7 Tips for Improving Your Financial Health

Poor financial health can linger like a stubborn cold that just won’t go away. Plenty of fluids and rest might get someone back in fighting shape, but there’s no single cure that’ll bring someone’s finances back to good standing. However, that doesn’t mean throwing in the towel.

Staying in good financial standing means a stronger credit score, peace of mind, and often better terms when applying for loans in the future.

Improving financial health takes time, effort, and often multiple strategies. Take a cue from these seven tips below to help kick that financial cold once and for all.

Making a Budget

For most, the idea of budgeting brings a sense of dread. Budgets conjure the image of fewer meals out, clipping coupons, and generally saying “no.” But in reality, a budget is a tool for efficiency.

It could help determine how much to spend and save in a month, and might actually create a sense of freedom. It might help eliminate that stomach ache that arrives each month when the credit card bill comes in the mail. One way to start budgeting is to collect the previous month’s spending in a single place. Think of it like the Marie Kondo method.

Pull everything out all at once into one big pile to get an idea of each month’s spending patterns and income—taking note of multiple bills for rarely used streaming services might “spark” a budgeter to unsubscribe and save a few bucks a month.

This spending information could be found in bank statements or credit card bills or might need to be logged manually depending on how much cash a person uses. Budgeting might include the following financial information, but this is in no way an exhaustive list:

•   Credit card statements and debt
•   Education loans
•   Car loans and additional expenses, including fuel, insurance, etc.
•   Health care insurance premiums
•   Rent/mortgage, including home or renter’s insurance
•   Utilities
•   Monthly food expenses
•   Child care, child support, or related family obligations
•   Additional transportation (excluding a car)
•   Savings/investments, such as a 401(k), an IRA, or automatic savings deductions
•   Average monthly income from pay stubs or bank account statements

With this information, a budgeter can get a general sense of net expenses month over month. Do months generally net out positive or negative? Is there money left over or is it a close call?

This might be the toughest part of the budgeting process, and once it’s in the rearview, creating a simple budget moving forward could make all the difference. Every budget will look different for every person, but one guideline to keep in mind is the popular 50/30/20 budget.

This budget dictates that:

•   50% of post-tax income goes to essential spending. This includes finances that are required, such as rent/mortgage, groceries, health insurance, and utilities.
•   30% of post-tax income goes to discretionary spending. This is spending that a person could cut if they were in a pinch. It includes things like dining out, Netflix memberships, and fitness classes.
•   20% of post-tax income is dedicated to savings. This money is put toward future spending, whether that be retirement contributions, emergency savings, or larger loan payments.

Sticking close to the 50/30/20 budget at the outset could help illuminate blind spots in spending. It might reveal that a budgeter is spending too much on dining out, going far beyond the 30% discretionary spending.

Or it may show that essential spending, like astronomical monthly rent, doesn’t leave much wiggle room for the 20% savings. Expenses and spending habits might wax and wane with the seasons, but that’s no excuse to keep a person from establishing a budget.

It’s a good idea to start with a budget that’s simple to maintain and easy to stick with but still helps manage money and improve financial health.

Paying Off Debt

The amount of debt a person carries can have a pretty big impact on their overall financial health. Thirty percent of a person’s credit score consists of how much they owe in relation to their credit limits.

To stay in good financial health, it’s a good rule of thumb to use no more than 30% of the credit available.
If a borrower is trending above that 30% limit, they might make paying down debt a top priority to improve financial standing.

There’s no one right way to pay down money owed, but these are some popular strategies that could help eliminate debt faster:

Snowball Method

The snowball method starts small and grows as it picks up momentum. Debtors pay the minimum on all loans, regardless of interest rate and amount. From there, they’ll put any surplus cash in their budget toward paying off their smallest debt.

Once the smallest debt it paid, they’ll roll the amount of that monthly payment into the next smallest balance. This method continues, growing monthly payments toward larger loans as the smallest are eliminated. This method makes for wins early on, knocking out the little guys first, and growing toward those large or intimidating balances.

Avalanche Method

The avalanche method is nearly the reverse of snowball, focusing on interest rates of loans instead of balances. Budgeters ignore the total amount of each loan and prioritize repayment of the highest interest rate loan first.
Like the snowball method, they’ll pay the minimum on each loan every month, but they’ll put the surplus of their budget towards the high-interest bill.

