus for signing up for a new account, either as rewards or as an interest-free, introductory financing period. Also, a credit card can offer cardholder benefits such as purchase protection or travel insurance.

How Does a Credit Card Work?

Your personal bank or other financial institutions may offer their own credit cards, but you don’t have to belong to a particular bank or lender in order to qualify for a credit card. After you’ve applied for a credit card and been approved, the lender will likely set a credit limit.

•   When you make a purchase with a credit card, it constitutes a loan. At the end of each billing cycle you’ll receive a statement. You can usually avoid interest charges by paying your statement balance in full.

•   If you choose to pay a lesser amount, you’ll incur interest charges. Credit cards typically charge high interest, so it’s important to stay on top of the amount you owe, which can increase quickly.

•   If you don’t make a payment by the statement due date, you will likely also incur a late payment fee. Interest charges and fees are added to the account balance, and interest will accrue on this new total.

•   If you miss payments by 60 days typically, you could be assessed a higher penalty APR.

Recommended: Average Personal Loan Rates

Personal Lines of Credit Vs Credit Cards Compared

Now that you know a bit more about each of these options, you know that the answer to “Is a line of credit the same as a credit card?” is no. Now, take a closer look at the difference between a line of credit and a credit card.

Similarities

Both personal lines of credit and credit cards are types of revolving credit. This means you can borrow up to a certain amount as it suits you, as long as you pay the balance back down in order to make room for future purchases.

Both personal lines of credit and credit cards also report your balance and payment history to the three major consumer credit bureaus.

Differences

Here’s a quick summary of the main differences between personal lines of credit and credit cards.

Features

Personal Line of Credit

Credit Card

Interest rate Typically lower than credit cards Typically higher than personal lines of credit
Borrowing limit Often up to $50,000 or more Typically, $28,000 but varies
Rewards None Many cards offer cash back or travel rewards
Fees Annual fee, late payment fees, fees for drawing on account Annual fees, balance transfer fees, late payment fees and penalty APRs, overdraft fees
Application process Can be lengthy Usually very simple
Grace period No Yes
Other benefits Good for emergency and/or unexpected expenses Many cards offer travel insurance, purchase protection, and other benefits.



💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why credit card consolidation loans are so popular.

Pros and Cons of Personal Lines of Credit

There are times when a personal line of credit can make life much simpler. However, you may have to accept certain tradeoffs.

Pros

Cons

Lower fees for a cash advance Potential fees for usage
High borrowing limits Preset credit lifespan
Lowwe interest rates No spending rewards or perks
Funds can be used at your discretion No interest-free grace period
You only pay interest on what you borrow Annual fee

Pros and Cons of Credit Cards

Credit cards are a powerful financial tool you can use to wisely manage your spending. Knowing the terms of the game, however, is just as important as learning how to be responsible with credit cards.

Pros

Cons

Many cards offer rewards for spending Some cards have annual fees
Can be used for retail purchases Typically high interest rates
One for practically every credit score Hefty fees for cash advances
Useful tool in establishing and/or rebuilding credit Balance transfer fees

Recommended: Credit Score vs. FICO® Score

Alternatives to Revolving Credit

Besides personal lines of credit and credit cards, there are a few other types of financial products you can use to access credit.

Personal Loans

It may be easy to get personal loans vs. lines of credit confused, but it’s crucial to know the difference. For example, a personal line of credit is a potential amount that can be borrowed. Personal loans, however, are a lump sum of money that you receive shortly after your approval. Here’s how this kind of loan typically:

•   Obtaining either a secured or unsecured personal loan requires a credit check. The potential amount you may be able to borrow ranges from $1,000 all the way up to $40,000 or more.

•   Some personal loans are taken out for a specific purpose, such as a home renovation, a personal line of credit can often be used for whatever reason crops up. For example, you may want to go with a personal loan instead of a line of credit if you need to make home renovations.

•   A personal loan rate calculator can be used to see what terms you may be able to expect. While these calculators may not give you the exact terms you’ll receive if you do obtain a personal loan, they can be a great starting place.

