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Getting Rid of Credit Card Debt in the New Year

There’s nothing quite like the feeling of having your credit card balance paid in full. It’s like a breath of fresh air, a surge of pride, and a huge sigh of relief all rolled into one. But Americans have an on-going love affair with plastic.

Collectively we hold more than $1 trillion in credit card debt. When it comes to getting rid of credit card debt, baby steps can lead to big victories—even the possibility of getting those credit cards paid off in 2020.

To be clear, we’re not talking about being completely debt-free in 2020. Depending on how much you owe on all your debt in total, that could be a longer journey. But targeting your credit card debt can be a smart first-step since credit card debt can sometimes come with a high interest rate.

We’ve put together eight common strategies for how to get rid of credit card debt. But first, you’ll need to get your head in the game. Unless you suddenly receive an inheritance or win the powerball, unloading debt can be challenging.

If you truly want to try and eliminate credit card debt in the new year, it’s going to require a lot of budgeting, discipline, and will-power. You’ll likely have to make sacrifices and compromises. But if you can keep your eye on the prize, next year you could be looking at a nice, round zero.

1. Limit Your Use of Credit

No strategy for how to crush credit card debt is going to work if you continue to rely heavily on your credit cards. Pick one card to keep—ideally, one with good terms, like a low interest rate or a great rewards program —and put the rest away.

You can store them in a safe place or even cut them up so you’re not tempted to use them. If the card doesn’t carry a large annual fee, consider not canceling your credit card account, since losing that cards credit history or percentage of credit utilization could possibly have an affect on your credit score.

2. Take a Hard Look at Your Spending

Go through last month’s bank and credit card statements and add up all the money you spent eating out, or shopping for non-essentials. You may be surprised at what you find.

Review your spending closely and see if there is any room for you to cut back on unnecessary expenses. Then, create a budget that’s completely within your means.

The goal is to cut back on your discretionary spending so you can focus additional funds on paying off your credit card debt. Take a look at our tips for creating a better budget. Building a workable budget is one of the first steps in tackling your debt.

3. Create a Debt-Repayment Strategy and Stick to It

There are a few different schools of thought when it comes to eliminating your credit card debt, especially if you have debt spread over multiple credit cards. Regardless of the strategy you choose, make the minimum monthly payments on all of your debts.

One strategy is called the debt avalanche method. Using this method you’ll organize your credit card debt from highest interest rate to lowest interest rate.

Focus your efforts on repaying the debt with the highest interest rate first. Then as you pay off each credit card, you can contribute the money you were contributing to the next debt.

On average, Americans will pay more than $1,000 in interest this year, so tackling the highest interest rate first could be appealing. You can use our credit card interest calculator to see an estimate of how much interest you’ll accrue on your current track.

The other approach suggests you focus on the credit card with the smallest balance first. This is called the debt snowball method. The goal of this strategy is to encourage you to continue your debt repayments. Since you start with the smallest balance, you’ll start seeing the impact of your payments faster.

See how a SoFi personal loan can help
you get rid of your credit card debt
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6. Transfer to a Balance Transfer Credit Card

This could help you toward your goal of eliminating your credit card debt but in order to do so it will require diligence to avoid common pitfalls.

A balance transfer credit card allows you to open a new low-interest or interest-free credit card and transfer your existing balance from a high-interest credit card, so you can pay off the debt. In theory, paying off the debt should be easier without a high APR.

The introductory APR on low or 0% transfers generally lasts anywhere from six to 18-months, so be sure you understand the terms and conditions. These can be a useful tool if you can repay your debt during the introductory period.

7. Consolidate Your Debt with a Personal Loan

A personal loan won’t eliminate your debt, but it could help you get out of the high-interest credit card game. Instead of a revolving door of debt, you can opt to pay one monthly fixed payment, possibly at a lower interest rate.

8. Pay More than You Owe, More Often than You Owe It

As you work toward paying your credit card debt, consider making more than the monthly minimum payments. This can help you pay off your debt faster and in doing so, could help you reduce the amount of money you spend in interest over the life of the debt. This can be helpful in both the avalanche and snowball methods of debt repayment.

Ready to see how consolidating your credit card debt with a personal loan could help you take control of your finances? SoFi can help. Use our personal loan calculator to compare your current debts with a personal loan.

When you take out a loan with SoFi there are no prepayment penalties or origination fees. You’ll also gain access to a community of like-minded savers.