Once the highest interest rate loan is paid down, budgeters will focus on the next highest interest rate, and so on. This method tackles the intimidating high-interest rates, then downshifts to the smaller loans. Like an avalanche, the method starts big, then peters off as it becomes easier to pay off low-interest loans.

Fireball Method

When someone can’t choose between the snowball and avalanche method, the debt fireball method may be the answer.
It’s a hybrid between the two strategies above, asking budgeters to sort between good and bad debt and focus on repaying bad debt first. Bad debt, like credit card debt, is debt that generally has a high-interest rate (above 7%).

Good debt, on the other hand, are things like a mortgage or student loans, they generally have lower interest rates and are good investments to make.

The general idea: Rank the bad debts from small to large based on balance. Make the minimum monthly payments on each debt, but use extra cash to pay off the smallest “bad” debts first.

Once the smallest is knocked out, pay attention to the next smallest, and so on until all bad debt is burned up. Then, budgeters need only to pay off “good” debts normally.

Without a plan to properly tackle it, debt can be crushing. However, once a person decides to torch, roll, or overwhelm their loans with a payment method, they’re in control.

Curbing Spending Habits

When spending money is as simple as swiping a card or tapping a phone, it’s no wonder impulse spending is out of control. While a couple of lattes or convenience store trips don’t feel expensive at the point of sale, they add up over time.

Prime orders make it easy to drop $20 here and $40 there, without leaving the comfort of home.
One way to curb these frivolous spending habits is instituting a “hold” period on all purchases.

Instead of hitting “buy now,” shoppers could consider waiting 24 hours, or even 72, before completing the purchase. Creating a waiting period eliminates that instant gratification dopamine rush and allows for logic and reasoning to take hold.

After the allotted waiting period, shoppers can return to the online cart or boutique to reconsider the purchase. They might just realize they don’t need it.

Automating Savings Transfers

Tackling financial health can be exhausting, and it wouldn’t be surprising if some habits fell through the cracks in the process. There’s a lot to keep track of, and that’s where financial automation can lend a hand.

Setting up an automatic transfer each month from checking to savings account means even the busiest budgeter won’t have to remember to do it manually.

Transferring an amount, even if it’s small, into saving each month might mean there’s less of a temptation to spend. Remember, saving a little is better than saving nothing at all. Making it automatic is one less thing for a busy person to remember.

Paying Bills on Time

Thirty-five percent of a credit score is based on payment history—it’s weighted more than any other factor. When it comes to improving financial health, paying bills on time can have a pretty significant impact.

One way budgeters can ensure timely payment is automating bill payment through a checking account or adding bill due dates to personal calendars. Even if a person can’t afford to pay a bill in full, they should pay the minimum amount due to avoid a penalty.

Starting an Emergency Fund

Only 40% of Americans say they’d be able to cover an unexpected expense totaling $1,000 or more. Without an emergency fund, people are forced to dip into their retirement savings or rack up credit card debt when unexpected finances arise.

A savings account could be set up using an automated savings transfer with a goal of saving $1,000 to start. This probably won’t happen overnight, and that’s okay. Even the smallest savings can build up over time.

Once a budgeter has $1,000 socked away in a savings account, they could start thinking big. With an eye on monthly expenses, they could aim to accrue three to six months’ worth of expenses in a savings account. It’s important these savings stay liquid for easy access in the event of an emergency.

Building up a robust emergency nest egg can create a sense of well-being when it comes to financial health. Budgeters can rest easy knowing they have savings set aside for whatever life throws their way.

Staying up to Date on Credit Reports

Checking a credit score is equivalent to an annual check-up at the doctor’s office. While negative factors such as late payments and collections can stick around on a credit report for up to seven years , they’ll impact a score less and less as time passes.

Pros recommended checking on credit scores at least once a year or more to stay on top of financial health. Federal law allows for one free credit report every 12 months, but budgeters looking to go above and beyond can also try major credit bureaus Experian , Equifax , and TransUnion for free annual credit reports, but not scores. You could also use a credit score monitoring tool like SoFi Relay.

Checking in on credit score regularly will give budgeters not only a sense of how their efforts to improve financial well-being are going, but they’ll also make it easier to find and dispute errors if they arise.
Think of regular check-ins on credit like progress reports on a person’s financial health.

