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The Growing Average Credit Card Debt in America

Hard as this may be to imagine, 75 years ago, we didn’t have anything like today’s modern credit cards. Nowadays, studies are conducted annually to monitor the rising average credit card debt in our country, and this figure is seen as an indicator of the economy and of people’s individual spending habits.

It wasn’t as easy to buy what you needed in the pre-credit card era, and this form of payment has important benefits, including giving users a short window of time to make purchases on credit without paying interest on the balance.

But, the ease of credit card use also makes it ultra-easy to build up a mountain of debt, and the credit card debt spiral can be especially challenging to break. We’ll share more about why that’s so, later on in this post, along with tried-and-true methods to get out of this unwanted spiral of debt.

First, though, we’ll answer two commonly asked questions:

•  What is the average credit card debt this year?

•  How can I get out of credit card debt?

What is the Average Credit Card Debt This Year? reported on a 2018 study that shared how more than 40% of households in the United States have credit card debt, with the average household having a balance of $5,700. This average varies by where exactly you live in the country.

On the one hand, the percentage of Americans who have credit card debts has been decreasing for the past 10 years. On the other hand, when looking at people who do have this kind of debt, the average amount has been increasing.

Related: What is the Average Debt by Age?

From an economic standpoint, this is useful information to have. This data can also be helpful in allowing you to place your own financial situation into context. And if you’re unhappy with the amount of debt you’re carrying, the real question is how to get out of credit card debt. Fortunately, we’ve got plenty of insights and solutions to share.

First, let’s take a closer look at that average amount of credit card debt: $5,700. This takes into account every household, about 40% of which are in debt. However, if you just count the households in debt that don’t pay off their balances every month, that average debt increases to $9,333.

If you don’t have the means to pay the debt balance off all at once, then as you’re making payments interest keeps accruing, often compounding daily. So, it can be challenging to pay down that debt, especially if you’re making minimum payments or an amount that’s not significantly more than the minimum.

Here are a few more credit card facts to consider:

•  About one in every five adults in the United States has a credit card balance that’s higher than the amount of funds in their emergency savings accounts.

•  Men have, on average, higher credit card balances than women do, about 22% more.

•  About 68% of Americans have credit card debt when they die, on average $4,531. Compare that to the number of people who have mortgage loans when they pass away (37%) and those who have car loans (25%), and you can see how prevalent credit card really is.

Rising credit card debt can be exacerbated when there isn’t an emergency savings account to fall back on, and our cultural climate of consumerism, one where more is always better, doesn’t help.

If you no longer want to be average in the amount of your credit card debt, meaning you want to get out from underneath your debt, there are solutions.

Tips to Get Out of Credit Card Debt

To break the cycle of debt, it’s important to reverse engineer how it works and understand what makes it so challenging to get out of. Credit card companies typically compound interest, which means that interest accrues on the debt, and then you also pay interest on the interest.

Related: What is the Average Credit Card Debt for a 30-Year Old?

To make the situation even more challenging, interest is sometimes compounded daily, and so it’s easy to see how interest can quickly add up. This is true especially when you make minimum payments. It’s even true if you pay more than what’s owed as a minimum payment, but still have a remaining balance. If you’re late on a payment, you’re often charged a late fee, which is added to your balance—and then you’ll owe interest on that new total amount, as well.

So, What Can You Do?

Here are four methods to consider to ultimately pay off your high-interest credit card debt. You can choose the strategy that fits your financial philosophy and needs best, continue paying on all your debts, and then focus on not adding to your credit card debt as you pay down what you currently owe.

Choices include:

•  Debt snowball method: Using this method, you’d rank your credit card debts by outstanding balances. Then, focus on paying off your smallest debt first, and use the sense of accomplishment you’ll feel to fuel your motivation going forward. Then, pay off the smallest of your remaining debts, continuing until you’ve paid off your credit card debt entirely. A Harvard Business Review study showed that people using this method tend to pay off their credit card debts the quickest.

•  Debt avalanche method: In this method, you’d rank your credit cards by the interest rate charged. Then, focus on paying off the card with the highest interest rate first, and then the next highest and so forth. This is also known as the debt-stacking or ladder method.

•  Debt snowflake method: As a different strategy, you can use any extra money collected—from gathering change to a side gig—to pay down your credit card balances.

•  Debt consolidation method: Using this method, you would consolidate your credit cards into one debt, with low-rate personal loans/a>. You can potentially reduce your interest rate by using a personal loan and streamline the number of bills you need to pay monthly.