Auto Loan

Many people don’t have thousands of dollars sitting around to help pay towards a new car, so they use auto loans. An auto loan is a kind of personal loan that’s secured by the title of the vehicle.

If the borrower fails to pay the loan, the vehicle can be repossessed. And the name of the lender typically appears on the title of the car, so the loan must be paid off before the car can be sold.

Mortgage

A mortgage, or home loan, is a loan that’s secured by a real estate property. Because of the inherent value of real estate, a home mortgage can often have a lower interest rate than other types of secured loans. Most home mortgages are installment loans that have a fixed repayment period, such as 30 years or 15 years.

A home equity loan or a home equity line of credit is a second mortgage taken out against the existing equity in a property. Because of their low interest rates these are sometimes used instead of unsecured personal loans.

Student Loans

Student loans can allow students to fund their education; you may not need to start paying those loans off until you’ve graduated.

Federal student aid can help pay for college-related costs as well. The Free Application for Federal Student Aid (FAFSA®) is one way to determine how much and what type of federal student aid students and parents might qualify for. Some individual colleges also use the FAFSA in determining eligibility for their own financial aid programs.

Private student loans are another option, both for loans and to refinance federal loans. In terms of the latter, however, there are two important considerations:

•   If you refinance federal student loans with private loans, you forfeit the federal benefits and protections, such as forgiveness.

•   If you refinance for an extended term, you may pay more interest over the life of the loan.

•   For these reasons, think carefully about whether private student loans suit your situation.

The Takeaway

Personal lines of credit are similar to credit cards in that they are both generally unsecured loans issued based on your personal creditworthiness. By understanding how a credit card differs from a personal line of credit, you can choose the loan that best fits your needs or decide to access cash through an alternative method.

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

Here’s a list of the most common questions associated with personal lines of credit and credit cards.

Is a personal line of credit the same as a credit card?

Personal lines of credit and credit cards are similar but not the same. A credit card is a form of payment accepted by merchants and a kind of revolving loan. A personal line of credit is a revolving loan, and the funds are typically transferred to the borrower’s personal bank account before they are used for purchases. Credit cards can also have numerous benefits not offered by a personal line of credit but the interest rate may be higher.

Are there additional risks to lines of credit vs credit cards?

Both personal lines of credit and credit cards require you to pay back what you owe, whether it’s on a monthly basis or at the end of the draw period, in the case of a line of credit. Making late payments or missing payments can negatively affect your credit score and incur fees.

Do personal lines of credit affect your credit score?

Yes, personal lines of credit, just like credit cards, are subject to reporting to the major credit bureaus. If you make late payments or miss payments, your credit score can be negatively affected. However, personal lines of credit can also be used to build your credit if you make your payments on time and use your credit responsibly.


Photo credit: iStock/Deepak Sethi

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 .

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


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.

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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Paying Off $10,000 of Credit Card Debt

If you’re like many Americans, you may carry thousands of dollars of credit card debt. One recent analysis found that the average citizen has $7,951 in debt. While getting out from under debt may seem daunting, there are ways to make it manageable.

Here’s a look at different strategies for paying off a large chunk of debt; specifically, $10,000. In addition to tactics for eliminating debt, you’ll learn why doing so is important, which can help boost your motivation.

Why Paying off Credit Card Debt is Important

In an ideal world, you would pay off your credit card every month in full. If you’re able to do that, using a credit card (responsibly) can be a good thing. It’s actually a pretty useful way to build credit and gain credit card rewards.

However, when you start to carry monthly credit card debt, things can get a bit dicey, because you’ll start to pay interest.

When you signed up for your credit card, you probably noticed that it came with an annual percentage rate (APR). The APR includes not only the approximate percentage of interest that you’ll likely pay on your credit card balance, but also fees associated with your credit card, such as origination fees or balance transfer fees.

Even if you make minimum payments, interest will still accrue on the balance you owe. The more money you owe, the quicker your interest payments can add up and the harder your debt can be to pay off. The fact that credit cards typically charge high interest rates (the current average interest rate is almost 25% at the end of 2023) is part of what you’re grappling with.