Tracking Financial Wellness with SoFi Money®

Tackling all the steps to improve your financial well-being can be overwhelming, but with a SoFi Money® cash management account, you can track all your spending and saving with a single dashboard. You could set up automatic transfers to savings accounts for different goals, all while earning competitive interest.

With SoFi Money®, it’s easy to save, spend, and earn all in one place. Get started today.


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 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.
SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank.

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Paying Off Credit Card Debt with a Personal Loan

People talk all day long about their workouts, favorite apps, and their love lives, but bring up the subject of money, especially credit card debt, and suddenly everyone clams up.

But just because we don’t talk about debt doesn’t mean it’s not an issue. After all, the average American household carrying a credit card balance has over $9,300 in credit card debt as of March, 2020. And it can cause a great deal of stress.

In fact, according to the American Psychological Association’s latest “Stress In America” report , money is the number two cause of stress—ahead of family and health concerns—and second only to work. Over 50% of Americans with debt who were surveyed in a 2017 American Institute of Certified Public Accountants poll said it had negatively affected their lives.

If you’re a Millennial, the same poll found that you might be twice as likely to worry about debt than Baby Boomers. While the poll found that 56% of people with debt said that it had a negative effect, that figure jumps to almost seven in 10 for Millennials. The study also found that Boomers and Millennials are equally likely to have debt.

So unless you’re expecting a windfall from a long-lost relative (who probably didn’t talk about money either), it’s likely up to you to come up with a game plan to manage your finances.

But how do you pay off credit card debt? There are many methods to choose from—here are just a few.

Budgeting Debt Payoff

Before embarking on paying off credit card debt, a good first step might be putting together a budget—which can help you better manage your spending.

There are simple options like an online spreadsheet and more advanced ones like pay services to track your spending. And you might even find money in your budget to put towards that outstanding debt.

If you’ve got more than one type of debt, say a mortgage, student loan, and maybe a car loan, you may want to think strategically about how you’re going to tackle them.

Some finance gurus recommend taking on the most expensive debt first—then the debt with the highest balance. Another approach is to pay off the smallest debts first, meaning the debts with the smallest balances.

Then you can take next month’s debt-paying money and funnel it into the next smallest balance. This method gives you some small wins early and over time can give you some room to make larger payments on some of your other outstanding debts. (Of course, for either of these strategies, keeping current on payments for all debts is essential.)

Looking for a better way to get rid of
high-interest credit card debt?
Check out SoFi Personal Loans.


Refinancing or Consolidating

Refinancing or consolidating debt are other strategies, especially for those in the post-grad plateau—the early stages of a promising career—if, for example, there’s a raise waiting just around the corner. In simple terms, refinancing is taking one loan or line of credit and replacing it with another (for instance, balance transfers). Consolidating is similar to refinancing, as it combines all your debt into one loan that you then have to pay off.

There are lots of reasons to consider refinancing. You may want to lower your monthly payment. Maybe you want to pay over a different period of time. Or maybe you just want to work with a new lender or loan servicer.

With fixed-rate credit cards becoming more difficult to find, and the average annual percentage rate (APR) for variable-rate credit cards hovering around 17%, you could potentially save by refinancing credit card debt (depending on how much you owe, of course) with a credit card consolidation personal loan—which, as of late 2019, had an average rate of 9.41%.

Fortunately, applying online typically doesn’t take more than a few minutes. And there are more options than ever with innovative fintech startups doing what they can to make the process of refinancing your credit card debt, quick and easy.

Again, there’s also the potential for saving. Of course, everyone’s situation varies, but you can use SoFi’s credit card interest calculator and personal loan calculator to do the math on your own.

So You’ve Decided to Apply for a Personal Loan. Now What?

The steps for paying off a credit card with an unsecured personal loan aren’t particularly complicated, but having a plan in place is important.

1. Getting the whole picture.

It can be scary, but getting the hard numbers—how much debt you have overall, how much you owe on each specific card, and what the respective interest rates are—gives you a sense of how big of a personal loan you’re aiming for.

2. Searching personal loan options.

These days, you can do most—or all—of your personal loan research online. What you’re looking for is a personal loan with an interest rate lower than what you’re currently paying on your cards. You’ll also want to keep an eye out for origination fees, which can cost you more and could throw off your payoff plan.

3. Paying off the debt.

Once you’ve chosen, applied, and qualified for your personal loan, you’ll likely want to immediately take that money and pay off your credit card debt in full.

