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Do Student Loans Expire?

Federal student loans never expire. This is because, unlike private student loans, they have no statute of limitations. And while the clock technically can run out on private student loans, that doesn’t mean your student loans have vanished — rather, lenders simply can no longer take legal action to collect. Plus, waiting it out will wreak havoc on your finances.

As such, waiting for student loans to expire is not a recommended tactic to manage student loans. Read on to learn more about why your student loans aren’t likely to expire and more effective ways to deal with student loan debt.

Why Federal Student Loans Don’t Expire

If you’re wondering “when does my student loan expire?” the answer, for federal loans, is never. That’s right — there’s no statute of limitations for collections on federal student loans. This means that if you stop making payments, your lender or a debt collector can sue you to force repayment regardless of how long ago you last made a payment.

So what happens if you do stop paying your federal student loans altogether? First, your total balance will continue to increase. Whether or not you’re making any payments, interest will accrue, which means that every month your lender will add your new interest fees to your underlying loan.

As if that doesn’t sound bad enough, after at least 270 days of non-payment, your federal student loan will be in default. This can cause a number of things to happen, including loan acceleration (meaning your entire balance becomes due) and your loan getting sent to collections, which can damage your credit score and lead to additional fees from a collection agency.

Additionally, the federal government may decide to withhold your tax refund or even garnish wages directly from your paycheck. Your loan holder can also sue you to force you to pay up.

Why Private Student Loans May Expire

Unlike federal student loans, private student loans may be bound by a statute of limitations on collections. The statute of limitations varies by state and is generally between three and 10 years from the date you totally stopped engaging with your lender.

Before you cancel your monthly payments, it’s important to know that a statute of limitations is not the same thing as an expiration date on your loans. A statute of limitations is merely a limit on the time that a lender or debt collector has to sue you in court to force you to pay back the loans.

Even if your debt is outside of the statute of limitations, you still technically owe the money, and failure to pay could lead to student loan default. When you default, you may face negative impacts to your credit score, and you may still end up dealing with collection agencies, plus any additional fees they may charge.

One Way You Can Get Rid of Student Loans

You can technically get rid of federal student loans in bankruptcy. However, doing so is extremely rare.

To potentially get your student loans (federal or private) discharged in bankruptcy, you would have to prove that paying your loans would cause you “undue hardship” (to borrow a phrase right from the U.S. Bankruptcy Code). Proving that paying your loans would cause undue hardship typically involves passing the Brunner
test
. This is a test many courts use that basically lays out ways in which you might claim undue hardship.

In short, it’s far from a sure thing, and the process is not especially clear cut. But whether you’re 19 or 90 years old, your federal student loans will not just automatically expire after a period of non-payment — and failing to pay has some serious consequences.

Alternative Options to Manage Student Loan Debt

Just because federal student loans don’t expire doesn’t mean there aren’t other ways to manage your student loan debt. Here are a couple other options you might explore.

Public Service Loan Forgiveness

Public Service Loan Forgiveness (PSLF) is available to some professionals who work in certain fields like government, the nonprofit sector, and healthcare. The idea behind federal student loan forgiveness is to encourage grads to fill needed jobs without worrying that they’ll never be able to pay off their student debt on a public interest salary.

Unfortunately, PSLF requires that you make 10 years of qualifying payments, and by some reports, very few people who thought they would qualify for loan forgiveness actually ended up getting it. Still, federal loan forgiveness may be a good option for public servants with lots of debt left to pay.

Student Loan Refinancing

Another option to save money on your student loans is student loan refinancing. Loan refinancing doesn’t change the underlying amount that you owe. However, it may reduce the amount of money you spend on interest and help you secure better payment terms, which can add up to some serious cash over the life of your loan.

Refinancing your federal and private loans based on your current credit score and income may allow you to score a brand new loan with a better interest rate or a shorter payoff term. To see how refinancing your loans could help you spend less money in interest, you can take a look at this student loan refinance calculator. Just know that if you’re working toward PSLF, refinancing with a private lender will disqualify your loans from this and any other federal program.

The Takeaway

If you’ve been waiting around for your federal student loans to expire, you’re out of luck — federal student loans don’t expire. While private student loans may expire due to their statute of limitations, your debt won’t just disappear when this happens. Your finances will also suffer in the meantime.

This is why it’s important to look into other ways to manage your student loan debt, such as student loan refinancing. When you refinance student loans with SoFi, there are no origination fees or prepayment penalties. As a SoFi member, you’ll gain access to a variety of benefits including Unemployment Protection — in the event you unexpectedly lose your job, you may qualify to temporarily pause your loan payments.

Compare your current loan and see if refinancing with SoFi is right for you.


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.
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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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 SEPTEMBER 1, 2022 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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How Many Credit Cards Should I Have?

In general, there’s no “right” number of credit cards to have. Some people might suggest having at least two credit cards, preferably from different networks — say, a Visa and an American Express, or a Mastercard and a Discover card — and strategically choosing them for the best combination of rewards. Others will recommend making this determination based on how many credit cards you can effectively handle, or how many is optimal for your credit score.

At the end of the day, the answer depends on your personal financial situation. We’ll help you figure out how many credit cards might be right for you.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Is It Possible to Have Too Many Credit Cards?

As long as you can stay on top of all of your accounts and manage them responsibly, having a number of credit cards won’t negatively affect your credit. However, even just two credit cards could be too many if it’s challenging for you to remember to make on-time payments on both accounts or you’re overspending.

The more credit cards you have, the more credit card terms you’ll have to keep track of, which can get complicated. You may also run into paying multiple annual fees, and costs can add up quickly there — especially if you’re not using a credit card enough to justify the cost.

Even if you do think you can manage having multiple credit cards, you’ll want to watch out for applying for too many new cards within a short window of time. Doing so can lower your credit score temporarily, and it can also raise a red flag for lenders. Issuers have even begun to introduce rules to prevent cardholders from attempting credit card churning, which is when you repeatedly open and close credit cards to earn welcome bonuses.

Is It Possible to Have Too Few Credit Cards?

The downside of having very few lines of credit is that you’ll have a thin credit file. This can make it more challenging to build a higher score, as your number of accounts open is a determining factor for your credit score.

However, this isn’t a reason to go opening up a bunch of new accounts that you’re not sure you can juggle. While credit mix does account for 10% of your credit score, other factors — like amounts owed and payment history — account for 35% each, making them much more influential in determining your score.