So strategies that help you pay down debt as fast as you can also might help you control your interest rates. That, in turn, can help keep your debt from getting ahead of you.

To illustrate some of the debt-demolishing tips in this article, the nice round number of $10,000 is being used. But everyone’s debt totals will be different, and the right ways to pay down debt will be different for everyone as well. It’s up to you to find the path that’s best for your needs.


💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.

Avoiding Adding to Your Debt

If tackling $10,000 in credit card debt, or really any amount of credit card debt, the very first step might be to stop using credit cards altogether. This can be tough, especially if you’re used to using them all the time. But if you keep spending on your card, you’ll be adding to your debt. While you get your debt under control, you could consider switching over to only using cash or your debit card.

Building a Budget

Making a budget may help you find extra cash to help you pay down your credit cards. You can start by making a list of all your necessary expenses, including housing, utilities, transportation, insurance, and groceries.

It’s usually a good idea to include minimum credit card payments in this category as well, since making minimum payments can at least keep you from having to pay additional penalties and fees on top of your credit card balance and interest payments.

You can tally up the cost of your necessary expenses and subtract the total from your income. What’s left is the money available for discretionary spending, or in other words, the money you’d use for savings, eating out, entertainment, etc. Look for discretionary expenses you can cut — you might forgo a vacation or start cooking more — so you can direct extra money to paying down your credit card.

Consider using any extra windfalls — such as a bonus at work, a tax refund, or a cash birthday gift — to help you pay down your debt as well.

Though it may seem frustrating to cut out activities you enjoy doing, it can be helpful to remember that these cuts are likely temporary. As soon as you pay off your cards, you can add reasonable discretionary expenditures back into your budget.

The Debt Avalanche Method

Once you’ve identified the money you’ll use to pay off your cards, there are a couple of strategies that may be worth considering to help organize your payments. If you have multiple credit cards that each carry a balance, you could consider the debt avalanche method. The first step when using this strategy is to order your credit card debts from the highest interest rate to the lowest.

From there, you’d make minimum payments on all of your cards to avoid additional penalties and fees. Then, you could direct extra payments to the card with the highest interest rates first. When that card is paid off, you’d focus on the next highest card and so on until you’d paid off all of your debt.

The idea here is that higher interest rates end up costing you more money over the long run, so clearing the highest rates saves you cash and accelerates your ability to pay off your other debts.

The Debt Snowball Method

Another strategy potentially worth considering if you have multiple credit cards is the snowball method. With this method, you’d order your debts from smallest to largest balance. You would then make minimum payments on all of your cards here as well, but direct any extra payments to paying off the smallest balance first.

Once that’s done, you’d move on to the card with the next lowest balance, continuing this process until you have all of your cards paid off. By paying off your smallest debt you get an immediate win. Ideally, this small win would help you build momentum and stay motivated to keep going.

The drawback of this method is you continue making interest payments on your highest rate loans. So you may actually end up spending more money on interest using this method than you would using the avalanche method.

Only you know what type of motivation works best for you. If the sense of accomplishment you feel from paying off your small balances will help inspire you to actually pay your debt off, then this method may be the right choice for you.

Consolidate Your Debt

Interest rates on credit cards can be hefty to say the least. Personal loans can help you rein in your credit card debt by consolidating it with a potentially lower interest rate. With a personal loan, you can consolidate all of your credit cards into one loan, instead of managing multiple credit card payments.

Once you’ve used your personal loan to consolidate your credit card debt, you’ll still be responsible for paying off the loan. However, you’ll no longer have to juggle multiple debts. And hopefully, with a lower interest rate and shorter term, you’ll actually be able to pay your debt off faster.

Paying Off Credit Card Debt With a Personal Loan

If you think a personal loan could be a good way for you to pay off $10,000 of credit card debt, see what SoFi offers.

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


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


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.

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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A Guide to Charge-Offs

A charge-off can occur when you don’t pay your credit card’s minimum monthly payment or your installment debt like an auto loan or personal loan. If a creditor decides that a debt is unlikely to be paid after a certain period of time, they may count it as a loss. Then it becomes what is known as a charge-off to the account.