Check your rate in just a few minutes.


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

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How Long Does it Take to Repair Credit?

Do you know what your credit score is? If not, maybe it’s time to take a peek.

Knowledge is power, and knowing (and understanding) your credit score is important. It may just be three digits, but your credit score can be an impactful number—it can be used to determine whether or not you’re able to borrow a loan or even to rent an apartment.

If you’re new to the game and don’t have much credit history, you may be wondering how to build credit. On the other hand, if you are in need of a little credit restoration, you might be wondering how long it takes to repair credit.

The truth is there is no hard and fast timeline. Building credit from scratch can take time and so can rebuilding it. The process can be complex and can vary from person to person. In fact, many factors can affect your credit scores, so we want to be clear here that SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. This is just a higher-level look at some factors to help give you a better idea of what the credit-repair landscape can look like. With all that said, let’s dive in!

Factors that Can Influence Your Credit Score & Report

A credit score gives a numerical value to a person’s credit history. It can help give lenders a big-picture look at a potential borrower’s creditworthiness. These scores (there isn’t just one) give lenders insight into how reliable a person might be when it comes to repaying their debt.

This can influence a lender’s decision on whether or not to loan a person money, how much money they are willing to lend, and even the rates and terms for which a borrower qualifies.

Since credit scores are so widely used, it’s easy to see why some individuals may be interested in improving their credit scores. First, it might be helpful to understand the factors used to actually determine your score. Let’s take a look specifically at what goes into a FICO® Score 8 , since that is the credit score used by many lenders right now. Typically, the two most prominent are payment history and credit utilization ratio.

Your payment history accounts for approximately 35% of your FICO® Score, making it one of the most influential factors. Even just one missed or late payment could potentially lower a person’s credit score.

Lenders want to be sure that you’re able to payoff the debt, and a history of on-time payments could illustrate your reliability. A history littered with late payments could be a red flag.

Credit utilization ratio accounts for 35% of your FICO® Score . Credit utilization ratio is your total revolving debt in comparison to your total available revolving credit. Revolving credit is what’s considered when looking at an individual’s credit utilization ratio.

Revolving credit (also known as revolving debt) is essentially credit that is renewed as it is paid off, like credit cards. So, things like credit cards or other lines of credit will be included in a utilization ratio while other debts, like student loans or a mortgage, wouldn’t be.

A low credit utilization ratio can indicate to lenders that you are effectively managing your credit. Typically, lenders like to see a credit utilization ratio that is less than 30% , but how much credit being used is “too much” can depend on a number of factors.

Those factors, like the mix of your credit, the number of hard credit inquiries in your name, the length of your credit history, and negative information (like a foreclosure) can also impact your credit score.

Credit Issues: How Long Do They Linger?

Negative factors like late payments and foreclosures can hang around on your credit report for a while. Generally, the information is included for around seven years .

Bankruptcy is an exception to this seven year guideline—it can linger on your credit report for up to 10 years , depending on the type of bankruptcy filed. Bankruptcies filed under Chapter 7 can be reported for up to 10 years from the filing date. Bankruptcies filed under Chapter 13 can be reported for seven.

While a late payment will be listed on a credit report for seven years, as time passes it typically has less of an impact .

Disputing an Error on Your Credit Report

Checking your credit report can help you stay on top of your credit. You’ll also be able to make sure the information is correct, and if needed, dispute any mistakes.

There are three major credit bureaus—Experian®, Equifax, and TransUnion® . Once a year you can request a copy of your credit report from each of the three credit bureaus, at no cost. Checking in with each report may feel a little repetitive, but it’s possible that the credit bureaus could have slightly different information on file.

If you find that there are discrepancies or errors , you can write a letter to dispute the mistake. You’ll have to write to each credit bureau individually. Generally, you’ll need to send in a letter with documentation to support your claim. Once you’ve submitted your dispute letter, the bureaus have 30 days to respond .

Often times, a bureau will require additional supporting documentation, which can lead to some back and forth within or sometimes after the 30 days. It could take anywhere from three to six months to resolve a credit dispute, but it could take less time, or potentially even longer, depending on the issues being disputed.

Staying on Top of Credit Repair Efforts

Sometimes, resolving issues on a credit report isn’t enough to completely repair a bad credit score. On the bright side, credit scores aren’t permanent. Here are a few ideas for helping to keep up with your own credit restoration plan.

