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You might have heard the phrase “there’s no such thing as free money.” You may also have heard that “money doesn’t grow on trees,” but we’re pretty sure money is still made of paper. While cash back from your credit card isn’t exactly free money, using credit wisely can be beneficial.

How Does a Cash Back Perk Work?

Cash back is the rebate of the credit card world. The money that you get back, depending on the card and the deal you’ve gotten, may come in the form of a check, statement credit, or deposit with your financial institution.

With points, you might end up with $10 off your next Starbucks purchase; but you might actually prefer The Coffee Bean and Tea Leaf, so a Starbucks card may hold no value for you. With a cash-back reward, you typically get to decide how you want to spend the money: your mortgage, your lunch, your boyfriend’s birthday present, or even your credit card debt.

While some credit card companies offer a flat cash-back rate, other cards offer some combination of a flat cash back rate, and a specialized cash back rate for certain categories (often ones you can choose).

Card holders may be eligible to receive varying amounts—typically a percentage of spending in a certain category, e.g., dining, hospitality, airlines, or groceries.

But choosing a cash-back card with the best rewards isn’t so simple. There are many different kinds of cash-back rewards which may be available.

What’s Available

•   Cash back on a monthly, quarterly, or annual basis.

•   The cash back could be for any kind of purchase or for particular purchases in certain categories like dining, gas, groceries, etc. Sometimes it might be a combination of these two with higher rates of return on certain categories.

•   Timed spending bonuses: If you spend a certain amount within a certain prescribed time you may be eligible for even more cash back than the base amount.

•   Certain cards might also offer non-cash benefits like flight upgrades or extended warranties on purchases made with that card.

Why Do Cash Back Rewards Even Exist?

How is this even possible? Getting paid to spend money sounds like the kind of job you invented when you were twelve—it couldn’t possibly be real.

It turns out that the money you’re getting back comes from some very real places. Of course, credit card companies will try to get you sign up with them instead of their competitors. It’s dog-eat-dog out there. Credit card companies have since come up with a variety of tools to attract customers, and cash back is a common reward.

But where does the money come from? If you’ve ever been asked to fulfill a credit card minimum purchase amount you know where it comes from. The $10 minimum at the cafe is not there entirely to keep you adding extra shots to your morning latte (although you’re totally going to anyway).

The Pros

With so many kinds of credit cards out there, why would you consider a cash-back card?

•   Credit cards with cash-back rewards might actually help you earn more money than a low-interest-rate checking account with a debit card. Some checking account interest rates can often be less than 1% APY. Getting 5%—or more—cash back on your purchases is a lofty difference. Credit card spending, though, is still spending—not saving—an important difference to keep in mind when making purchases. Buying within a budget is still an important consideration.

•   Some cash-back cards offer sign-up bonuses or bonuses for spending over a certain amount or in a certain categories. When used responsibly, these types of bonuses could be used for special purchases a buyer might not have been able to afford otherwise. Two tickets to Paris please!

•   Consumers with credit scores of 740 and higher are typically the ones who qualify for cards with the highest cash-back rewards, which could be up to 6% when purchasing items from designated categories. Yet another reason to pat yourself on the back for your high credit score.

The Cons

Okay, so maybe some of the maxims are correct. Nothing in life is free and money doesn’t grow on trees. Like anything good in life, there can be a downside (we’re looking at you, cupcakes).

•   Many cash-back programs actually come with a maximum on rewards. While it seems that the more you spend the more you get, eventually you might just be spending more.

•   Some cash-back credit cards have annual fees. While this may seem small compared to the money you’ll be getting back, it might be worth it to do the math and make sure the pros outweigh the cons before you are convinced that this card is worth your spending power. Some cards with hefty fees reward the cardholders with perks beyond the cash-back bonus.

•   Like any other credit card, if the balance due is not paid on time, there are typically interest charges and fees added to the principal balance. That amount may negate any cash-back rewards you earned during that statement cycle.

•   Perhaps the biggest con: Choosing and managing a credit card can be complicated. Lots of homework, (i.e., research online, with your bank, has to go into this one before you may feel ready to commit to this endeavor. With occasional fees and sometimes hard-to-acquire gains, your research is key to making sure you find one that works for your spending habits. Cash-back credit cards can pay off, but it might take some digging to find the right one.