Here’s another idea to consider. What has been billed to your credit cards that you don’t really need? It’s pretty common to subscribe to a service you think you’ll need but don’t use, or one that you’ll need for a short period of time only.

Yet, until you cancel that service/subscription, the monthly charge will keep getting added to your credit card balance. So, review those monthly charges and consider tools that help identify places you can cut back on expenses.

Personal Loans with SoFi

If, as part of your financial plan, you’ve decided to apply for a low-rate personal loan to consolidate your credit card debt, there are numerous reasons why SoFi could be a great choice. This includes:

•  We don’t charge an origination fee.

•  We don’t charge any prepayment penalties.

•  We make it fast, easy, and convenient to apply for your personal loan online.

•  Live customer service support is available every day of the week.

•  If you lose your job, we can temporarily pause your payments—and even help you find a new job.

•  You can find your rate in just two minutes’ time!

Ready to get started? Apply for your personal loan at SoFi today!

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 on credit.
No brands or products 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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How Does a Finance Charge on Credit Cards Work?

What is a finance charge? How about a purchase charge? The jargon used to describe credit card late fees is enough to make anyone’s head spin. Unfortunately, a survey by of 100 common credit cards found that while fees have remained stable (or even gone down a bit) thanks to recent annual percentage rate (APR) hikes, these charges are still pretty universal—and potentially very costly.

Of the 100 credit cards surveyed, for example, 98 charged a late fee for missed payments. And credit card companies made $104 billion from the fees and interest we all pay on our credit card debt. Any interest and fees we pay are collectively called “finance charges.”

Finance charges might sound like another complicated fee, but they’re really just a way of referring to the interest charges that accumulate on your credit card balance. The amount you pay in interest is determined by the credit card’s APR.

In an ideal world, we would all pay off our credit card balance in full at the end of each billing cycle. If you’re doing that, then you don’t have to worry as much about your interest rate or racking up finance charges. But in reality, nearly 45% of credit card accounts are considered “revolvers,” meaning they carry a balance from month to month.

And any time you have an unpaid balance, you’re probably going to be paying a finance charge on that money. Because most credit cards have sky-high interest rates (the average for new accounts was 17.01% in October, 2018), the amount of interest you’re paying can add up quickly.

What is a Finance Charge?

A credit card finance charge refers to all fees and interest you pay on credit card debt. You’re essentially paying the credit card company a fee in exchange for them financing your debt. Again, finance charges only come into play if you carry a credit card balance.

If you pay off your credit card balance in full when it’s due, or you’re paying your balance during a 0% interest rate promotion, then you won’t accrue any finance charges. Typically, there is a grace period between the end of a billing cycle and when the payment is due. After that due date, a finance charge is typically calculated based on the amount you owe, how long you’ve owed it for, and your APR at the time your bill is due.

Even if you make the minimum payment when it’s due, you can still accrue a finance charge if you don’t pay the full statement balance. The finance charge will simply be levied on the amount of debt you still owe, and a late fee can be additionally assessed if you don’t make at least the minimum payment by the due date.

Using the Finance Charge Formula

The finance charge formula is based on your annual percentage rate and credit card balance—which means the exact amount can vary from billing cycle to billing cycle.

The APR is used to calculate a daily interest rate, which you can figure out by dividing your APR by 365. You then multiply your daily interest rate by how much debt you carry on your credit card, and how many days you’ve carried that debt, to determine the total finance charge. This is added to what you already owe on your credit card.

For example, if your credit card has a 16% APR, then your daily interest rate is .16 divided by 365 days, which equals .0004383. That means you accumulate .04383% of interest per day. (Remember that when converting numbers into percentages, you need to divide by 100. That’s why 16% became .16 instead.)

That daily credit card interest rate of .04383% is then multiplied by the balance you’re carrying and by the number of days you’ve had this balance.

So if you carried an unpaid $1,000 balance for 28 days after it was due, then $1000 x .0004383 x 28 days = $12.27 in finance charges.

Using our example, you’re adding $12.27 to your credit card if you’ve been carrying a $1,000 balance on your card for 28 days with a 16% APR. That may not seem like a lot up front, but it can add up quickly, because if your balance isn’t paid off in full by the next billing cycle, you can incur another finance charge.

The Credit CARD Act of 2009 did put some limits on fees credit card companies can charge, but once finance charges start piling up, it can get a bit overwhelming. And P.S., if this math gave you a headache, you can always consult a finance charge calculator .

How Can I Get Rid of a Finance Charge on My Credit Card?