Still, having at least one credit card can make financial sense, given the convenience and benefits it can offer. One you have a good handle on credit card rules, you can start building your lineup of credit cards if you decide to do so.

How Many Credit Cards Do People Have on Average?

Cardholders in the U.S. have an average of 3.84 credit card accounts, according to a review of national credit card data by the credit bureau Experian.

The data also found that the number of credit cards someone has tends to increase the older they get. For instance, baby boomers (ages 56-74 as of 2020), held an average of 4.81 credit cards, whereas millennials (ages 24-39 as of 2020) had just 3.18 credit cards on average.

Determining How Many Credit Cards Is Right for You

Trying to figure out how many credit cards you should have? Here are factors to consider when making this determination.

Rewards

Perhaps the top reason that people open multiple credit cards is to maximize the rewards they earn. For instance, another card might be worth adding to your arsenal if it optimizes rewards in a category in which you don’t currently earn much. Or, for instance, you might pair a basic cash-back rewards credit card for your everyday spending with a travel rewards card that can help you cover the cost of flights and enjoy perks while traveling.

Recommended: Can You Buy Crypto With a Credit Card

Other Benefits

You might also consider another credit card if it can offer you a unique benefit or perk. This could be a large welcome bonus that you can time with an upcoming large purchase, or extensive travel insurance offerings. You might also opt for an additional card due to a 0% APR introductory offer that would allow you to move over a balance and pay it off interest-free within that period.

Recommended: How to Avoid Interest On a Credit Card

Your Credit Habits

Perhaps the biggest factor in determining how many credit cards is right for you is your current credit habits. If you have a good grasp on how credit cards work and continually use your credit card responsibly, then you might be up for adding another card to the mix. On the other hand, if you find yourself continually overspending or making late payments, then opening a new card might compound your challenges.

Recommended: When Are Credit Card Payments Due

Potential Issues With Having Multiple Credit Cards

As mentioned previously, opening up multiple credit cards within a short period of time can lower your credit score. But even if you don’t do that, there are possible issues that can arise when you have multiple cards.

Necessary to Manage Multiple Due Dates

It’s likely that all of your credit cards could start off with a different due date, which can make it that much easier for a payment to slip through the cracks. Plus, you’ll have multiple different websites or mobile apps to check in on and to visit in order to make your payment. To make it easier on yourself, consider automating your payments or changing your due dates so they all fall on the same day.

More Difficult to Spot Fraudulent Activity

When you have just one credit card, checking your credit card balance regularly is pretty easy to do. But once you start growing your number of cards, it will take more legwork and effort to stay on top of your statements and check for any suspicious charges. This can make it harder to spot any potentially fraudulent activity and report it in a timely manner.

Recommended: What is a Charge Card

Possible To Hurt Your Credit Score

Perhaps the biggest potential issue of having multiple credit cards is the possibility of harming your credit score. If you’re missing payments because you’re finding it hard to juggle multiple due dates, or are overspending and driving up your credit utilization ratio, your credit score will suffer.

Plus, even if you’ve paid off your accounts, having a large number of credit cards open can make you look risky to lenders, possibly lowering your score.

Temptation to Overspend

When you have an array of credit cards in your wallet to choose from, it can feel easy to keep swiping. Plus, by using a number of different cards, you’ll be spreading your charges out, which can make it more challenging to keep track of how much you’re actually spending in total.

To keep your spending in check, don’t spend more on your credit cards than you can actually afford to pay off in cash. Ideally, you’ll be able to pay off all of your credit card balances in full each month to avoid owing interest.

Cash in on up to $300–and 3% cash back for 365 days.¹

Apply and get approved for the SoFi Credit Card. Then open a bank account with qualifying direct deposits. Some things are just better together.


The Takeaway

The answer to the question, ‘How many credit cards should I have?,’ largely depends on your personal financial situation and how many credit cards you feel you can responsibly manage. In the big scheme of things, how you use your credit cards may be more important than how many you have.

If you’re looking for a rewards credit card to round out your credit card lineup, consider the SoFi Credit Card. 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

And for a limited time, new credit card holders who also sign up for a SoFi Checking and Savings with direct deposit can start earning 3% cash back rewards on all eligible credit card purchases for 365 days*. Offer ends 12/31/22.

Find out today if you qualify for the SoFi credit card!


1See Rewards Details at SoFi.com/card/rewards.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
You will need to maintain a qualifying Direct Deposit every month with SoFi Checking and Savings in order to continue to receive this promotional cash back rate. Qualifying Direct Deposits are defined as deposits from enrolled member’s employer, payroll, or benefits provider via ACH deposit. Deposits that are not from an employer (such as check deposits; P2P transfers such as from PayPal or Venmo, etc.; merchant transactions such as from PayPal, Stripe, Square, etc.; and bank ACH transfers not from employers) do not qualify for this promotion. A maximum of 36,000 rewards points can be earned from this limited-time offer. After the promotional period ends or once you have earned the maximum points offered by this promotion, your cash back earning rate will revert back to 2%. 36,000 rewards points are worth $360 when redeemed into SoFi Checking and Savings, SoFi Money, SoFi Invest, Crypto, SoFi Personal Loan, SoFi Private Student Loan or Student Loan Refinance and are worth $180 when redeemed as a SoFi Credit Card statement credit.

Promotion Period: 4/5/2022-12/31/2022. SoFi reserves the right to exclude any Member from participating in the Program for any reason, including suspected fraud, misuse, or if suspicious activities are observed. SoFi also reserves the right to stop or make changes to the Program at any time.

Eligible Participants: All new members who apply and get approved for the SoFi Credit Card, open a SoFi Checking and Savings account, and set up Direct Deposit transactions ("Direct Deposit") into their SoFi Checking and Savings account during the promotion period are eligible. All existing SoFi Credit Card members who set up Direct Deposit into a SoFi Checking & Savings account during the promotion period are eligible. All existing SoFi members who have already enrolled in Direct Deposit into a SoFi Checking & Savings account prior to the promotion period, and who apply and get approved for a SoFi Credit Card during the promotion period are eligible. Existing SoFi members who already have the SoFi Credit Card and previously set up Direct Deposit through SoFi Money or SoFi Checking & Savings are not eligible for this promotion.

New SoFi Checking and Savings customers and existing Checking and Savings customers without direct deposit are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 30-day period. Cash bonus will be based on the total amount of direct deposit. Entry into the Program will be available 4/5/22 to 5/31/22. 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 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.