The process of receiving the personal loan may differ; some lenders will pay off your credit card companies directly, others will send you a check that you’ll then have to deposit and use to pay off your credit cards yourself.

4. Hiding those credit cards.

One potential risk of using a personal loan to pay off your credit cards is that it makes it easier to accumulate more debt—after all, a $0 balance on a credit card can be a temptation. The purpose of using a personal loan to pay off your credit card debt is to keep yourself from repeating the cycle.

If possible, you can take steps like hiding your credit cards in a drawer and trying to use them as little as possible. This is where creating a budget comes in handy!

5. Paying off your personal loan.

A benefit of using a personal loan to consolidate your credit card debt is that you only have one monthly payment to worry about—instead of several. You’ll want to make sure you don’t miss any of those payments, so you may want to set up a monthly reminder or alert.

More Details About Personal Loans

So why would you consolidate credit card debt with a personal loan?

Most unsecured personal loans come with a fixed APR. A fixed APR is a rate that won’t fluctuate or change based on an index.

This doesn’t mean that your rate will never change over the life of your loan (for example, it could change if you missed several payments). But if it does remain the same, it means you’ll be paying the same amount monthly over the life of the loan.

Another pro is the ease of online applications and access to live customer support from many lenders. With online applications, the process for getting a personal loan can be quick and easy, and you don’t have to trudge to a post office or send certified mail or print out complicated tax documents. You also may be able to access live customer support to help you out with any questions.

Another possible benefit is pausing your payments in case of certain situations. Your loan(s) will typically have to be in good standing to be eligible for this benefit (among other requirements), but if you lose your job some lenders, like SoFi, may temporarily pause your payments and help you find a new job. (Note that interest accrues during the forbearance period and is added to principal when you resume repayment.)

SoFi’s Unemployment Protection Program is offered in three-month increments that can be renewed up to a maximum of 12 months over the life of the loan.

Borrowers looking to apply for this benefit may be eligible if they are (among other qualifications): a current SoFi member, have an eligible loan that is in good standing, certify that they have lost their job through no fault of their own (involuntarily), and actively work with Career Services to look for new employment.

Finally, there’s also the benefit of ending the vicious cycle of credit card debt, without resorting to a balance transfer card.

You may be among the 49% of Americans who know that balance transfer credit cards exist. Balance transfer credit cards are just credit cards that usually have an introductory offer of some sort to give you a lower rate (or a 0% rate) if you transfer your balance to the new card.

This might seem like an appealing offer. But if you don’t pay off the balance before the enticing offer is up, you could end up paying an even higher interest rate than you started with. You also may have to pay a transfer fee to the new cardholder.

Planning Debt Reduction

Armed with new information and a debt reduction plan, the next time the subject of money—specifically credit card debt—comes up, you’ll have plenty to talk about. You could now be able to confidently discuss APRs on personal loans compared to credit cards, the merits of no fees, and the plusses of a fast and easy user interface for a loan application.

And if you share this article with friends who want to cut up a few of their credit cards, they can join the conversation, too. Because chances are, based on the numbers, some of those friends might be among the 55% of Americans with credit cards who are also carrying other debt.

Maybe they’re as shy about their debt as you used to be and could use some handy advice from a friend or a solid five reasons why a personal loan might be worth investigating.

Remember, however, personal loans aren’t for everyone. While they typically have lower interest rates than credit cards, they are still debt and should be considered carefully and used responsibly.

Ready to get rid of your credit card debt? Look into a SoFi personal loan. You can check your rate in just a few minutes.


Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
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 Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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Making Sense of the Rising Cost of Medical School

The costs of medical school are rising at an alarming rate. Thirty years ago, medical students graduated with an average of $32,000 in student loan debt —that’s about $70,000 in today’s dollars if you adjust for inflation.

In 2017, the median medical school debt for graduates was $200,000 , according to the Association of American Medical Colleges (AAMC) with 76% of students graduating with debt.

The rising cost of medical school, plus the daunting number of years of education and training is making some prospective medical students ask: Is an MD really worth it? That’s ultimately up to you.

But it’s worth noting that while medical school has traditionally been a path to a lucrative career, the steep up-front costs might be starting to make the endgame look less appealing.

This can be particularly true for would-be doctors interested in working in lower-paying fields like community medicine or general practice.