Improving Account Management

If you’re struggling to keep up with accounts with a variety of financial institutions, it could be time to simplify. Take stock of your investments, debts, credit cards, and savings or checking accounts. Is there any opportunity to consolidate?

Having your accounts in one, easy to check location can make it easier to ensure you never miss an alert or important deadline. Having easy access and visibility into your accounts can help you spot any issues as they pop up, so they don’t fester under the surface and surprise you when you least expect it.

Making Payments On-Time

Lenders can be hesitant to lend money to people with a history of late payments. So make sure you’re aware of each bill’s due date and make your payments on time. One idea? You could set up autopay so you don’t even have to think about it.

Limiting Credit Utilization Ratio

It could help to set a realistic budget that reflects your credit utilization ratio and stick to it. Some accounts will let you set up balance alerts that can warn you as you inch closer to the 30% guideline. Another option could be paying your credit card bill more frequently (for example, setting up a mid-cycle payment in addition to your regular payment).

Strategizing to Destroy Debt

When it comes to paying off debt, having a plan can help. Without a clearly defined strategy, it can be easy to get swept up in the stress of debt.

For example, using a credit card can be an effective way to build credit, but if not used responsibly, credit card debt can be incredibly difficult to pay off. Not only that, it could end up impacting your credit score. As a part of your credit restoration plan, you might consider putting a debt repayment plan into place.

Your finances and personal situation will be a major factor in the debt repayment strategy that works best for you. If you need some inspiration, these potential methods may be helpful to reference in your quest to pay off debt. If you decide that one of these options works for you, here’s how you might go about them.

The Snowball

The Snowball Method of paying off debt is pretty straightforward. To put it into action, you would organize your debts from smallest to largest, without factoring in the interest rates.

Then you’d continue to make the minimum payments on all of your debts while paying as much as much as possible on your smallest debt. When the smallest debt is paid off, you’d then roll that money into debt payments for the next smallest debt—until all of your debt is repaid.

This strategy is all about changing behavior and building in incentives to help keep you going. Starting with the smallest debt means you’d see the reward of paying it off faster than if you had started with the larger debt. While this method can help keep you motivated and laser focused on eliminating your debt, it isn’t always the most cost effective, since it doesn’t take into account interest rates.

The Avalanche

The Debt Avalanche method encourages adherents to focus on high interest debts first. Prioritizing debts the debts with the highest interest rates by putting any extra cash towards them, while making the minimum payments on all of your other debts, could help save money in interest in the long run. And it could even help you pay off your debts sooner than the Snowball Method.

The Fireball

The Fireball combines the Snowball and Avalanche methods in a hybrid approach designed to help you blaze through costly debt so you can focus on the things that matter most to you.

The first step in this method is to go through all of your debts and categorize them as either “good” or “bad.” “Good” debts are those with an interest rate of less than 7%. Debts with interest rates higher than 7% are considered “bad.” Then, you’d list your “bad” debts from the smallest amount to the largest amount.

Then you’d take a look at your budget and see how much money you have to funnel toward making extra debt payments. While making the minimum monthly payment on all outstanding debts, you’d direct the extra funds toward the bad debt with the smallest amount.

When that smallest balance is repaid in full, you’d apply the total amount you were paying on that debt to the next smallest debt. Then you’d continue this pattern, moving through each outstanding bad debt until they are all paid in full.

An important note: while you are moving fiercely through your bad debts, you would still follow the normal payment schedule on your good debts.

When you’ve incinerated your bad debts, then you’d apply the money you were using to pay off bad debt toward investing in a financial goal—like saving for a house or for retirement.

By focusing on the debts with the highest interest rates first, this method could save you some change when compared with the Snowball Method. And, since you’re then targeting bad debt from the smallest balance to the largest, you could still benefit from the same psychological boost as you see your debt shrink, one payment at a time.

The Fireball also places an emphasis on saving for the future over repaying low-interest debt, so some people may find this method less appealing, especially if they have a strong aversion to debt.

Creating a Goals-Based Approach

Studies have shown that people who write down their goals are more likely to achieve them. So, it makes sense that setting some financial goals could be a smart step in fine-tuning your financial plan.

Having financial goals could possibly help you streamline your efforts. If you’re actively working toward saving for a down payment, you may feel less inclined to spend money elsewhere.