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The Ultimate Student Loan Terminology Cheat Sheet

There are so many upsides to investing in your education — the personal enrichment and possibility of a bright and fruitful future being the most obvious. But, there are also some potential downsides that are hard to ignore, one of the main ones — if you’re like so many others — being the debt you may accrue.

If you’re a student loan borrower, you’ve probably noticed that your loans have a language all their own. Getting a grasp on terms like interest rate vs. APR, subsidized vs. unsubsidized loans, and fixed vs. variable interest rates can help you make more informed, confident decisions.

Instead of enrolling in Student Loan Language 101, you can use our quick and dirty reference guide to find some answers without information overload. Borrowing a loan can have long-term financial consequences, so it’s important to fully understand the fees and interest rates that will affect the amount of money you owe. Here are a few of the most important terms to understand before you take out a student loan:

Common Student Loan Terminology

Academic Year

An academic year is one complete school year at the same school. If you transfer, it is considered two half-years at different schools.

Accrued Interest

The amount of interest that has accumulated on a loan since your last payment. You can keep accrued interest in check by making your payments on time each month. However, after a period of missed or reduced payments, accrued interest may be capitalized, which essentially means you’d have to pay interest on the student loan accrued interest.

Adjusted Gross Income (AGI)

AGI is an individual’s gross income, less any deductions or adjustments to income. This includes things like wages, salaries, any interest or dividends you may earn and any other sources of income. You can find your AGI on your federal income tax returns.

Aggregate Loan Limit

The aggregate loan limit is the maximum amount of federal student loan debt a borrower can have when graduating from school. The aggregate loan limit may vary depending on whether you are a dependent or independent student.

Recommended: What is the Maximum Amount of Student Loans for Graduate School?

Amortization

Amortization refers to the amount of loan principal and interest you pay off incrementally over your loan term. Each student loan payment is a fixed amount that contributes to both interest and principal. Early in the life of the loan, the majority of each payment goes toward interest. But over time as you pay down your loan balance, the ratio shifts and most of the payment goes toward the principal.

Annual Percentage Rate (APR)

The annual rate that is charged for borrowing, expressed as an annual percentage. APR is a standardized calculation that allows you to make a more fair comparison of different loans. Consider the difference between interest vs. APR — APR reflects the cost of any fees charged on the loan, in addition to the basic interest rate. Generally speaking, the lower your APR, the less you’ll spend on interest over the life of the loan.

Annual Loan Limit

The yearly borrowing limit set for federal student loans.

Automated Clearing House (ACH)

An electronic funds transfer is sent through the Automated Clearing House system. The ACH is an electronic funds — transfer system that helps your loan payment transfer directly from your bank account to your lender or loan servicer each month.

The benefits of ACH are two-fold — not only can automatic payments keep you from forgetting to pay your bill, but many lenders also offer interest rate discounts for enrolling in an ACH program.

Award Letter

An award letter is sent from your school and details the types and amounts of financial aid you are eligible to receive. This will include information on grants, scholarships, federal student loans, and work-study. You will receive an award letter for each year you are in-school and apply for financial aid.

Award Year

The academic year that financial aid is applied to.

Borrower

The borrower is the person who took out a loan. In doing so, they agreed to repay the loan.

Campus-Based Aid

Some financial aid programs are administered by specific financial institutions, such as the Federal Work-Study program. Generally, schools receive a certain amount of campus-based aid annually from the federal government. The schools are then able to award these funds to students who demonstrate financial need.

Cancellation

This refers to the cancellation of a borrower’s requirement to repay all or a portion of their student loans. Loan forgiveness and discharge are two other types of loan cancellation.

Capitalization

Capitalization is when unpaid interest is added to the principal value of the student loan. This generally occurs after a period of non-payment such as forbearance. Moving forward, the interest will be calculated based on this new amount.

Capitalized Interest

Accrued interest is added to your loan’s principal balance, typically after a period of non-payment such as forbearance. When the interest is tacked onto your principal balance, your interest is now calculated on that new amount.

Most student loans begin accruing interest as soon as you borrow them. While you are often not responsible for repaying your student loans while you are in school or during a grace period or forbearance, interest will still accrue during these periods. At the end of said period, the interest is then capitalized, or added to the principal of the loan.

When interest is capitalized, it increases your loan’s principal. Since interest is charged as a percent of principal, the more often interest is capitalized, the more total interest you’ll pay. This is a good reason to use forbearance only in emergency situations, and end the forbearance period as quickly as possible.

Cosigner

A third party, such as a parent, who contractually agrees to accept equal responsibility in repaying your loan(s). A student loan cosigner can be valuable if your credit score or financial history are not sufficient enough to allow you to borrow on your own.

With a cosigner, you are still responsible for paying back the loan, but the cosigner must step in if you are unable to make payments. A co-borrower applies for the loan with you and is equally responsible for paying back the loan according to the loan terms on a month-to-month basis.

Recommended: Do I Need a Student Loan Cosigner?

Consolidation (through the Direct Loan Consolidation Program)

The act of combining two or more loans into one loan with a single interest rate and term. The resulting interest rate is a weighted average of the original loan rates — rounded up to the nearest eighth of a percentage point.

Only certain federal loans are eligible for the Direct Consolidation Program. Consolidating can make your life simpler with one monthly bill, but it may not actually save you any money. You may be able to reduce your monthly payments by increasing the loan term, but this means you’ll pay more interest over the life of the loan.

Consolidation (through a Private Lender)

The act of combining two or more loans into one single loan with a single interest rate and term. When you consolidate loans with a private lender, you do so through the act of refinancing, so you’re given a new (hopefully lower) interest rate or lower payments with a longer-term.

Most private lenders only refinance private loans, but SoFi refinances both private and federal loans. By refinancing, you may be able to lower your monthly payments or shorten your payment term.

Recommended: What Is a Direct Consolidation Loan?

Cost of Attendance

Cost of attendance is the estimated total cost for attending a college based on the cost of tuition, room and board, books, supplies, transportation, loan fees, and miscellaneous expenses. Schools are required to publish the cost of attendance.

Recommended: What Is the Cost of Attendance in College?

Credit Report

Credit reports detail an individual’s bill payment history, loans, and other financial information. These reports are used by lenders to evaluate your creditworthiness.