And what happens after that? It’s not a “free money” situation for you. Quite the opposite: A charge-off on your credit report is a negative entry that can stick for a while and cause concern for future lenders.

Here, you’ll learn what exactly a charge-off is in more detail, how it affects your credit, and what steps, if any, you can take to resolve the situation.

What Is a Charge-Off?

When a credit card or installment debt goes unpaid for 120 to 180 days and the lender determines that the debt is unlikely to be paid off, the outstanding balance may be counted as a loss, and the account closed.

But a charge-off doesn’t mean the debt ceases to exist and that the borrower no longer needs to pay it off. Instead, typically the lender either hires a debt collector to pursue the money it’s owed or sells the debt to a collection agency.

Though the lender will take a hit on the money owed — the debt collector will either take a share of any funds recovered, or the bank may sell off the debt entirely to the collector at a reduced rate — the story isn’t over for the borrower.


💡 Quick Tip: A low-interest personal loan can consolidate your debts, lower your monthly payments, and help you get out of debt sooner.

How To See if You Have a Charge-Off

Under federal law, a debt collector must send a debt validation notice within five days of first contacting you. The notice will include details about the outstanding debt, including verification that the notice is from a debt collector, the name of the creditor, the amount owed (including any fees or interest), your rights, and how to dispute the debt, and other information.

A charge-off will also be noted on your credit report. The original creditor may close your account and report the payment status as “collection” or “charge-off,” both negative marks on a credit report.

You can get a free copy of your credit report from each credit bureau annually via AnnualCreditReport.com. It’s a good idea to check your credit report regularly to make sure all information is up-to-date and correct. Requesting a credit report from one of the three credit reporting bureaus every few months allows you to check your credit report three times per year. For example, you could check your Experian® report in January, your TransUnion® report in May, and your Equifax® report in September.

What Happens When You Have a Charge-Off?

After you’re notified of the charge-off, a good first step is verifying the debt is actually yours and the charge-off is valid. You can dispute the posting with the credit bureaus and contact the creditor or debt collection agency with proof that the debt was paid if that’s the case. (Any common credit reporting errors can be brought to the attention of the reporting agency, including invalid charge-offs.)

If you do owe the debt, you have a few options:

•   You could pay it, including working out a repayment plan with the creditor and attempting to come to a settlement for an amount less than the original debt.

•   Doing nothing at all is another option. The collection of debts is subject to a statute of limitations that prevents creditors from pursuing unpaid bills after a certain period of time (the time limit varies from state to state, but is typically between three and six years).

Once that statute of limitations is up, a debt collector can no longer seek court action to force repayment, but the Federal Trade Commission points out that under certain circumstances, the clock can be reset.

Again, though, simply running out the clock on a charge-off does not mean there are no consequences for the cardholder. Read on to learn more about this important aspect of charge-offs.

How Does a Charge-Off Affect Credit Rating?

To understand the implications of a credit card charge-off, it’s worth thinking about how you’re approved for a credit card or loan.

•   Individuals have credit scores, which help credit card companies, lenders, and other institutions determine the risk of making payments. Credit scores are one factor among many used to evaluate an individual’s application for a car loan or mortgage — even an application for an apartment rental or new cell phone account.

•   Some lenders have minimum required credit scores for personal loans, so a person’s credit score not only helps to determine whether they will be approved but also the interest rate they will pay and other terms.

•   A credit score is a snapshot of a consumer’s financial history: their record of bill payments, how much credit they are using, and other such details.

•   Building credit scores takes time, reflecting years of credit habits. As such, any past credit card charge-offs are reflected in a person’s credit score and on their credit report. This can lead to a bad credit score and will let future prospective lenders know they have a history of delinquent or unpaid bills.

The Process of a Charge-Off

While parameters for a charge-off vary from lender to lender, here’s what typically happens:

•   After an individual does not pay at least their credit card minimum payment for six consecutive months, the account becomes delinquent. After the first month of delinquency, the credit account is moved from the “Accounts in Good Standing” section of their report to “Negative Items” or “Negative Accounts,” along with the outstanding balance.