The only way to completely avoid paying a finance charge is to pay your credit card in full by the due date. If you’re already paying a finance charge, the only way to get rid of it is to pay off the existing credit card debt that’s incurring the charges. This can get you back to a clean, finance charge-free slate.

It should be noted that some credit cards offer a promotional 0% APR for a certain amount of time. During the promotional period, finance charges do not accrue. It is possible to use a 0% APR credit card to pay off existing debt.

These are usually called balance transfer credit cards. While there is usually a balance transfer fee, the promotional 0% interest rate can allow you to pay off your debt without incurring finance charges. However, promotional 0% interest rates are typically temporary, so if you aren’t able to pay off the new credit card within the promotional period, you could end up back in the same place you started.

Can a Personal Loan Help?

If you need to get out from under your credit card debt and stop incurring finance charges, one way to do that is to pay off the credit card debt with an unsecured personal loan. If you’re considering a personal loan to get out of debt, look for a loan with a lower interest rate than you are paying on your credit card.

With some credit card interest rates hovering around 20%, using a personal loan can be a simpler way to pay off your debt without dealing with exorbitant interest rates.

When taking out a personal loan, you can decide whether your interest rate is fixed or variable. And because personal loans have set terms, you’ll know exactly when you’re going to be out of debt, as opposed to chipping away at your credit card balance indefinitely.

If you’re considering paying off your credit card debt with a personal loan, keep in mind that some personal loans charge origination fees and prepayment penalties. Fortunately, SoFi personal loans don’t have origination, application, or prepayment fees.

If you’re stuck paying finance charges on your high-interest credit card, a personal loan can help. Check out SoFi personal loans if you’re ready to take control of your credit card debt—it takes just two minutes to find your rate.

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 on credit.

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How to Build a Credit Card Payoff Plan

Got credit card debt? You’re certainly not the only one. Americans owe a total of $905 billion n in credit card debt alone. Finding your way out of credit card debt can be pretty stressful. But maybe the energy you’re expending watching your balance creep up could be better spent devising a payoff plan.

Paying off credit card debt is a crucial step toward saving for the future. Credit card debt, unfortunately, might slow you down if you’re saving for a house, or trying to open your own business. That’s why knocking out credit card debt now may help your finances in the long run.

If you’re feeling overwhelmed by your monthly credit card payments, creating a debt payoff plan is an excellent way to reclaim control over your debt and your financial life. Even if you’re making multiple debt payments every month, having a plan to get through it all may put you at ease. This guide will help you make a step-by-step plan to getting debt-free.

Organize Your Budget

Before you clean up your debt, you first have to organize it. Start by figuring out your monthly income after taxes, your non-negotiable expenses, and the debt payments you have to make each month.

And when you’re writing this all down, make sure you include every debt, from your student loan payments to that $500 medical bill you you’re paying off over the next few months. When you’re writing out your expenses, don’t forget about utilities, groceries, gas, and your designated take-out budget.

This is a good time to check if there are expenses in your budget that you could easily cut out. Maybe just in going through your bank statements, you’ve noticed you’re spending too much on eating out. To help you easily track your spending, sign up for SoFi Relay. You can keep tabs on your cash flow and spending habits so you know where you stand.

Or perhaps you could save some cash by shopping at a less expensive grocery store, or using public transportation more. The more excess spending you can shave from your budget, the easier it can be to put more money toward your credit card debt.

Based on your monthly expenses, figure out how much money you are able to contribute to your credit card debt each month. If you are just paying the minimum on your credit card each month, determine how much additional cash you could contribute to your debt each month.

Then factor it right into your budget. If you plan to pay $400 toward your credit card debt each month, for example, and you get paid twice a month, maybe you get into the habit of always paying $200 to your credit card debt the day after you get paid.

Choose a Debt Payoff Method

For some of us, our credit card debt isn’t on one card, but is instead spread out over multiple cards. You can either order your credit card debts from smallest to largest (i.e., “The Snowball Method”) or from highest to lowest interest rate.

If you want to use the Snowball Method, you’re going to pay your smallest credit card debt off first, and then turn your attention toward the next smallest, and so on. By ordering your debts from smallest to largest, you build momentum, because you’re potentially knocking out debts more often.

When you are working on paying off your smallest credit card debt, you may want to put any extra resources you have toward getting rid of that debt. In the meantime, don’t forget to pay the minimum balance due to the rest of your credit cards.