Unfortunately, at the end of the day, there’s no free lunch. Credit card companies are in the business of making money and they rely on your debt to fund their businesses.

Using credit wisely—and reaping all the rewards—typically means paying the balance due in full each billing cycle. Getting to that point can take some time, though.

See how using cash back from a SoFi Credit Card can help you pay off debt and boost your investments.

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New and existing Checking and Savings members who have not previously enrolled in direct deposit with SoFi are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 25-day period. Cash bonus will be based on the total amount of direct deposit. The Program will be available through 12/31/23. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet

¹See Rewards Details at SoFi.com/card/rewards.
SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.¹
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third-Party Brand Mentions: No brands, 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 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.

SOPL19062

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If you’ve been thinking about canceling one of your credit cards, you may have heard that you should keep it open.

If so, you might be wondering, “Why? Is it bad to cancel a credit card?”

The answer, as with most finance-related matters, is that it depends on your specific situation, including the reasons you’re thinking about closing that card.

Perhaps, for example, your credit card company has changed its terms in a way that’s not acceptable to you, or you just want to simplify your finances by having fewer credit cards in your name.

“Can I cancel a credit card?” is, of course, different from “Should I cancel a credit card?” Keep reading to find out the difference between the two, some pros and cons, and other considerations.

Note that this is just an overview of common tips, questions, and hypotheticals. Only you can decide for yourself what makes the most sense for your unique financial situation.

Times When You Might Consider Canceling

If a credit card is costing you money, maybe because of annual fees, then you might be thinking about closing that card, especially if you don’t really use it. Before you do, it’s possible to the credit card company to see if the fees can be waived. There is no guarantee that the answer will be yes, but it doesn’t hurt to ask.

Maybe you find yourself putting impulse purchases on this card and you can’t pay the balance off in full at the end of the month. Then you may decide to cancel the card to get your debt under control.

Or you may learn about a card that offers great rewards you could benefit from, whether that’s cash back, loyalty points, frequent flyer miles, or something else.

So you might decide that a reward credit card would be better suited for your needs and you’re thinking about closing your current card and using this one instead.

That may be the right choice for you. Note, though, that reward cards typically have a high annual percentage rate (APR), so if you don’t pay your balance off in full each month, this may not be the best fit.

Here’s another scenario. Let’s say that your credit card has a high interest rate. Does it make sense to shop around for a better one and transfer the balances? What about applying for a zero interest credit card?

More About Zero Interest Credit Cards

You’ve probably seen offers for no interest credit cards and may think that you should apply for one and transfer your balance from a high interest credit card to this one. And, in certain circumstances, that may make sense for you.

If, for example, the new credit card would give you a six-month introductory window to pay off your balance or at least significantly pay it down at zero interest, you might end up saving a nice amount of money on interest.

On the other hand, the interest rate will go up after the introductory period—and it’s possible that it would be higher than your current credit card. So be mindful about this process and investigate the specifics before transferring your balances.

There are other potential problems. Sometimes, if you don’t pay the entire balance off during the introductory period, the company collects interest on the entire principal, even if your remaining balance is close to zero. So, in this case, nothing was really free about this credit card, and it may end up costing you more money in interest.

In addition, sometimes there are fees attached to the transfer. When that’s the case, typical fees might be about 3% of the balances you’re transferring, with some as high as 5%—and, if the zero interest credit card you’re considering has fees of 5%, that’s $500 on a $10,000 balance!

Circling back to the main issue, if you decide to transfer your balances to a no interest credit card, should you cancel your old one?

If you keep both the old card and the new one, and end up using both of them, you may end up in more debt than if you hadn’t done the transfer in the first place. There is no one right strategy to take, so it’s important to create a plan that works for you.

So, can you cancel a credit card? Of course you can. But, the more important question may be whether you should—and to help you make your decision, here are some common reasons you might not want to cancel that card.

Before You Cancel

Having debt and managing it responsibility—including credit card debt—can be seen as a plus by creditors. And if you cancel a credit card, under certain circumstances, it can have a negative impact on your credit.

Is your credit utilization rate under 30%? That can show lenders you can use credit responsibly. A credit utilization rate is the percentage of available credit you’re currently using—so if you cancel a credit card, the amount of credit you have available to you will go down by the amount of the unused credit on that card.