•   If the credit card company decides to charge off the debt at 180 days, this is then noted on the person’s credit report as a charge-off.

•   Even with a charge-off, the outstanding balance will remain on one’s credit report (noted as a charge-off), unless it is sold to a collection agency. In that case, the balance reverts to zero but the charge-off remains.

Consequences of a Charge-Off

A charge-off stays on a person’s credit report for seven years from the first delinquent payment date, usually, even if they pay off their debt in full or the statute of limitations runs out. In fact, once consumers have a charge-off on their record, it can be difficult to have it reversed.

Among the consequences of having a charge-off on a credit report: It could result in higher interest rates on future lending products, or even being turned down for a credit card or loan.

There are a few scenarios where cardholders might be able to have a charge-off taken off their credit report. If an individual can prove that the charge-off was inaccurate, they can apply to have it removed under the Fair Credit Reporting Act. It can also be helpful to reach out to the creditor directly to try to reach a resolution.

It may be possible to have the charge-off removed as part of a debt settlement agreement or on a goodwill basis in the event of personal hardship or an honest mistake — though there are no guarantees.


💡 Quick Tip: With low interest rates compared to credit cards, a personal loan for credit card consolidation can substantially lower your payments.

What You Can Do About a Charge-Off

Paying off the charge-off or collection may reduce the negative impact on a credit score. It may also be wise to contact the lender to discuss a payment settlement, which may also reduce the credit impact.

If a credit card account is charged off, it may continue to accrue interest until it is paid. Once the balance is finally paid off in full, it will be noted on the individual’s credit card report.

A credit card charge-off on a credit report can make anyone’s financial life more difficult, so prevention may be the best bet.

Contacting the creditor to arrange a payment plan could be an option to keep a charge-off from being reported on your credit report. Switching to a lower-interest credit card or consolidating debt with a credit card consolidation loan may be steps to consider for managing debts before a charge-off affects a credit report.

Developing habits for using a credit card responsibly by setting a budget and ensuring that there’s enough money on hand to cover necessary and discretionary purchases, keeping a close eye on credit card statements, and adhering to payment schedules is a good way to successfully manage your finances. Even if you can’t afford to pay the balance due in full, it’s a good idea to pay at least the minimum on time.

Disputing a Charge-Off

If you’ve determined that the charge-off is not accurate — whether the debt doesn’t belong to you, the amount is incorrect, or the statute of limitations has passed — you can begin the dispute process.

You can begin by filing a formal dispute with the credit reporting bureau. You can mail a dispute form to each bureau or use their online dispute filing process at the following links:

•   Equifax

•   Experian

•   TransUnion

Each credit bureau has its own process for handling disputes, but generally, you can expect a reply within about 30 days. You’ll be able to check the status of your dispute online after setting up an account with the credit bureau.

The credit bureau will begin by contacting the creditor, e.g., the credit card issuer or the lender, requesting them to check their records. If the information that was reported was incorrect, your credit report will be corrected, while any correct information will remain on your report.

After a dispute is completed, the credit bureau will update your credit report with the final outcome, whether that’s deleting the disputed item or leaving it on your credit report because it was found to be a valid debt.

Paying Off a Charge-Off

If the charged-off debt is yours, you are legally responsible for paying it. You have some options for doing so.

•   If the original creditor has not sold the debt to a collector, you can work directly with them to pay the debt. If the debt has been sold to a collections agency, you’ll be working with the agency instead of the original creditor.

•   In either case, you can make a payment plan to pay down the debt, or you could also try to negotiate a settlement for less than the amount owed if you’re able to pay some amount in full.

•   A paid debt will be reported as “paid collection” on a credit report, and a settled debt will be reported as a “settled charge-off.”

•   After the debt is paid in full, asking for a final payment letter is the way to have proof that the debt is no longer outstanding.