You could try setting short-term, mid-term, and long-term goals. In the short-term your goals might be as simple as tracking your spending and setting up a budget. For mid-term goals, you might think about something a little further out, like buying a house or saving for a child’s education. Long-term goals are often things like saving for retirement.

Writing down your goals and setting a time for when you’d like to reach them can help you set up your plan.

Organizing Your Finances

Organizing your finances has never been easier thanks to handy credit repair apps and financial tracking software. If you’re looking for a tool to help you manage your money with ease, take a look at SoFi Relay.

You can connect your accounts, even those unaffiliated with SoFi, to the app so you have visibility to all your finances in one place that can be accessed in an instant. This can make it easier to see when payments are due. You can also track your cash flow and spending in real time, so you’ll never have to wonder where your credit cards stand.

With SoFi Relay, you also have the option to speak with a licensed financial advisor to clarify your goals and refine your financial plan.

It might take some time, but reaching your goals isn’t impossible. Learn how SoFi Relay can help.


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
.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
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.
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.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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 about bankruptcy.
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The World of Credit Card Churning

Credit card companies are competing for your business, and they’ve learned that customers’ heads turn when there are free offers on the table. Easy credit feels even easier when you are rewarded for using a particular card.

Charge enough on your card within a certain timeframe, and you could be eligible to earn travel miles, gift cards, points, and other rewards that feel great.

However, remember that every worm on a hook is meant to jerk you out of the water. Hey, chum, welcome to the world of credit card churning.

What is Credit Card Churning?

Credit card churning occurs when you open and close credit cards for the sole purpose of earning a sign-up bonus. The trick is to do it over and over again, with several credit cards. The end goal is to earn as many rewards as you can. In other words, maximizing your eligibility for points and prizes.

Types of Sign-up Bonuses

Of course, there is no such thing as a free lunch or a free reward. Being rewarded usually costs you. In order to earn the credit card rewards, you are typically required to spend a certain amount of money on that credit card, and it has to be done within the first few months (in most cases, three months).

The way you’re lured into a sign-up bonus is by earning a large amount of rewards by spending only a small amount. This usually happens only with a new credit card, as a “welcome” offer. If you play your cards right and are careful about what and where you spend, you may save a lot of money, and get rewarded in the meantime.

Winning at Credit Card Churning

Keep these rules in mind to beat the house at its own game:

Pay Off Your Balance in Full Each Billing Period

This is a good tip even if you’re not gunning for reward points, if we do say so ourselves. If you don’t pay off your balance at the end of the month, the rewards you earn will get drowned out; it’s only going to sink you further down the debt rabbit hole. Take the money and run?

Not so fast. There is no bigger credit card churning buzzkill than taking months or even years to pay off the debt you accumulate racking up charges to earn a sign-up bonus.

While we’re on the subject, remember that paying off your credit card balance in full every month will keep away the interest charges that accrue when you don’t make a full monthly payoff.

Look at it this way: when it comes to credit card churning, it’s you against the credit card companies. Reap their rewards, but don’t open yourself up to suffocating debt and high-interest charges.

Credit card churning can only work if the consumer hits the rewards thresholds, but practice responsible spending. If you’re someone who doesn’t manage credit card debt well, or tends to overspend just to cash in on the rewards, it might be better to steer clear of credit card churning.

Be Timely With Your Credit Card Payments

Don’t be even a day late. Late fees are killer, and they’ll damage the credit rating you’ve worked so hard to keep strong. If other credit providers see a pattern of late payments, and they may not be so fast to offer you their credit card, which means no rewards.

An excellent way to avoid late payments is to schedule automatic payments through your debit card, or checking or savings accounts. This way, you just set it and forget it!

Have a Plan for Your Rewards

Enjoying the rewards you earn may mean so much more to you when you have a goal of how to use them. Perhaps the points are for airline miles or a vacation destination. Maybe you can use them toward a new wardrobe or the latest electronics. Keeping your eyes on the prize will prevent you from squandering your reward points on something silly or regrettable. Stay strong.

Don’t Bite Off More Than You Can Chew

Fight the temptation to get greedy. New credit cards with amazing reward offers are a dime a dozen. They’re like buses: another one will come along soon.

Think about where you may be in a few short months if you take on too many credit cards and too much debt. That won’t be worth any amount of reward points. Only use the number of cards that you can tolerate without sinking yourself.

How Are Those Credit Card Fees Working for You?

