How to Get Approved for a Personal Loan

Sometimes, even careful planning and saving aren’t enough to prepare you for the expenses that lie ahead. Maybe fall is setting in and a chill is starting to set in the air. Perfect time for the furnace to break down. Or maybe summer is just around the corner and you realize the pool liner needs to be repaired.

These unplanned costs could be inconvenient and expensive. While you may not have experienced these exact scenarios, you may have felt the pinch in another way. When that happens, the pressure to make ends meet may be stressful. Taking on additional debt is not ideal, but if you don’t have the cash you need when an emergency strikes, there are options.

Personal loans, a sometimes underrated choice, are one way to pay for an unexpected expense or cover a big-ticket purchase. This type of loan may be taken out for lots of personal reasons. Personal loans are typically funded as one lump sum and could be used for things like consolidating credit card debt, paying medical bills, funding a big move or home remodel, paying for a wedding, or taking a dream vacation.

Broadly, there are two types of personal loans—secured and unsecured. A secured loan is backed by something of value, like a car or house, which is used as collateral. Should the borrower fail to make payments on the loan, the lender can seize the collateral. Usually, the borrower will receive calls and a debt collection letter as a warning before this happens.

An unsecured loan isn’t tied to an asset, which could make them riskier options for lenders. Because they’re not secured by an underlying asset, unsecured personal loans typically have higher interest rates than car or home equity loans, but lower rates than credit cards.

Of course, saving up an “emergency fund” for unexpected expenses is preferable to taking on debt. However, if you find yourself about to charge a massive sum on your credit card, and you know you won’t be able to pay it off within a reasonable period of time, a personal loan with no prepayment penalty could be a viable alternative.

Applying for an unsecured personal loan is typically pretty straightforward. But you’ll want to do your research, and you might want to make sure you have your financial ducks in a row to help your chances of approval and qualifying for the best possible terms and interest rate.

While everyone’s needs and financial picture are different, and this article is in no way a guarantee of qualifying for a personal loan, the application process can look very similar. So here’s what getting approved for a personal loan can look like:

Steps of the Personal Loan Application Process

The application process for a personal loan might seem more daunting than it actually is. Yes, you need to know a few things about your current financial situation (and your financial history).

But it really shouldn’t take long to get your facts straight. You might find it helpful to follow these steps when you start the process for a personal loan:

1. Figuring Out How Much You Would like to Borrow

First, you might want to make sure you’re realistically estimating the amount you’ll need. Borrowing more than you need might not be a great idea, since you’ll be paying interest on the lump sum you take out.

On the other hand, you wouldn’t want to borrow less than you need, only to end up resorting to using a credit card to make up for the difference. Be honest with yourself and your lender, and work with them to find the amount, interest rate, and term that works for you.

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2. Checking Your Credit

Although different lenders can use various scoring models, you might want to pull your current credit score and assess how strong it is (generally, a FICO® Score above 740 is considered very good—and above 800 is “exceptional”—but broadly, many lenders consider a score of 670 or above to indicate solid creditworthiness). This might be one of the main factors lenders consider when considering you for a personal loan, so it’s good to know your score.

3. Getting Pre-Qualified

Many lenders these days allow you to quickly see if you pre-qualify for a loan. This process could show you how much the loan would potentially be approved for, what your repayment terms and your interest rate could possibly be.

You’ll often provide basic information such as your address, income, and Social Security number. Often, lenders may do a soft credit check at that time that doesn’t affect your credit score1.

Once you see a pre-qualified quote from a couple different lenders, you could compare the interest rates and monthly payments you’re offered before choosing the best option for your needs. Also, when you’re comparing lenders, you might want to keep an eye out for any hidden fees, such as origination fees, prepayment penalties, and late fees.

These fees could add up quickly. Factoring them in now might help you avoid any surprises down the line. Understanding the true cost of the loan, beyond just the interest rate, might help you make a decision about which loan is the best fit for you.

4. Submitting Your Application

The final step is to apply for the loan. Each lender has their own requirements for documentation and qualifying.