A debt being charged off and a debt being sent to collections are related, but different. Here’s a comparison:

Charge-Off

Collections

The creditor removes the debt from its balance sheet because they deem it unlikely to be paid. The creditor hires a debt collector to attempt collection or sells the debt to a debt collection agency.
Collection attempts may still be made by the original creditor. Collection attempts are made by the debt collection agency.
Creditor will report the charge-off to the credit bureaus. Debt collectors must send a debt validation notice within five days of first contacting you about the outstanding debt.
You may be able to work with the original creditor to pay down the debt. Any payment arrangements or settlement negotiations will be with the collection agency.

The Takeaway

A credit card charge-off may remain on a credit report for years and have a negative impact on your credit score. Preventing a charge-off by developing responsible spending habits, consolidating debt, or trying to arrange a payment plan may be the best bet.

If you are struggling with debt, a debt consolidation loan might help. It’s a personal loan used to consolidate multiple high-interest debts into one with a lower interest rate or with more manageable monthly payments.

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

Is paying off charge-offs a good idea?

It can be a good idea, depending on the age of the debt. If the debt is old and beyond the statute of limitations for collection, making a payment on the debt could restart the clock on a time-barred debt.

What is a charge-off vs collection?

A charge-off happens when a creditor deems it unlikely that a debt will be paid. Collections are the next step in the process, whether the original creditor attempts to collect the debt or the debt is sold to a debt collection agency.

How does a charge off affect your credit score?

A charge-off is a negative entry on your credit report which could lower your credit score. It can affect your ability to qualify for future loans, your rental options, and even car insurance rates.


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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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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Can You Consolidate Student Loans and Credit Card Debt Together?

After attending college, you might have a hefty student loan you need to pay off, and you might also have some credit card debt you’re ready to eliminate.

Having two (or more) separate payments each month, as well as more than one interest rate, can get messy, and could negatively impact your credit if you don’t make all the minimum payments required. You may be wondering if it’s possible to consolidate student loans and credit card debt together to make things easier.

We’ll look at the differences between debt consolidation, debt refinancing, student loan consolidation, and student loan refinancing, plus explore your options to lower your interest rates and possibly get one single payment for all your student loan and credit card debts.

What Is Debt Consolidation?

There are two different ways you can change what your debt looks like: debt consolidation and debt refinancing.

It’s important to understand that when it comes to loans and credit cards, consolidating is different from refinancing. Refinancing refers to changing the financial terms of a debt. Maybe when you took out your student loan, for example, interest rates were higher than they are now. You might be able to refinance your loan with current, lower rates or you could refinance to extend the loan term.

Debt consolidation, on the other hand, refers to combining more than one debt into a new loan with a single payment. Maybe you have three different credit card balances and you take out a new loan to pay them off. Now, those three credit cards have a zero balance and you’re left with a single monthly payment and a new interest rate and terms with the new loan.

But is consolidating credit cards and student loans together possible? Or are they two different animals?

Consolidating Student Loans

The U.S. Department of Education offers what’s called a Direct Consolidation Loan, which consolidates all your federal education loans that qualify into one new loan with a single interest rate, typically the average of the loans you’re consolidating. When you consolidate federal student loans, you keep federal benefits, such as income-driven repayment plans and student loan forgiveness.

Student loan consolidation may be useful if you have federal loans from different lenders and are making more than one payment per month. However, your interest rate won’t necessarily be lowered, nor will you be allowed to consolidate private student loans or credit card debt.

So, what can you do if you have private student loans you want to consolidate or other loans that don’t qualify for the Direct Consolidation Loan? And what if you want to consolidate student loans and credit card debt together?

Before we get to the solution, let’s talk about consolidating credit cards.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Consolidating Credit Cards

Just like with student loans, you may have multiple credit cards each with their own balance, interest rate, and minimum payment due each month. This can make paying off all this debt next to impossible and feel like you’re treading water as you pay the minimum amount due on each card.

With credit card consolidation, you take out a new personal loan and pay off all outstanding credit card debt.
You then have one payment and one interest rate (which may often be significantly lower than some astronomically high rates for credit cards). You’re now making one monthly payment for all your credit card debt. Sounds good, right?