Default

Failure to repay a loan according to the terms agreed to in the promissory note. Defaulting on your student loans can have serious consequences, such as additional fees, wage garnishment, and a significant negative impact on your credit. It’s always better to talk to your lender about potential hardship repayment options, such as deferment or forbearance, before defaulting on a loan.

Deferment

The temporary postponement of loan repayment, during which time you may not be responsible for paying interest that accrues (on certain types of loans). Student loan deferment can be useful if you think you’ll be in a better place to pay your loans at a later date. However, deferment is usually only available for certain federal loans. To potentially cut down on interest, it may be wise to weigh your deferment options.

Delinquency

When you miss a student loan payment, the loan becomes delinquent. The loan will be considered delinquent until a payment is made on the loan. If the loan remains in delinquency for a specified period of time (which may vary for federal vs. private student loans), it may enter default.

Direct Loan

The Direct Loan program is administered via the U.S. Department of Education. There are four main types of direct loans including Direct Subsidized loans, Direct Unsubsidized loans, Direct PLUS loans, and Direct Consolidation loans.

Direct PLUS Loan

Direct PLUS loans are types of federal loans that are made to graduate or professional student borrowers or to the parents of undergraduate students. Direct PLUS Loans made to parents may be referred to as Parent PLUS Loans.

Disbursement

When funds for a loan are paid out by the lender.

Discharge

Student loan discharge occurs when you are no longer required to make payments on your loans. Typically, student loan discharge occurs when there are extenuating circumstances such as the borrower has experienced a total and permanent disability or the school at which you received your loans has closed.

Discretionary Income

Discretionary income is the money remaining after you pay for necessary expenses. An individual’s discretionary income is used to help determine their loan payments on an income-driven repayment plan.

Endorser

An endorser is similar to a co-borrower in that they also sign on to the loan agreement and are responsible for repaying the loan if the primary borrower is unable to do so. Individuals who may not qualify for a Direct PLUS Loan on their own can add an endorser to their application.

Enrollment Status

Determined by the school you attend, your enrollment status is a reflection of your enrollment at the school. Enrollment status includes, full-time, half-time, withdrawn, and graduated.

Expected Family Contribution (EFC)

An estimation of the amount of money a student and their family is expected to pay out of pocket toward tuition and other college expenses.

Federal Work-Study

A type of financial aid, students who demonstrate financial aid may qualify for the federal work-study program, where they work part-time to earn funds to help pay for college expenses.

Financial Aid

Funds to help pay for college. Financial aid includes grants, scholarships, work-study, and federal student loans.

Financial Aid Package

An overview of the types of financial aid you are eligible to receive for college. Financial aid packages provide information on all types of federal financial aid and college-specific aid such as scholarships, grants, work-study, and federal student loans.

Financial Need

Some types of financial aid are determined by financial need. Financial need is defined as the difference between the cost of attendance at your school and the expected family contribution of your school.

Fixed Interest Rate

An interest rate that remains the same for the life of the loan. The interest rate does not fluctuate.

Forbearance

The temporary postponement of loan repayment, during which time interest typically continues to accrue on all types of federal student loans. If your student loan is in forbearance you can either pay off the interest as it accrues, or you can allow the interest to accrue and it will be capitalized at the end of your forbearance.

Use forbearance wisely, because interest that accrues during the forbearance period typically capitalized making your loan more expensive. If you can afford to make even small payments during forbearance, it can help keep interest costs down.

You will usually have to apply for student loan forbearance with your loan holder and will sometimes be required to provide documentation proving you meet the criteria for forbearance. For a loan to be eligible for forbearance, there must be some unexpected temporary financial difficulty.

Forgiveness

Loan forgiveness is another situation in which you are no longer responsible for repaying all or a portion of your student loans. Public Services Loan Forgiveness and Teacher Loan Forgiveness are two types of loan forgiveness programs in which your loans are forgiven after meeting specific requirements, such as working in a qualifying job and making qualifying loan payments.

Free Application for Federal Student Aid (FAFSA®)

This is the application students use to apply for all types of federal student aid, including federal loans, work-study, grants, and scholarships. The FAFSA must be completed for each year a student wishes to apply for financial aid.

Recommended: FAFSA Guide

Grace Period

A period of time after you graduate, leave school or drop below half-time during which you’re not required to make payments on certain loans. Some loans continue to accumulate interest during the grace period, and that interest is typically capitalized, making your loan more expensive.

Grad PLUS Loans

Another term to refer to a Direct PLUS loan, specifically one borrowed by a graduate or professional student.

Graduate or Professional Student

A student who is pursuing educational opportunities beyond a bachelor’s degree. Graduate and professional programs include master’s and doctoral programs.

Graduated Repayment Plan

A type of repayment plan available for federal student loan borrowers. On this repayment plan, loan payments begin low and increase every two years. This plan may make sense for borrowers who expect their income to increase over time.

Grant

A type of financial aid that does not need to be repaid. Grants are often awarded based on financial need.

Recommended: The Differences Between Grants, Scholarships, and Loans

In-School Deferment

Students who are enrolled at least half-time in school are eligible to defer their federal student loans. This type of deferment is generally automatic for federal student loans. Note that unless you have a subsidized student loan, interest will continue to accrue during in-school deferment.

Interest

Interest is the cost of borrowing money. It is money paid to the lender and is calculated as a percentage of the unpaid principal.

Interest Deduction

A tax deduction that allows you to deduct the student loan interest you paid on a qualified student loan for the tax year. Interest paid on both private and federal student loans qualifies for the student loan interest deduction.

Lender

The financial institution that lends funds to an individual borrower.

Loan Period

A loan period is the academic year for which a student loan is requested.

Loan Servicer

A company your lender may partner with to administer your loan and collect payments. For questions about your student loan payments or administrative details such as account information, you should contact your student loan servicer.

London Interbank Offered Rate (LIBOR)

An interest rate benchmark that was commonly used by banks and other lenders to set interest rates for loans. Some variable student loans are tied to LIBOR, which means that your loan’s APR will rise or fall based on the movement of the index. Rates are typically adjusted on a monthly basis. However, beginning in June 2023, the LIBOR will be phased out and replaced by the Secured Overnight Financing Rate.

Origination Fee

A fee that some lenders charge for processing the loan application, or in lieu of upfront interest. To minimize incremental costs on your loan, look for lenders that offer no or low fees.

Part-Time Enrollment

Students who are enrolled in school less than full-time are generally considered part-time students. The number of credit hours required for part-time enrollment are determined by your school.