On the flip side, the advantage of paying off your credit card debt starting with the highest interest rate card is pretty straight forward: It saves you the most money. Why? Because the cards with the highest interest rates are, naturally, costing you more.

If you want to pay your debt off in the most cost-effective way, start with the highest interest rate credit card, while paying the minimum balance on all the other cards. Once you’re done with the highest interest rate card, turn your debt payoff attention to the next highest interest rate card. Continue until you’re credit card debt free.

And don’t forget to put extra cash toward your debt when you can. Paying additional money toward your debt is called “The Snowflake Method”—there’s a lot of snow analogies when it comes to debt payoff). Holiday bonuses? Put it toward your debt. Birthday cash? Right to your credit card payment. Tax return? Instead of springing for a vacation, re-route that cash to your credit card.

Consolidating Your Credit Card Debt

If you’re not a number cruncher, complicated debt repayment methods might create more stress than they’re worth. Instead of these methods, you could consider replacing your multiple credit cards with a single credit card consolidation loan. That would mean making one monthly payment, instead of trying to keep up with paying off multiple credit cards.

By taking out a personal loan, it’s finally possible to focus on paying off one bill with one fixed interest rate and a set loan term. Depending on your financial history, you could qualify for a much lower interest rate on a personal loan than you’re paying on your credit cards. And paying your credit card debt off with a low-rate personal loan could help simplify and expedite your credit card debt payoff plan.

Got credit card debt? Learn more about how SoFi personal loans can help you get out from under your credit card debt.

SoFi doesn’t provide tax or legal advice. Individual circumstances are unique. Consult with a qualified tax advisor or attorney.
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 on credit.
The information provided is not meant to provide investment, tax or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory and automated services offered through SoFi Wealth LLC. An SEC registered investment advisor. SoFi Securities LLC, member FINRA / SIPC .

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Balance Transfer Cards vs. Personal Loans: Which is Better for You?

Mounting credit card debt can sometimes feel impossible to get out from under. Emergencies come up, things happen, and sometimes it’s easiest to reach for a credit card to cover unexpected expenses. Yet when you carry debt on your credit card, even if you make the minimum payments each month, interest still accrues and adds to what you owe.

If you’re struggling to pay off credit card debt, you’re far from alone. Revolving consumer credit rose to over $1 trillion in January, according to the Federal Reserve , and credit card debt has become the form of debt most widely held by families in the U.S . Fortunately, there are a few good solutions to getting rid of your credit card debt for good.

When faced with high-interest credit card debt, it can make sense to pay it off with either a balance transfer credit card or a personal loan. Both can consolidate all your credit card debt into one place at a lower interest rate, which can save you money and helps you deplete your balance without racking up high-interest charges.

But which of those two options makes sense for you? To answer that, you need to know what a balance transfer credit card is and how a balance transfer works. And you need to know the ins and outs of personal loans. Let’s get into it.

What is a Balance Transfer Credit Card?

A balance transfer credit card is when you transfer all your existing high-interest credit card debt to a new credit card. Generally, when selecting to do a balance transfer to a new credit card consumers will a apply for a new card with a lower interest rate than they currently or a card with an introductory 0% APR.

This introductory period can last anywhere from six to 21 months, and varies by lender. By opening a new card that temporarily charges no interest, and then transferring your high interest debt onto that card, you can save money because your balance will no longer accrue interest charges as you pay it off.

You can transfer debt from one credit card or multiple credit cards onto your new interest-free card. Paying off your credit card debt can be easier without the compounding interest, because you can pay off your balance without it growing every month during the introductory-rate period.

But you need to hear one crucial warning: After the introductory interest-free or low-APR period ends, the interest rate generally jumps up. That means if you don’t pay your debt off during the introductory period, it will start to accrue interest charges again, and your balance will grow.

How do Balance Transfers Work?

It’s easy to understand, in theory, what a balance transfer credit card does, but how do balance transfers actually work? The logistics can be a little more complicated.

There are a number of types of balance transfer credit cards out there, varying in their interest-free introductory periods, credit limits, rewards, transfer fees, and interest rates after the introductory period. You’ll want to compare the fees and credit limits, to figure out which balance transfer card works best for you.

Related: Personal Loan vs. Credit Card

Once you apply and are approved, then you can transfer your existing credit card debt onto your new card. You can only transfer as much debt as is covered by your credit limit onto the new balance transfer card.

It typically takes one to two weeks for your new credit card company to contact your existing cards and transfer the balances. Until the transfer is complete, you’ll need to make any payments you have due, so you don’t incur missed payment penalties. You’ll also still need to close out your old credit cards once the debt is transferred and they have a zero balance.