Credit card companies tend to be selective about what they promote to you. The reward offer may get you all hog-tied and happy before you find out about a few minor details, like annual fees, transfer fees, and other charges. If your card requires an annual fee, ask yourself if acquiring it is worth the reward points.

You Better Shop Around

Be extremely selective in choosing your rewards-based credit cards. The competition among credit card companies for your business is intensely competitive. Take your time and wait for the best offer. Try those credit card comparison websites .

Remember that credit card companies often change up their offers; they’re not always written in stone. An offer that doesn’t seem so hot may suddenly get amazing only a month later. That can work backward too. An incredible offer can expire in just a month or two. Be proactive about your credit card reward shopping.

Be Wary of No-Interest Credit Cards

It certainly sounds tempting to get a credit card that charges zero interest, and as long as you plan to pay off your balance in full every month, you’re already ahead.

However, this type of offer can bite you on the back end with extremely high-interest rates when the period expires, or a “transfer charge” when transferring your high-interest credit cards.

Charges like that could equal the same amount of money you would be paying in the interest you thought you were passing by. Be sure you’re aware of the cons of no-interest cards, as well as the pros.

Get Your Reading Glasses

Always read the fine print. That amazing offer may have some exclusions and exceptions and other unpleasant surprises. The credit card company may be looking for a certain kind of cardholder too; after all, they’re in business to make money. You may not be the customer the credit card company is looking for; you may have too many credit cards, to begin with, or have a credit rating that may not be acceptable.

Find out which of the reward rules are subject to change, and if there are any expiration dates or winning rewards. If you are not great at reading the fine print, find somebody who is, or call the credit card customer service line and get your answers.

Avoid Grubby Fingers

Don’t think for a minute that nobody is on to your credit card churning plan. The credit card companies can get rather jealous. They don’t want to share with you. Credit card companies don’t like applicants who are opening too many credit cards in a short period of time. This could mean 24 hours or 24 months.

Be Overly Protective of Your Credit Score

A credit score is an overview of your credit history and payback behavior. Making timely monthly payments and not defaulting on any of your credit cards or loans, and you’ll be on the right path. It also helps to keep your ratio of credit-cards-to-debt rather low.

Always consider your credit score before you consider credit card churning.

Know What You’re Getting Into

When it comes to credit card churning, stay woke. Consistently. Know exactly what the offer is, and what you need to do to get it. Know the deadline for spending the money that will make you eligible for the rewards.

Keep up on your progress toward your rewards goal; how much more do you have to spend and how much more time do you have before the offer expires?

When to Avoid Credit Card Churning

Think of credit card churning as a privilege you have to earn rather than a right that doesn’t require prior deliberation. If you fall into any of these following categories, think twice before opening another credit card.

The biggest takeaway here is if you have credit card debt, it doesn’t make sense to continue to rack up debt in the name of credit card churning—instead, it’s best to make a plan to get out of credit card debt ASAP.

If Your Credit is Bad

Credit card rewards are meant for customers with good-to-excellent credit, not for customers with late payments or delinquent accounts. Think of this as an opportunity to work up your credit score. Once you do, you may be eligible for some offers.

If You’re About to Take on More Debt

Are you about to sign a mortgage, or are on the verge of a car or school loan? Applying for extra credit cards for the sake of their rewards will more than likely affect your credit score, thereby possibly standing in the way of your loan request.

If you’re thinking about credit card churning, wait until after you secure that all-important loan, or at least wait until your loan is approved, your payments are underway and your monthly budget adjusts to the debt increases.

If You Don’t Use a Credit Card That Often

Not over-using a credit card shows reserve, discipline, and smarts. However, your lack of credit card usage may not make sense for a credit card churn. In some cases, credit cards will only grant you rewards if you spend a certain amount of money, which means increasing your spending (and your debt).

That sounds like a slippery slope to us, and no amount of rewards in the world is worth high credit-card usage and suddenly unmanageable debt.

If You’re Already Earning Rewards on Your Credit Cards

Some credit cards offer travel points and other rewards, without you having to get into a spending contest.

If you are pretty disciplined about your monthly spending and careful about avoiding too much debt, you’ll probably already steadily earning points and rewards on the credit cards you have. Call customer service and ask what you are eligible for.

If This is Your First Credit Card

Usually, getting your very first credit card is a chance to prove that you are responsible with credit. You can use that first card to spend wisely and prudently, and pay your balance in full each month. This will build and strengthen your credit score, and keep your finances on the straight and narrow.