Pell Grant

A grant awarded by the federal government to undergraduate students who demonstrate exceptional financial need.

Perkins Loans

Perkins Loans were a type of federal loan available to undergraduate and graduate students who demonstrated exceptional financial need. The Perkins Loan program ended in 2017.

PLUS Loans

Another way to describe Direct PLUS Loans, which are federal loans available for graduate and professional students or the parents of undergraduate students.

Prepayment

Paying off the loan early or making more than the minimum payment. All education loans, including private and federal loans, allow for penalty-free prepayment, which means you can pay more than the monthly minimum or make extra payments without incurring a fee. The faster you pay off your loan, the less you’ll spend on interest.

Prime Rate

This is the interest rate that commercial banks charge their most creditworthy customers. The basis of the prime rate is the federal funds overnight rate. The federal funds overnight rate is the interest rate that banks use when lending to each other. The prime rate can be used as a benchmark for interest rates on other types of lending.

Principal

Principal is the original loan amount you borrowed. For example, if you take out one $100,000 loan for grad school, that loan’s principal is $100,000.

Private Student Loan

A student loan lent by a private financial institution such as a bank, credit union, online lender, or other financial institution. These loans can be used to pay for college and educational expenses, but are not a part of the Federal Direct Loan Program. These loans don’t offer the same borrower protections available to federal student loans — like income-driven repayment plans or deferment options.

Promissory Note

A contract that says you’ll repay a loan under certain agreed-upon terms. This document legally controls your borrowing arrangement, so read your promissory note carefully. If you don’t fully understand the agreement, contact your lender before you sign.

Repayment

Repaying a loan plus interest.

Repayment Period

The agreed upon term in which loan repayment will take place.

Scholarship

A type of financial aid which typically doesn’t need to be repaid. Scholarships can be awarded based on merit.

Secured Overnight Financing Rate (SOFR)

An interest rate benchmark that is commonly used by banks and other lenders to set interest rates for loans. The SOFR is the cost of borrowing money overnight collateralized by Treasury securities. Starting in June 2023, the SOFR will begin replacing the LIBOR as a benchmark interest rate.

Stafford Loans

Stafford loans were a type of federal student loan made under the Federal Family Education Loan Program. Beginning in 2010, all federal student loans were loaned directly through the William D. Ford Federal Direct Loan Program.

Standard Repayment Plan

The Standard Repayment Plan is one of the repayment plans available for federal student loan borrowers. This repayment plan consists of fixed payments made over an up to 10 year period.

Student Aid Report

After submitting the FAFSA you will receive a student aid report (SAR). The SAR is a summary of the information you provided when filling out the FAFSA.

Student Loan Refinancing

Using a new loan from a private lender to pay off existing student loans. This allows you to secure a new (ideally lower) interest rate or adjust your loan terms.

Subsidized Loan

A Direct Subsidized Loan is a type of federal loan available to undergraduate students where the government covers the interest that accrues while the student is enrolled at least half-time, during the grace period, and other qualifying periods of deferment.

Term

The expected amount of time the loan will be in repayment. Generally speaking, a longer term will mean lower monthly payments but higher interest over the life of the loan, while a shorter term will mean the opposite. Loan terms vary by lender, and if you have a federal loan, you are usually able to select your student loan repayment plan.

Tuition

The cost of classes and instruction.

Undergraduate Student

A student who is enrolled in an undergraduate course of study.

Unsubsidized Loan

A Direct Unsubsidized Loan is a type of federal loan available to undergraduate or graduate students. The major difference between subsidized vs. unsubsidized loans is that the interest on unsubsidized loans is not subsidized by the federal government.

Variable Interest Rate

Unlike a fixed interest rate, a variable interest rate fluctuates over the life of a loan. Changes in interest rate are tied to a prevailing interest rate.

Private Student Loans With SoFi

Sources of financial aid that don’t need to be repaid like scholarships and grants are helpful, but don’t always meet the entire financial burden when it comes to paying for college. Federal student loans have low interest rates and, for the most part, don’t require a credit check. Plus they have borrower protections in place, like income-driven repayment plans or deferment options, that make them the first-choice for most students looking to borrow money to pay for college.

When these sources of aid aren’t enough, private student loans can help fill in the gap. Keep in mind that, as mentioned, private loans don’t offer the same protections afforded to federal loans. If you’re interested in a private student loan, check out what SoFi has to offer. SoFi’s private student loans are available for undergraduates, graduate students, or the parents of undergraduates. Plus, qualifying borrowers can secure competitive interest rates and the loans have zero fees.

See what you’re pre-qualified for in just a few minutes.


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FAQ

What are common student loan terms?

Student loan terms include Direct Loans — which are any loans in the Federal Direct Loan program. These include Direct Subsidized and Unsubsidized loans in addition to Direct PLUS Loans.

Beyond federal student loans, students can look into private student loans, which are offered by private lenders.

What are the most important loan terms to understand?

It’s important to understand terms associated with borrowing because you’ll be required to repay the loan. Understand the interest rate and any fees associated with the loan.

What does APR mean in relation to student loans?

APR stands for annual percentage rate. It’s a reflection of the interest rate on the loan in addition to any other fees associated with borrowing. APR helps make it easier to compare loans from different lenders.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Third-Party Brand Mentions: No brands 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.
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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Should I Pay Down Debt or Save Money First?

Pay Down My Debt or Save Money: What to Consider?

Should I save or pay off debt? It’s a tough financial choice. Prioritizing debt repayment can help you pay off what you owe faster, eventually freeing up more money that you can save. It could also cut down on what you pay in interest charges. On the other hand, delaying savings could mean missing out on the power of compounding interest.

Whether it makes sense to pay off debt or save depends largely on the specifics of your financial situation, your needs, and your goals. The right decision might actually be to try to do both.

Here, you’ll learn how to make the smart decision, including:

•   The pros of paying down debt first

•   How to start paying down debt

•   The advantages of saving money

•   How to start saving money

•   How to pay down debt and save money at the same time

What Are the Benefits of Paying Down My Debt?

Debt can wear you down mentally, emotionally, and financially. Collectively, Americans owed $15.84 trillion in household debt as of the first quarter of 2022, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data. Whether you owe a credit card balance, student loans, personal loans, or a mortgage, here are some of the main advantages of choosing to pay off debt first:

•   Paying off debt could save you money on interest charges, finance charges, and fees.

•   As you reduce your credit utilization ratio (how much of your total credit limit you are tapping into), your credit scores might improve.