For example, a credit card with a credit limit of $10,000 and a $2,000 balance on it, then there’s $8,000 of available credit on that card. Cancel that card and that $8,000 available credit vanishes, which causes overall credit utilization rate to go up.

Another factor in your overall credit score is the average age of accounts. If you cancel an older card in your name, this can lower the average age of your accounts, though even closed accounts remain on your credit report for seven to 10 years.

•   If you do decide to cancel a card, good rules of thumb include:

•   Before canceling a card, continue to make payments on time until the balance is paid in full.

•   Check credit scores afterward to make sure no errors occurred.

•   Avoid closing several of them at once, because this could look suspicious to creditors.

Contact the company to find out exactly what needs to be done to close the account. Simply cutting up your card isn’t actually closing it. If there is an annual fee associated with the card, you could still be charged that amount.

Using the Credit Cards You Keep Open

If you decide to keep all or some of your credit cards open, these ideas could provide guidance on their use.

Once your credit-worthiness is established, you might start receiving credit card offers. Maybe a whole lot of them. And when you go into a store, you might be asked if you’d like to apply for one of their credit cards—and they might offer you discounts and other perks to say yes.

Each time you apply for a credit card, however, it can trigger a credit inquiry that’s called a “hard pull” or “hard credit inquiry.” If this happens too often in a short amount of time, it could affect your credit score.

Does a credit card offer cash advances? If so, you might want to check the APR you’d pay if you’re considering a cash advance. It’s likely to be several points higher than paying for a specific purchase with the card. If you use your credit card at an ATM, you may also need to pay a fee, so it’s often better to use a debit card or write a check when you need cash.

Another option is to contact your credit card company and ask for a better interest rate/APR. A 2018 poll for CreditCards.com showed that 56% of the people who asked got a thumbs up to their request. And 70% of those who asked to have their annual fee waived or lowered got a positive response.

Managing Credit Card Debt

Perhaps you’re trying to determine how much credit card debt is too much for you. If so, then having the ability to make the minimum payment each month typically isn’t the best benchmark, because paying only the minimum can cause your debt to grow because of compounding interest.

It can make sense to use the concept of credit card utilization to determine if you’re being smart with your credit card management.

As another check, you could calculate your debt-to-income ratio, especially if most of your debt is credit card debt. If it’s higher than you’d like, this may mean it’s time to take action on your credit card debt.

Your debt-to-income ratio shows how much of your pretax income goes toward paying monthly debt—and when it’s high, some lenders might be reluctant to lend to you or may charge a higher interest rate. They might decline to lend you any money at all.

If you decide that it’s time to pay off your credit card debt, there are many methods and strategies out there, including the snowball method. Steps include the following:

•   Choose the account with the smallest outstanding balance to pay off first.
•   On other accounts, pay the minimum amount due to avoid late fees.
•   With your targeted account, pay as much as possible with the goal being to pay it off as soon as you can.

Once that account is paid off, select the next account with the lowest balance and repeat the process, but add the amount you were paying on the initial balance (thus, the snowball).

This can be an effective method of paying off credit card debt because it builds momentum and creates incremental financial victories, but it doesn’t address interest rates. So it’s important to factor in higher-interest debts before embarking on a strategy like this one.

Whether you choose to use the snowball method or another strategy to manage and pay down debt, at the heart of it all is effective budget tracking.

Tracking what you spend could help you decipher where you’re overspending—and, with today’s virtually frictionless spending, that’s easy to do. Sometimes, people who start to track their spending for the first time discover they’re actually spending hundreds of dollars more in certain categories than they realized.

Until you have financial benchmarks to monitor, it can be hard to make meaningful changes in your spending and saving habits. With accurate tracking, though, you may find yourself feeling inspired to eliminate some expenses (perhaps unused online subscriptions) and reduce others (maybe your cell phone bill).

Although this might initially feel tedious, it could give you the freedom to spend your money on what really matters to you.

Taking Out a Personal Loan

Another option to help crush your credit card debt could be an unsecured personal loan. Taking out a credit card consolidation loan could help consolidate your debt and get it back under control.

SoFi offers personal loans with low rates and no fees required. Get started and check your rate in 1 minute.

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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.
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.
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.

SOPL19075

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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.

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.

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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.
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.
SOPL19020

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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.

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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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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.

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 4.20% 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.
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