If you get involved with credit card churning right off the bat, it could lead to trouble that you don’t need when you’re first establishing credit. Fixing credit once it is broken takes a long time, and can stand in the way of the things you may want and need to buy. Wait until you’re further along in the credit game, and when you’re earning money to handle a bit more debt.

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Don’t Let Credit Card Churning Get the Best of You

Credit card churning can be more harmful than it appears on the surface. It can lead to confusion, missteps, and more unmanageable debt.

It may be helpful to organize your finances. Talking to a financial planner may help you see the big picture and help you organize your different lines of credit.

You may also consider an account like SoFi Checking and Savings®. SoFi Checking and Savings is an online bank account where you can save, spend, and earn, all in one place. Plus, you’ll pay no account fees and earn 3.75% APY on all your cash.

We work hard to give you high interest and charge no account fees. With that in mind, our interest rates and fees charged are subject to change at any time

Ready to get your finances in order? Try SoFi Checking and Savings!


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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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U.S. Student Debt Has Surpassed Credit Card Debt

Scary, but true. The amount of student debt in the United States is approximately $1.5 trillion , about one-and-a-half times what Americans currently owe on their credit cards. People use credit cards for home repairs, to go on vacation, to buy groceries, to eat out at restaurants—and for just about any other expense you can think of. Yet, all of these purchases combined are dwarfed by our country’s total student loan debt.

Student loan debt is now the second biggest form of debt in our country, only behind mortgage loans—and the debt balance and its accompanying crisis continues to grow. In this post, we’ll delve into what impact this situation is having on the millennial generation (and other borrowers). We’ll also reverse engineer the reasons why this debt crisis is taking place and share strategies to help whittle down student loan debt, maybe even paying it off more quickly.

National Student Loan Debt and Its Impact on Borrowers

A recent study shows that millennials who have student debt have a net worth, on average, that’s 75% less than those without student debt (an average of $29,087, compared to $114,376 for those who are loan-free).

Students with loan debt also tend to have, when compared to their peers with no student loan debt:

•  about half as much money in the bank ($5,500 versus $10,180 )

•  approximately $19,000 less in their retirement accounts ($21,160 versus $39,905 )

•  larger mortgages—and on homes with less value

In short, financial wellness of millennials with student loan debt is clearly substandard, overall, when compared to others in their demographic without this debt. And, although people with college degrees tend to get higher-paying jobs, overall, the weight of the student debt that often accompanies it can drag down a person’s ability to gain financial wellness.

Here’s another statistic to consider: in an era when total student loan debt has surpassed total credit card debt, millennials with student loans also have more credit card debt.

•  55% of those with student loans also have credit card debt ; only 32% without education-related debt do.

•  Their average balance is $2,888 compared to $1,476 for graduates without student loan debt.

A Forbes article looks at the “disastrous domino effect” created by student debt, with one couple sharing how their debt is forcing them to “put their lives on hold year after year.” It’s had a negative impact on their marriage as they focus on paying down debt, and as they’re waiting to have children and buy a home. This debt has been a “huge burden and point of contention.”

Related: Will There Ever Be a Student Loan Bailout?

The borrower being quoted was a participant in a 50-state survey, Buried in Debt , of student loan debt and its impact on borrowers.

This report examines how the unrelenting stress of student debt can strain borrowers financially as well as emotionally. One of the participants shares how she regularly thinks about selling everything she owns to live in her car so she can put more money towards her debt.

Conclusions from the report include:

•  Nearly 90% of borrowers surveyed struggle to make payments.

•  The majority have less than $1,000 in their bank account.

•  6% of them have even had Social Security payments or wages garnished.

•  Nearly one third of them say their student loan bill is higher than their rent or mortgage payment.

•  65% say it’s higher than their entire monthly food budget.

More About the National Student Loan Debt Crisis

The amount of U.S. student loan debt continues to grow, increasing by 170% in just 10 years’ time . You read that right: over the last 10 years or so, the amount of student debt (in real dollars!) nearly tripled, which may lead people to believe we’re in the midst of a student loan bubble, similar to the subprime real estate bubble from a decade ago.

In June 2018, NASDAQ.com published Safehaven’s prediction that the student loan bubble is about to pop, and the article also shares how, earlier in 2018, the chairman of the Federal Reserve stated that this student loan increase could “slow down economic growth.”