•   Reducing debt can also reduce your mental or emotional burden if your financial obligations are a source of stress.

•   Once your debt is gone, you can redirect those funds in your budget to saving or other financial goals.

Eliminating debt also means that you can lower your baseline cost of living. So instead of needing $5,000 a month to cover your expenses, you might be able to trim that to $4,000 instead, provided you can pay off a $1,000 monthly debt payment. Reducing monthly expenses can make it easier to get through a financial crisis or emergency should one come along.

When Might I Make Paying Down Debt a Priority?

If you’re debating whether to pay off debt or save, it’s helpful to think about your bigger financial picture and goals. For example, you might put debt repayment ahead of saving if you:

•   Have been paying debts for a while and are tired of feeling like you’re not making any progress.

•   Are able to qualify for a low APR personal loan or credit-card balance transfer that would allow you to pay off the debt faster.

•   Mainly owe unsecured “bad” debts, such as credit cards or payday loans that are costing you significant money in interest.

•   Are committed to sticking to your debt repayment strategy in order to clear your balances as quickly as possible.

That last point might be the most important. If you’re not all-in with your debt payoff plan, then you might not get much in return for your efforts.

How Can I Start Paying Down My Debt?

If you’re ready to pay down debt, the first step is knowing what you owe and to whom. You can start by making a list of your debts, including the creditor’s name, account balance, APR or interest rate, and monthly minimum payment, and how long it’s projected to take to pay down the debt.

Once you know what you owe, you can formulate a plan for paying it off. There are different strategies to become debt free that you can put to work.

Some of the most popular options include:

•   Debt snowball. The debt snowball method involves ranking debts from lowest balance to highest and paying them off in that order. You pay as much as you can toward the smallest debt, while making minimum payments to everything else. Once that debt is paid off, you roll its payment over to the next debt on the list, continuing the process until all debts are gone. Recommended: How the Debt Snowball Payoff Method Works

•   Debt avalanche. The debt avalanche (or highest interest rate) method ranks debts from highest APR to lowest. You’d then pay as much as you can toward your most expensive debt (the one with the highest interest rate), while making minimum payments to everything else. Once the first debt is paid off, you’d roll its payment over to the next debt on the list, continuing this process until all debts are gone. Recommended: How the Debt Avalanche Payoff Method Works

•   Credit card balance transfer. Transferring balances to a credit card with a low or 0% APR can help you to save money on interest charges. Typically, these offers involve a window of no- or low-interest, after which point, you pay a typical variable APR. The goal is to catch up financially during that time period, or to whittle your debt down significantly since no interest is accruing. The most important thing to keep in mind is how long you have to pay off the balance transfer at the promotional rate before the higher APR kicks in.

•   Debt consolidation. Debt consolidation means taking out a personal loan, home equity loan, or home equity line of credit (HELOC) to pay off other debts. You’d then make one payment toward the loan going forward. Whether this option saves you money can depend on the loan’s APR vs. the average APR you were paying across your other debts. If you can save a significant amount of money with a new rate versus your current rate, it may be worth the effort.

If you’re struggling to find the right debt repayment option, you might consider meeting with a nonprofit credit counselor or financial advisor. Guidance on financial planning for debt reduction can be very helpful, and organizations like the National Foundation for Credit Counseling (NFCC ) can connect you with advisors.

What Are the Benefits of Saving Money?

It pays to look at the other side of the issue when you are wondering, Is it better to save or pay off debt? Understanding the benefits of saving can help you to decide. Here are some of the main advantages of prioritizing saving:

•   The sooner you begin saving, the longer you have to grow your money through the power of compounding interest.

•   Having money in emergency savings can give you peace of mind if an unexpected expense comes along.

•   Saving and investing in a tax-advantaged retirement plan can help you to build wealth for the long-term.

•   You can save money for different goals at a pace that works for your budget.

Saving is crucial if you’d like to avoid racking up debt in an emergency. If your car breaks down or your dog needs surgery, for instance, you can use your emergency fund to pay those expenses rather than having to rely on a high-interest credit card.

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When to Consider Saving Money Over Paying Down Debt

The decision to save vs. payoff debt also depends largely on your goals and what your financial situation looks like. You might prefer to save first and pay off debt second if you:

•   Mainly owe “good” debts with low interest rates and don’t feel unduly burdened by them.

•   Would like to build up an emergency fund before tackling your debt payoff plan.

•   Could earn a higher interest rate on savings compared to the rate you’re paying on your debts.

•   Are able to get “free” money by investing in an employer-sponsored retirement plan.

It’s important to note that there’s a difference between savings vs. investing. When you save money, you’re earmarking it for some future expense which might be planned (say, a down payment on a house) or unplanned (in the case of an emergency fund). You might put your money in a savings account, money market account, or certificate of deposit (CD) account where it can safely earn interest.

When you invest money, you’re putting it into the market. So you might buy stocks, mutual funds, or other investments. Investing money has the potential to deliver higher returns than saving it. But there’s a greater risk of losing money.

Potential Strategies to Start Saving Money

Making saving a regular habit can take time and effort. You may have to bypass little splurges (takeout food, for instance) as well as larger ones (joining pals on a vacation to Paris). But finding easy ways to save money can help you get into a routine of setting aside money. Here are a few ways you can do just that:

•   Schedule automatic transfers. One of the simplest ways to save money is to transfer funds from checking to savings every payday. You can pick a set dollar amount to transfer. Then when you get paid, you’ll know that money is automatically going to savings. It won’t be sitting in your checking account, tempting you to spend it.

•   Save at work. If you have a 401(k) or similar plan at work, that’s a built-in opportunity to save. You can defer part of your paychecks into the plan automatically, and your employer may chip in matching contributions, which is free money for you. If you get a raise each year, you can adjust your contribution rate by that same amount to funnel more money into retirement savings.

•   Save “found” money. Found money is money that you weren’t planning on receiving. So that can include things like tax refunds, rebates, cash gifts you receive for birthdays or holidays, and other windfalls. Found money can give your savings a boost with minimal effort. Even if you don’t set aside the whole amount you receive, do try to stash part of it in savings.

•   Use apps to save. Apps can make saving money easy. There are round-it-up apps that push purchases up to the nearest whole dollars and put the difference into savings. Or there are apps that pay you a percentage cash back on things like gas, groceries, and shopping. That’s money you can add to your savings pile.