While it might be relatively easy to pay down student loan debt for those entering a higher-paying specialties like orthopedics or anesthesiology, a doctor going into general practice might take years (even decades!) to pay off their student loans.

To gain a better understanding of how much medical school actually costs, we’ll take a look at the costs of an MD, and some ways young doctors can get out of medical school debt faster after graduation.

How Much Does Medical School Cost?

The average medical school tuition varies greatly depending on whether you choose a public or private university.

The average annual cost of in-state tuition, fees, and health insurance for the first year of medical school at a public university was about $37,500 in the 2019 to 2020 academic year. At a private school, the average annual cost was about $60,650.

But that’s only the cost of tuition, fees, and insurance—there’s also living costs to consider which is why it’s also useful to consider the entire cost of attendance (COA).

Each school publishes the estimated costs of attendance for their program, which typically not only include tuition and fees, but also costs like room and board, textbooks and supplies, and travel.

The AAMC calculated that the median cost of attendance for four years of medical school amounted to around $232,800 for public medical schools and $306,200 for private medical schools. But these costs can vary a lot depending on whether you’re attending school in Kansas City or San Francisco.

Why is Medical School More Expensive Than Ever?

The rising cost of medical school tuition is part of a larger trend. It is estimated that the overall cost of college tuition and fees in America grew at a rate of just under 4% from the 2018-19 to 2019-20 school years. Keep in mind, this is larger than the annual inflation rate of 2%, making this price increase even more dramatic to students and graduates.

So what is driving the price increase? College tuition has increased eight times faster than wages over the last 30 years or so, and the cost of living has increased dramatically as well. But what’s behind the dramatic uptick in college prices? The potential answer is two-fold. One factor is the demand for a college education has also dramatically risen over the last three decades.

Another factor more pertinent to public universities: a decline in state funding. It’s been observed in multiple states that as the education budget gets stripped, tuition costs to students rises in turn. And while lawmakers likely understand such a correlation exists, as long as federal financial aid is so freely available for students, there is likely little incentive to digress from such cuts.

How Long Does Paying for Med School Take?

So why do med students often go into so much debt?

It’s partly because the grueling requirements of their programs don’t often allow for part-time work. As a result, many students apply for financial aid to cover their college price tag, which means they graduate with significant amounts of student loan debt.

So how long does it take to pay back the debt? A lot of this depends on you and the career path you take and the payments you make. However, the relatively low salaries young doctors earn during their residencies don’t typically allow for much opportunity to pay back loans until their first position after residency.

Let’s say, hypothetically, you have federal Direct Loans, such as Stafford, PLUS, Consolidation, or Perkins (if consolidation). And let’s also say you can prove you have partial financial hardship (PFH), and qualify for an income-driven repayment plan.

In that situation, your monthly repayment would be capped at 10% to 15% of your monthly discretionary income, for a period of up to 25 years. And, after 25 years, whatever you haven’t paid back will be forgiven (although that amount will be taxable).

However, if after your residency, you get a position with an income that takes you out of the PFH tier, you could move to the Standard Repayment Plan for federal student loans, and potentially pay off your loan sooner.

Can You Shorten the Medical Debt Payment Timeline?

Here are some tips if you’re interested and able to shorten your repayment timeline, which can lower the amount of student loan interest you pay over time.

Repaying Your Loans During Your Residency

It is possible to start paying down your medical school debt in residency. While some students may be tempted to put their loans in student loan forbearance in their residency years, doing so can add quite a bit in compounding interest to your bill.

Instead, you could consider an income-driven repayment plan to start paying back your federal loans with a payment you can afford. You could also look into SoFi’s medical residency refinance options to compare.

Making Extra Payments

Another tactic to help pay your student loans faster is via simple budgeting. When you get your first position post-residency, you could commit to living on a budget for just a few more years. By putting as much of your salary toward extra student loan payments as you can afford to, you can help cut years—and interest payments—off your repayment timeline.

Refinancing Your Student Loans

When you refinance your student loans with a private lender, you use a new loan with a new rate and terms to pay off your existing student loans.

Depending on your financial profile and credit score, among other factors, you might be able to get a lower interest rate or a lower required monthly payment, depending on the terms you choose if you refinance. A lower monthly payment can help you improve your cash flow in the present—and lower interest can help reduce how much you pay over the life of your loan.