Why this Debt is Growing

In part, the total student loan debt is growing because the costs of getting an education are still rising beyond the rate of inflation. In fact, over the last 10 years, the published costs of in-state tuition and fees at public universities increased at an average of 3.1% beyond the rate of inflation.

And, as long as the cost of attending college outpaces the cost of living, problems will continue for borrowers. Plus, the housing market crash of 2008 has also fed into today’s student loan debt crisis. That’s because some parents who’d planned to borrow against their homes’ equity to help their children attend college often couldn’t do so, post-2008. So, these students needed to take on debt of their own. More specifically, some economists suggest that, for every $1 drop in home equity loans, there has been an increase of 40 to 60 cents in student loans.

Even more alarming, analysis by The Brookings Institution estimates that, by 2023 (just a few short years away!), nearly 40% of student borrowers may default on their loans.

Paying Down Student Debt More Quickly

If possible, you could consider making an extra payment annually toward your loans’ principal balance. Can you do this twice a year? Every quarter? Paying extra toward your loans can help you get them paid off more quickly.

If that strategy is too much for your cash flow situation, you could always try figuring out how much you could increase your monthly payment beyond the minimum. Even if that doesn’t seem like an option right now, you can continue monitoring your financial situation and taking advantage of when you can pay more to your debt balance.

It can also help to create or review your monthly budget to see where you can cut back on expenses. For example:

•  How many paid apps, monthly subscriptions, and so forth do you have automatically deducted from a bank account or put on a credit card? Do you use them enough to justify their prices? There are even apps that help you can cancel unnecessary subscriptions and more.

•  When is the last time you shopped around to make sure you’re getting a good deal on your car insurance, enter’s insurance, or cell phone plan? How much could you save if you switched to a less expensive plan, and would the coverage still be as good?

•  What discretionary spending can you reasonably live without?

What would happen if you put those “found” dollars onto your student loan balance?

Refinancing Student Loan Debt with SoFi

If you’ve ever consolidated, say, balances from multiple credit cards into a personal loan, then you already know how much more convenient it can be to have one monthly payment. And, if you can get a lower rate on your new loan, you could also pay less interest over the life of the loan—depending on your repayment term.

The same is true when you refinance your student loans. It isn’t unusual for students to have taken out multiple loans for their education, and consolidating them into one loan with one monthly payment and a potentially lower interest rate might help them manage their repayment.

At SoFi, we allow you to refinance federal and private loans. We do, however, recommend that you explore the repayment benefits you can receive with federal loans, such as forgiveness programs or income-driven repayment plans, before refinancing. You’ll lose out on those benefits when you refinance with a private lender, so it’s important to be sure you won’t want to take advantage of any federal loan benefits either now or in the future.

When you refinance, you can opt for a fixed or variable loan and potentially select a more favorable loan term. If you are currently struggling to make your monthly student loan payments, it might make more sense to choose a longer term—though this can mean paying more interest over the life of the loan. Alternately, if you refinance to a shorter term, you could pay your loans off earlier, potentially paying less in interest.

In just two minutes, you can find your rate online and see if you qualify for SoFi student loan refinancing.

Ready to explore refinancing your student loans? Learn about how you can refinance your student loan debt into one convenient payment with SoFi.


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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SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.


Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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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. While getting out from under that 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.

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 pay build credit and gain credit card rewards.

However, according to the Federal Reserve, 48% of Americans carry a credit card balance from month to month. For many, that balance is pretty high, coming in at $6,354 for the average American, as of 2017. 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.

So strategies that help you pay down debt as fast as you can also might help you control your interest rates—and that can help keep your debt from getting ahead of you.

To illustrate some of the debt-demolishing tips in this article, we’re using a nice round number ($10,000). But that’s just a number we chose at random as an example. Everyone’s debt totals will be different, and the right ways to pay down debt will be different for everyone as well. Here, we’re just providing an overview of a few different possible ways to help conquer your credit card debt.

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, and it may feel a bit like you’re walking in sand, taking one step forward and then backsliding. While you get your debt under control, you could consider switching over to only using cash or your debit card.

Building a Budget

A proper 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 might be 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 in 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 return, 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 you 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 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 would 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 motivate you to actually pay your debt off, then this method may be the right choice for you.

Consolidating 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.

Could consolidating your credit card debt be right for you? Learn more about SoFi personal loans.


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.
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
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