If you’re struggling to find motivation to save money, try setting one or two small financial goals. For example, give yourself a goal of saving $1,000 to start your emergency fund in the next 60 days. Challenging yourself this way can help you get fired up about saving. If you’re able to knock out some smaller goals fairly quickly, it can get you solidly on the path to save more.

Can I Pay Down Debt and Save Money at the Same Time?

Whether you can pay down debt and save money at the same time will depend largely on your budget and how much you can dedicate to either goal. If you don’t have a firm budget in place, making one can help you see at a glance how much money you have to pay down debt or save.

So, say you make your monthly budget, and you have $1,000 left over after all your regular expenses are paid. Your current debt payments total $500 per month.

In that case, you might decide to keep paying $500 each month toward the debt and put $500 in savings. That way, you’re working toward both goals equally. If you’d like to prioritize paying off debt vs. saving, then you might pay $750 per month to debt and cut the amount you save down to $250.

Saving and paying off debt at the same time might be ideal if you can find the right balance between them. Again, it all comes down to whether paying off debt or saving takes first priority on your list of financial goals.

Does Starting an Emergency Fund Make Sense?

An emergency fund is designed to help you pay for unplanned expenses or unanticipated events. For example, getting laid off from your job could be a financial emergency if you don’t have any other income to fall back on. Other examples of financial emergencies include unexpected appliance repairs, vehicle repairs, vet bills, or medical bills.

Sixty-four percent of U.S. adults say they’d be able to handle a $400 emergency in cash, according to the Federal Reserve. But that means roughly a third of Americans would have to turn to debt to manage an unexpected expense. That’s a lot of people without a financial back-up plan. It may be wise to prepare and put some funds away in case a rainy day strikes.

Starting an emergency fund makes sense if you don’t want to be left scrambling to pay for unanticipated expenses. Even a small emergency fund of $1,000 could be enough to help you weather most minor emergencies. Once you save that amount, you could then work on building a larger emergency fund.

Of course, you may not need an emergency fund if you have substantial savings, investments, or other assets to draw on in a crisis. For most people, however, this is not the norm, so an emergency fund can still be an important part of their financial plan.

Banking With SoFi

Saving money and paying off debt can both be central to improving your financial situation. Whether you prioritize one over the other or tackle them both at the same time, it’s important to understand how saving and becoming debt-free can help you to get ahead and build wealth.

If you’re ready to start saving, then it pays to keep your money in the right place. With SoFi, you can get a Checking and Savings account in one place for added convenience. With direct deposit you’ll also earn a super competitive 2.00% APY which can help you grow your money faster. Plus, you won’t pay any fees.

Open a bank account with SoFi today.

FAQ

How much money should I save before paying down debt?

At a minimum, it can be a good idea to save $500 to $1,000 before paying down debt. That amount of money may be enough to get you through any small financial emergencies that might come your way as you focus on debt repayment.

Is it better to pay down debt or save money?

It may be better to pay down debt if you’re carrying debts with high interest rates or are simply tired of not seeing your balances go down. On the other hand, it may be better to save money first if your debts have low interest rates or you don’t owe that much overall.

What bills should I pay down first?

When paying debts or other bills, it’s always important to pay any past due accounts first. Late payments can hurt your credit score, so it’s helpful to get past due accounts current. From there, you can focus on paying down the highest-interest debts first if you’d like to save money on interest charges. Or you can pay down debts from lowest balance to highest, which could help you knock out some smaller debts fairly quickly.


Photo credit: iStock/malerapaso

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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.
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Guide to Getting Caught up on Late Payments

Sometimes life throws a few curveballs your way. When those curveballs include unexpected expenses—hello, car repairs and medical bills—it can be hard to keep a budget on track. This can lead to paying some bills late (or not at all), which isn’t fun for anyone involved. The business expecting the money is upset. And it can mean you wind up paying more in interest while having your credit score decline.

Here’s helpful advice if you find yourself dealing with late payments. You’ll learn:

•   Why people fall behind on bills

•   Tips for how to catch up on bills

•   What to do once you are caught up on bills.

Why People Fall Behind on Their Bills

Before we talk about how to get caught up on bills, let’s look at some common reasons people fall behind on bills. Knowing the typical pitfalls can make it easier to avoid them in the future and stay on track financially.

A Loss Of Income

Many things can happen in a typical person’s work life to send their income drifting downward. Sometimes an employee doesn’t get as many shifts as they thought they would. Other times they’re laid off and lose all of their income. Maybe they quit their job and have a gap between when they start a new one. Seasonal employment can come to an end. Tips can fall short.

The point being, there are many reasons why someone may lose part or all of their income. It’s hard to pay bills when unemployed or even underemployed. If the income loss was unexpected, the situation can be even tougher.

Medical Emergencies

Healthcare expenses can get so costly that you may receive medical bills that you can’t afford. All it may take is one MRI that isn’t covered by insurance, and you may have a significant amount of debt that can be hard to manage. When the expense is an emergency (perhaps major surgery, a hospital stay, or ongoing treatment), the bill can be staggering. What’s more, a medical emergency may cause a person to lose income if they have to take time off work.

Family Emergencies

•   What types of family emergencies can make it harder to pay bills?

•   A child gets sick, and mom or dad has to skip their shift to stay home and take care of them.

•   Grandma breaks a hip and her son needs to travel across the country to take care of her.

•   A family member passes away, and someone must cover the funeral expenses.

•   A pet (they’re family too, after all) gets injured and requires expensive surgery.

Those are just a few examples of family emergencies that can cause financial strain. It’s easy to see how throwing money at a problem can make it hard to pay bills.

Auto Accidents

From small inconveniences like hitting a curb to major accidents, car repairs can certainly be expensive. Even if you have adequate auto insurance, those deductibles and related expenses can add up fast.

Car accidents can set up a chain reaction in terms of bills going unpaid. Many consumers need to prioritize auto bills as they require transportation to get to work. When those unexpected bills get paid first, a person can fall behind on other monthly expenses.

Household Emergencies

If your roof springs a leak during the rainy season or your air conditioning quits during a heat wave, you are stuck with a big expense you didn’t see coming. When you spend money to remedy this kind of problem, other bills may fall by the wayside. It may become harder to, say, pay your student loan when a home repair is suddenly required.

Spending Too Much

Sometimes, people simply overspend. Their expenses are higher than their earnings. For example, maybe you were invited to a destination wedding, really wanted to go, and ran up a lot of debt flying to Hawaii for the celebration. Or maybe you were thinking about a new car and went ahead and splurged on one after seeing an ad. It happens! But the aftermath of these major expenses can leave a person struggling to stay current on their monthly expenses.