What’s the Difference Between a Balance Transfer Card and a Personal Loan?

Another option to pay off high-interest credit card debt is to use a personal loan. A balance transfer card transfers credit card debt onto a new credit card at a low or nonexistent interest rate—but the interest rate rises at the end of the introductory period.

A personal loan, however, can be used to pay off a wider range of existing personal debt, credit card or otherwise. And when you can choose a fixed interest rate, which means the interest rate you sign on for is the one you’ll have for the duration of the loan—it won’t go up.

You can usually take out a personal loan for a wide range of amounts (SoFi offers personal loans from $5,000 to $100,000). Depending on your credit, financial situation, and the state you live in, interest rates, terms, and the amount you can borrow may vary.

The application process typically requires a credit check and a look at your financial history and current employment. Once you’re approved, you can use your personal loan to pay off your high-interest credit card debt.

Basically, you use the personal loan to pay off your credit cards, and then you just have to pay back your personal loan in manageable monthly installments. A personal loan can allow you to pay much less interest on your debt; Credit cards charge an average of 16% interest, whereas

Choosing Between a Balance Transfer and Personal Loan

Both a personal loan and a balance transfer essentially help you pay off existing debt by consolidating what you owe into one place. The difference comes in how each works and how much you’ll ultimately end up paying (and saving).

Balance transfer credit cards can require a high credit score to qualify, which can be a challenge if your current credit card debt is affecting your credit score. Most balance transfer credit cards also charge a balance transfer fee, typically 3% to 5% of the balance you’re transferring, which adds up if you’re transferring a large amount of debt. Some balance transfer credit cards will offer an introductory period without transfer fees and with 0% APR, but you’ll want to do the math on how much you’ll save in interest versus how much you’ll pay in transfer fees.

For many people, a balance transfer credit card also comes with the additional concern of starting a new cycle of credit card debt. If you don’t pay off the debt on the new card, then it could hurt your credit score.

Additionally, if you fail to pay off the debt during the no-interest period, you could be back where you started; your balance will start to accrue compound interest based on the new card’s APR.

With personal loans, however, you can choose to have a fixed interest rate that doesn’t balloon. You will agree to a repayment term with your lender, which could be up to a few years. All you have to do with a personal loan is make the monthly payments.

Additionally, while personal loans can come with origination fees, and other fees some personal loans don’t have origination fees or prepayment penalties. And you won’t have to worry about transfer fees at all with a personal loan. Personal loans can also be used for personal expenses, which means you can pay off other higher-interest debt (like a car loan) by bundling it into the personal loan amount you request.

If you have high-interest credit card debt that you’re ready to get rid of, check out SoFi personal loans today.

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.


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How Student Loans Affect Your Credit Score​: 7 Essential FAQs

Got student loans? We’ve got you covered with our Student Loan Smarts blog series. Our expert tips and hacks will help you save money, pay off loans sooner, and stress less about student loan debt. Read the other posts in the series to get all the info you need to make intelligent decisions about your student loans.

Student loans are the ultimate double-edged swords. Invest wisely in your education, and those loans should pay off in the form of higher income over time. But if you mismanage student loan debt, your credit score could suffer—and that could have a big impact on your financial future.

As a student loan lender, we get a lot of great questions about how student loans affect credit score. Here are the top seven.

1. Do I need a good credit score to take out a student loan?

The answer depends on whether you’re talking about federal or private student loans.

Federal loans don’t take credit scores into account, which is why mosevery borrower gets the same interest rate regardless of financial profile. However, federal PLUS loans do require that borrowers not have an adverse credit history , which is defined by FinAid as “being more than 90 days late on any debt, or having any Title IV debt within the past five years subjected to default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment or write-off.”

Related: 5 Tips for Getting the Lowest Rate When Refinancing Student Loans

For private lenders, your credit score is usually a key factor in determining not only student loan approval, but also the attached interest rate. In other words, the better your score, the better your rate. But SoFi does things a bit differently—our non-traditional underwriting process looks beyond your credit score to take into account factors such as education and career. This allows us to provide competitive interest rates on student loan refinancing.

2. Which credit scores do lenders use?

Most private student loan lenders use FICO credit scores to determine whether to extend credit and at what interest rate. Since FICO is used widely throughout the lending industry, including by mortgage, auto loan, and credit card providers, it gives lenders an apples-to-apples comparison of potential borrowers.