While refinancing can save you money, it does mean you’ll have to give up the benefits that come with federal student loans like income-driven repayment, deferment, forbearance, and student loan forgiveness specific to physicians.

But if you don’t foresee needing these services, refinancing might be a viable option and could potentially save you a fair amount.

Wondering how much you could save by refinancing your student loans? Check out SoFi and see your rate in 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.
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 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.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. 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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Credit Card—and Credit Card Debt—FAQs

If you’re having trouble getting out of credit card debt, you’re not alone. According to the Federal Reserve Bank of New York’s Center for Microeconomic Data , household debt is higher than ever before. In the last quarter of 2019, household debt increased by $193 billion (1.4%). This marked the 22nd quarter in a row that household debt increased.

The current total is $1.5 trillion more than the country’s previous household debt peak in the third quarter of 2008. And credit card balances increased by $46 billion.

While these statistics provide a snapshot-view of what’s happening in many households across the United States, what probably matters most to you is finding ways to manage your own debt. To help, this post will provide some answers to frequently asked questions about credit cards and associated debt.

What Are (some of) the Benefits of Having a Credit Card?

There are a variety of advantages when it comes to credit cards, including that you:

•   don’t need to carry as much cash with you
•   can track your purchases
•   can make larger purchases
•   can benefit from reward programs and other discounts
•   can build your credit score with responsible use
•   have access to emergency funds when needed
•   can use your card to secure a hotel room, rental car, and so forth

Although this is not intended as a complete list of benefits, and credit cards are not for everyone, it does contain many of the significant advantages of having a credit card.

What Are (some of) the Disadvantages of Having a Credit Card?

Although the convenience of credit cards is significant, it’s possible for these cards to become a little bit too convenient. Some people believe that as long as they can make their minimum monthly payments on their credit card debt, they’re in good financial shape. In reality, though, making minimum payments isn’t usually enough. Typically, it can cause debt to increase because of compounding interest.

For example, let’s say you’ve got a balance of $5,000 on your credit card; the interest rate is fixed at 16.71%, and you’re paying $100 monthly. At that pace, it would take you five years-plus to pay off your original debt of $5,000, with an additional $3,616 in interest alone. That’s a simplified hypothetical, but if you’d like to get an idea of how much you may be paying back on your own credit card debt, you can use SoFi’s credit card interest calculator.

Another disadvantage of credit cards is that your account numbers can be stolen, leading to potentially serious identity theft problems. Plus, these thieves can use your account information to rack up charges and it can be a real hassle to address this issue.

Choosing the Right Credit Card for Your Situation?

Those who use a credit card responsibly might find it worthwhile to check around to find a card that offers the rewards they’d use and benefit from. These rewards can include frequent flyer miles, loyalty points, cash back, and so forth.

If you don’t typically pay off your balance in full each billing cycle, however, then credit card rewards might not be worth it since they typically have higher rates or annual percentage rates (APRs).

If you often carry a balance on your credit cards, then it could make sense to shop around for the best interest rate. These cards probably won’t have all of the extras that come with reward cards, but they could help you accrue less interest.

If you’re just building your credit or need to repair your credit score, a secured card may be worth considering. This functions like a typical credit card except that you’d need to put a deposit into the bank to serve as a backup.

If you close the account with your credit in good standing or you improve your credit to the degree that you’d qualify for an unsecured credit card, then the deposit is returned.

As another option, you can load a prepaid credit card with a certain amount of money, through cash, direct/check deposits, or online transfers from a checking account. You can use that card until the funds are used up.

Although this can make sense in certain circumstances, perhaps because of a challenging credit history, this type of card doesn’t help you to build or repair credit, and can come with plenty of fees.

Fees for prepaid credit cards can include a monthly fee, individual transaction fees, ATM fees, reload fees, and more. If you go this route, compare options to get the best deal.

Here’s the bottom line on this FAQ. What’s most important is to find a credit card that dovetails with your needs and usage patterns.

Using a Balance Transfer Credit Card

Balance transfer cards can allow you to consolidate your credit card debt onto a card that, for an introductory period, comes with a low or zero-interest rate. Sometimes, these low-to-no-interest credit cards make good sense.

For example, if you have a balance on a high interest credit card and you are anticipating a bonus or tax return in a couple of months, then it can make sense to pay off the high interest card with a zero-interest one, and then pay off that credit card with your bonus or tax return before the introductory period is up.