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Tips for Getting Caught up on Bills

As you’ve just read, there are many reasons why people can fall behind on their bills. But once you are dealing with overdue debt, you don’t have to just stay stuck there. So let’s look at tactics for getting caught up on bills and boosting financial health.

Making a List

First things first: It helps to spend a bit of time developing ways to organize your bills. Gather all your bills, and make a list of which ones are overdue, from most overdue to least. This way, it’s easy to see the total amount owed and which fires need to be put out most urgently.

Sometimes, people want to hide from stressful situations like this, but confronting your debt and missed due dates can ultimately be a positive thing. This organizational step can give you the knowledge you need plus a sense of control when you’re behind on bills.

Paying Priority Bills

Now that you have a list of bills ordered by importance, it’s a good idea to start identifying and paying priority bills first. If they all have the same due dates or are all overdue, then you might begin with the bills that have the highest interest rates first (like credit card or loan payments) or the bills that charge the largest late fees. The more interest that accrues, the harder it can be to catch up on bills.

The exception, however, is any overdue bills that relate to necessities, like rent or utilities, taxes, car loans, and child support. Those types of bills need to be taken care of first to keep everyone living in the home safe.

Negotiating Bills

When you’re behind on bills, you may have more wiggle room than you think. You may be able to work out a lower interest rate with your credit card issuer or you might be able to adjust a loan repayment schedule a bit. Or if you’re facing major medical expenses, you could investigate how to negotiate doctor bills with your provider to make them more affordable. The point is, communicating with the entity you owe money to and negotiating may lighten your load.

Creating a Budget

Once you know how much you owe, you can create a budget to help play catch-up. After paying off the bills with high interest rates in full, you might then total up the remaining bills and set a goal for how fast they want to pay them off. You’ll need to look at how much after-tax money you have every month and how much your “musts” (food, shelter, utilities, medical care) cost. The money that’s left typically goes towards debt, savings, and discretionary spending.

You may have to re-allocate a bit to pay off debt. Perhaps you can’t save as aggressively as you would like for a down payment on a house and need to focus on clearing up your bills. Or maybe you need to delay travel plans for a while to free up some cash to take care of your remaining debt.

Side Hustles or Second Jobs

If you are struggling to keep up with bills that are overdue, you might consider the potential benefits of a side hustle or second job. These options can be especially helpful if you have overdue bills with high interest rates that threaten to make your debt snowball. The faster you pay those bills down, the less interest you will pay. You can always take a break from the extra work when the overdue bills are gone.

It’s worth noting that sometimes these steps aren’t enough. If you are feeling overwhelmed by debt, you may need to consolidate high-interest debt (say, by finding a balance transfer credit card that gives you a no- or low-interest rate for a while so you can catch up). Another option is to take out a personal loan at a lower rate than the debt you owe, so you are swapping more expensive debt for less expensive debt. Or you might want to talk to a credit counselor at a non-profit organization like the National Foundation for Credit Counseling or NFCC.

When You Are Caught Up

Once you pay off your overdue bills, consider how to move forward. There are steps you can take to avoid falling behind again in the future.

Following Your Budget

Re-evaluate your budget. Focus on paying down your debt; you might be able to budget for extra debt payments each month. This doesn’t necessarily mean a full additional payment. Look into how automatic bill payments work, and see if you can, say, put an extra $100 or more towards a loan’s principal every month to pay it down more quickly.

Saving for an Emergency Fund

So, why is saving for an emergency fund a financial priority? When someone has an emergency fund, if, say, a job loss or unexpected bill arises, they have some extra cash. They don’t need to turn to credit cards or loans. Having at least three to six months’ worth of basic living expenses can be a welcome relief if you encounter a rainy-day situation.

Paying on Time

Prioritizing on-time payments is a wise move once you no longer have late bills. It’s a very important step that contributes to your financial well-being. You might want to explore how bill pay works and set up automatic payments to make sure you hit your due dates.

Not only can paying bills on time make it possible to avoid extra interest payments and fees, but it helps improve your credit score. Prompt bill-paying is the single biggest contributor to that three-digit number that can impact the mortgage rates you qualify for and more.

Tracking Spending

Tracking expenses can make it easier to see where money is going and to adjust a budget accordingly. It also makes spending more conscious and makes it harder to accidentally overspend. Some people like to log this sort of information in a journal or on a spreadsheet; others use one of the many apps available. The latter can even cluster your spending by category to show you trends in how you use your cash.

Bank Accounts That May Help You Save and Budget

If you want to save on banking fees, you may find an online bank or a credit union that suits your needs. Credit unions are not-for-profit so they tend to charge their members fewer and lower fees. They may well offer them higher interest rates on savings accounts too, which makes it easier to spend less and save more. Online banks are also usually able to offer these perks since they save so much money by not having expensive bricks-and-mortar banking locations.

What’s more, these kinds of financial institutions may offer educational tools and/or apps that help enhance your money savvy and build your skills.

Banking With SoFi

There are a lot of reasons why people fall behind on their bills. Fortunately, with a little planning and wise budgeting, it is possible to play catch-up. After that, use your newly honed money skills to put an action plan in place to avoid future debt traps.

The bank you partner with can also impact your financial status. At SoFi, we make banking easy and can help your money grow faster. Open a new bank account with direct deposit, and your Checking and Savings will earn a whopping 2.00% APY while you pay absolutely no account fees.

Bank smarter with SoFi.

FAQ

Should I pay all my bills at once?

Paying all your bills at once, if possible, can help you stay on top of your expenses and may help improve your credit score. This step can streamline the process and help make sure nothing slips through the cracks. That said, there’s nothing wrong with spacing bills out throughout the month to make it easier to afford them as long as they’re paid before their due dates.

What to do when you can’t catch up on bills?

Make a list of all bills due, prioritizing the ones that are for necessities (housing, for instance) and those with the highest interest rates. Then budget for how to pay them off. You might have to slow down saving towards a certain goal (a vacation, the down payment for a home) or consider taking on a side hustle or second job in order to get caught up.

What bills should I prioritize?

It’s a good idea to prioritize any bills relating to necessities, such as housing and utilities. Then it’s helpful to move onto bills with high interest rates and fees that can mount and make the bills even more difficult to pay off.


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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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.
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