How to Consolidate Student Loans and Credit Card Debts

As discussed, with a Direct Consolidation Loan, you can’t add credit card debt to the consolidation loan. Direct Consolidation Loans are reserved for federal student loans only.

However, if you’re wanting to consolidate both student loans and credit card debts, there are options you can consider.

Personal Loan

One way to pay off different types of debt is with a personal loan. While personal loans may have higher interest rates than you’re paying for your student loans, the rates for personal loans may be significantly lower than credit card interest rates if your credit is good.

By taking out a personal loan, you may be able to pay off all of your student loans and credit card debt. Your debt is now rolled up into one monthly payment with one interest rate.

The higher your credit score, the lower the interest rate you may qualify for with a personal loan. But even if you don’t get a fantastic rate, you can extend the loan term to make your payments more manageable. And, of course, you can usually pay off a personal loan early without penalty, which can cut down on what you’d otherwise pay in interest.

Balance Transfer

If a personal loan isn’t for you, check to see if you have a credit card with a balance transfer offer. Often, credit cards will offer a promotion of 0% on any balances from other credit cards or loans transferred. Take note though: often these promotions end after a year, and then you’re stuck with the interest payment on the remaining balance.

A balance transfer makes sense if you know you can pay off your debts within a year. If you have a large amount of credit card debt or a high student loan, this may not be the best solution if you can’t pay it off quickly. Instead, you might consider transferring the amount of your debts that you know you can pay off within the timeframe.

Alternatives to Consolidation

If you’re hoping to consolidate student loans and credit card debt together, taking out a personal loan or using a transfer balance are two options to explore.

You might also look at a debt reduction strategy, such as the Avalanche Method or the Snowball Method.

The Avalanche Method

The Avalanche Method focuses on paying off your debts with the highest interest rates first. Once those are paid off, you put that money toward the debts with the next highest interest rates, and so on and so forth, until they are all paid off.

The Snowball Method

With the Snowball Method, you focus on the largest balance first. Put extra money toward paying that off, then when it’s paid off, move to the next largest balance.

Continue Payments

Whatever strategy you choose, the key is to keep making payments. And if possible, pay more than the minimum amount due. Even paying an additional $25 a month on a debt will help you pay it off faster and reduce the total amount of interest you pay overall.

Student Loan Refinance Tips from SoFi

Because student loans are often the largest debts people carry (even if they don’t have the highest interest rate), you may want to have a separate strategy for paying off your student loans.

When you refinance student loans, look for loans that offer a longer time period if you want a smaller monthly payment. However, keep in mind that with a longer loan term, you’re likely to pay more in interest over the life of the loan.

Also, if you plan on using federal benefits, it’s not recommended to refinance with a private lender. Instead, look into a Direct Consolidation Loan or refinance your student loans once you’re no longer using federal benefits.


💡 Quick Tip: When rates are low, refinancing student loans could make a lot of sense. How much could you save? Find out using our student loan refi calculator.

The Takeaway

While it may be challenging to consolidate student loans and credit card debt together, you may be able to do so with a personal loan or a credit card balance transfer. Using one of these methods allows you to transfer these debts into a single loan with a single payment and interest rate.

However, if a personal loan or balance transfer credit card isn’t an option, you could consider refinancing your student loans to possibly lower your interest rate and save money each month. The money you save could then be put toward paying off your credit card debt.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Do I lose my credit cards if I consolidate?

Consolidating credit card debt does not cause you to lose your credit cards. It merely wipes out the debt on each card you include in the consolidation.

Will consolidating my student loans lower my credit score?

If you use the Direct Consolidation Loan, this will not impact your credit score. However, if you consolidate your student loans with a personal loan or through student loan refinancing, it may impact your credit.

Can my student loans be forgiven if I consolidate?

If you consolidate your loans with a Direct Consolidation Loan, you’re still eligible for student loan forgiveness. However, if you refinance your student loans with a private lender, you are no longer eligible for federal benefits, including loan forgiveness.


Photo credit: iStock/PeopleImages

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

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