Or, if you want to make a larger purchase and have planned your budget in a way that allows you to pay off the balance during your zero-interest period, that might also work out well.

Problems with no-interest credit cards can include that, if you don’t pay off the balance in your introductory period then the card reverts to its regular interest rate that can be quite high. Plus, in some cases, if you don’t pay off the entire balance within the introductory period, you’ll owe interest on the original balance transfer amount.

Sometimes, there are balance transfer fees that can make this strategy more expensive than if you hadn’t transferred a balance in the first place.

If you have outstanding credit card debt that you aren’t paying in full each month—and if a balance transfer credit card doesn’t seem like the right strategy for you—here’s another idea to consider: a credit card consolidation loan.

What Is a Credit Card Consolidation Loan?

A personal loan, sometimes referred to as a credit card consolidation loan, is an unsecured installment loan with fixed or variable interest rates. It is ideally repaid in the short term (e.g., three to five years), and it can be used to consolidate credit card debt and hopefully offers a lower interest rate than your current credit card(s)interest rate. Your loan payments include both principal and interest.

OK, a credit card loan’s correct name is a credit card consolidation loan, which is just another name for an unsecured personal loan. How is a personal loan different from other types of loans?

A personal loan is an unsecured loan. Unlike a mortgage, there is no collateral attached to or “secured” for a personal loan. For example, if you take out a mortgage loan, your home becomes the collateral for your mortgage. If you default on your mortgage, your lender can then own your home.

With most personal loans, there is no underlying collateral required. When a loan has no collateral, it means it’s unsecured. Since the lender assumes more risk with an unsecured loan (given there isn’t a home to repossess should a borrower default), the interest rate on a personal loan is usually higher than the interest rate on a secured loan.

Considering a Personal Loan?

If you have credit card debt and want to lower your monthly payments and get a better interest rate than you currently have, a personal loan can be worth considering, since it can enable you to consolidate your credit card debt. Instead of paying off multiple credit card balances, consolidating your credit card debt into a personal loan means you can just make one convenient monthly payment.

Over the last year, the average credit card interest rate has hovered around 10% is just a small bump, however, and taking on more debt is not typically ideal—especially if you start adding to the credit card(s) balance(s) you zeroed out with a personal loan. . Personal loans can come with lower rates, especially for borrowers with strong credit histories and income, among other factors that vary by lender.

Credit scores are typically one of the main factors considered by lenders when reviewing applications for personal loans. So, it can make sense to know your score before you apply; in general , a FICO® Score between 740-700 is considered “very good” while 800-850 is considered “exceptional.” .

To get a rough estimate of how much you might be able to save by consolidating your credit card debt with a personal loan, you can take a look at SoFi’s personal loan calculator.

In sum, a personal loan can help you by offering a lower interest rate than what you have for your existing credit card debt. The interest rates on personal loans are often much lower than the interest rates on credit cards.

This means that if you consolidate your credit cards into one lower-rate loan, for short and fixed term, you could reduce the total interest you’d pay on the debt and have an opportunity to pay off your debt more quickly.In some circumstances, adding a personal loan could also be beneficial for your credit score.

Why? Because having a mix of credit types can help your score; with the FICO® Score, for example, your “credit mix” accounts for 10% of your base score—and, if you consolidate your credit card debt (considered “revolving” credit) with a personal loan (“non-revolving” credit) and you keep your credit card open, you now have a mix of revolving and non-revolving forms of credit.

10% is just a small bump, however, and taking on more debt is not typically ideal—especially if you start adding to the credit card(s) balance(s) you zeroed out with a personal loan.

Borrowing a Personal Loan

Applying for a personal loan with SoFi is typically a simple and fast process. Loan eligibility takes into consideration a few different personal financial factors, including credit history and income . If you’re interested in applying for a personal loan with SoFi, you can review the eligibility requirements for more information—and see your rates in just two minutes, before you even apply.

SoFi offers loans up to $100,000 with low fixed interest rates, no prepayment penalties and no origination fees. SoFi also offers unemployment protection to qualifying members who lose their job through no fault of their own. If you have questions while applying for a loan online, you can contact SoFi’s live customer support 7 days a week.

Interested in exploring a credit card consolidation loan with SoFi? Learn more.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
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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