3. How is my credit score calculated?

Unfortunately, how FICO calculates your credit score is kind of a black box. While the various factors and weightings
used in the calculation are publicly available on FICO’s website, its algorithm is proprietary, which means that no one can predict exactly how a specific financial event will affect your score. For example, a late payment will likely reduce your score, but by how many points is anyone’s guess.

That said, there are generally three key ways to improve your credit score : pay bills on time, keep credit card balances low, and reduce the amount of debt you owe.

4. How does a late student loan payment affect my credit score?

Making payments on time is obviously important, but what you might not realize is exactly how damaging it is to not pay on time. Even if your credit history is pristine, it only takes one 30-days past due report to cause a material change in your score. Whether you were short on cash or just simply forgot, the FICO algorithm doesn’t distinguish—and the result is the same.

Recommended: How to Choose Between Variable and Fixed Rate Student Loans

So, if you have trouble remembering to make your payments, set up an automatic payment plan; most lenders will give you a small discount on your interest rate for doing so. When you know you can’t make a payment on time, talk to your lender or loan servicer right away.

Most federal loan lenders and some private lenders offer loan deferment and/or forbearance , allowing you to temporarily suspend payments, which will minimize the impact on your credit score. But remember, there’s absolutely nothing your lender can do to help if you don’t return their calls.

5. Will shopping around for a better student loan interest rate hurt my credit score?

We hear this question a lot from grad school borrowers and those refinancing student loans to get the best interest rate possible on a private loan.

One factor that can be a red flag for FICO is the number of inquiries it receives from lenders wanting to see your credit report. In other words, if it looks like you apply for more credit often, it could negatively impact your score. But the good news is that FICO attempts to distinguish between a request for a single loan and a request for many new credit lines. As long as you rate-shop in a concentrated period of time, you should be okay.

If you really want to avoid inquiry overload, do your homework before applying for a loan. Private lenders typically list online the range of rates they offer, as well as general eligibility criteria. Researching that info will give you a good idea of whether you’ll qualify before you formally apply.

Also, be sure ask lenders if they can tell you the interest rate you would receive without doing a “hard” credit pull, which might affect your score. You can’t get a loan without an eventual inquiry, but this service allows you to compare interest rates worry-free before applying for a loan.

6. Will refinancing student loans help my credit?

Refinancing student loans at a lower interest rate can have an indirect positive impact on your credit. For example, refinancing may lower your monthly payments, making it less likely you’ll miss or be late with a payment.

And if you refinance federal loans with a private lender (in effect, turn your federal loans into a private loan), rest assured that credit bureaus don’t view these two types of loans any differently.

7. Will paying off student loans too quickly damage my credit?

Some people reason that because education debt is “good debt,” FICO must view it more favorably than other types of debt. And because credit scores can be improved by having open accounts that are paid on time, they think that paying off a student loan early might actually work against their score. But, while there’s no definitive answer to this question (remember: black box), there are a few things to keep in mind before buying into this belief.

Read Next: Student Loan APR Vs. Interest Rate – 5 Essential FAQs

First, FICO doesn’t see your student loan debt as being good or bad. In fact, the agency doesn’t distinguish it from any other type of installment debt, such as mortgage or auto loan debt. Incidentally, while installment debt is different from revolving debt (like credit card debt), it’s generally better to have positive track records with both of types of loans .

Second, it’s true that FICO likes to see how you manage your debt. So, if you have an open account in good standing, that could help your score—but the impact would likely be small. And closing any account satisfactorily is generally a positive thing for your credit, so that could help your score, too.

Bottom line: Instead of worrying about how prematurely paying off your student loan will impact your credit score, consider the potential trade-offs. For example, how much extra interest are you paying by leaving the account open? Also, a high loan balance may make it harder to qualify for new loans—something to think about when it comes time to buy a home.

Take Care of Your Credit Score

Credit is a powerful tool that can allow you to do a lot of great things, but if you’re not careful, it can hold you back. For many people, student loans represent their first experience carrying a large debt load, which means mistakes are almost inevitable. The most important thing you can do is learn how to take good care of your credit score—and eventually, it will take care of you, too.

Here at SoFi we want to help you through your student loan journey. We’ve created a student loan help center to give you the resources you need to find the best strategy to pay off your student loans.

Are you paying off your student loans? Learn more about student loan refinancing with SoFi.

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 on credit.
SoFi Lending Corp. or an affiliate is licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612. NMLS #1121636. Terms, conditions, and state restrictions apply; see
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.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or 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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