For many lenders, you’ll need to submit things like a photo ID, proof of address, and proof of employment or income. At this stage, the lender will do a hard credit check, which involves collecting information from all three major credit bureaus and could affect your credit score.

Ways to Help Improve Loan Approval Chances

You likely want to be approved for the best loan terms and interest rate possible. And that probably means putting your best foot forward on your application. Here are some ideas you might want to consider when applying for a personal loan:

1. Checking Your Credit History

If your credit score is shaky, the time to take action is ideally before you apply for any loan.

As a first step, you might consider requesting your credit report , which you can do for free annually . You could check for any errors or problem areas you want to work on. If you find any issues, you might want to report them to the credit bureau.

There are steps you could take to help with any misinformation reported around late payments or delinquencies. Filing a credit dispute is one idea, but keep in mind that fixing issues on your credit report could take time. It may be a good idea to do your research and understand the process.

2. Keeping a Stable Job

Before issuing a personal loan, lenders consider factors like your employment and income. Essentially, a lender is taking a risk by letting you borrow money, so they want to be confident you have the resources to pay it back.

Lenders might also be looking at how much you make and how stable your job is. So if you plan to apply for a loan, this might not be the time to change careers. Normally, changing (improving) jobs or income at the same company is not an issue. So if it’s the right time at work, you could ask for a raise.

3.Adding a Co-Borrower

If you don’t have great credit or don’t make very much, adding a co-borrower to your loan might increase your chances of approval. They might also help you get a better interest rate and repayment terms.

A co-borrower is someone who agrees to pay the loan if you default, and will be responsible for any missed payments.

That’s because a co-borrower is someone who takes the loan out with you—their name is on the loan, and you both have an obligation to repay it. Adding a strong co-borrower may improve your chances of qualifying for the personal loan that fits your needs.

Ready to Apply for a Personal Loan?

If you’re on the hunt for the right personal loan, consider SoFi. Qualifying borrowers may be eligible for up to $100,000, depending on their needs. The application process can be completed entirely online, and you’ll have access to customer support seven days a week.

There are absolutely no hidden fees when you borrow a personal loan with SoFi—no prepayment penalty or origination fees.

If you unexpectedly lose your job, you could qualify to pause your payments with SoFi’s Unemployment Protection Program for up to 12 months, though interest will continue to accrue.

SoFi could even help you in your job search with benefits like career services. To get an idea of what your rate and terms could look like, you can pre-qualify and see your rate in just a couple minutes.

Check your rates for a SoFi personal loan today. SoFi offers loans with zero fees and various repayment options.


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.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation 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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Are You Bad with Money? How to Know & What to Do

So, you think you’re bad with money. Welcome to the club.

At some point, many people may feel this way. It’s probably no surprise, considering that the average person is given little guidance on how to be good with money.

No matter what you do in life, managing your money is considered imperative to success. But as important as it is, money skills are not taught in many schools or learned from parents and family, leaving you to figure it out on your own.

And self-education can be difficult; there are many conflicting viewpoints that flood the internet. Information paralysis can make it hard to even know where to start.

So, you give up before you even begin. Maybe, it’s even part of the identity that you give yourself. You’ve decided having bad financial habits is a “truth” about your life.

But that mindset isn’t helping anyone—especially you. Improving your relationship with money is something that is fully within your capacity—and you’re the only one who can make this change. No one cares about your money as much as you do.

Here are tips and tricks for better money management for those that think they’re bad with money. Pick one or two—taking action is one way to get good with money.

Figuring Out if You’re Bad with Money

Sometimes the signs are clear, like getting multiple notifications for overdraft fees in a week. Sometimes, being “bad with money” is less situationally obvious, and is more of just a feeling you get.

While it is different for everyone, this sense can manifest in anxiety, shame, or an inability to take action on simple money tasks.

To help determine if you are considered bad with money, here are some bad financial habits you can look out for. If you are engaging in one or more of these habits, it may be time to take action.

•   Living paycheck to paycheck. One telltale sign is that feeling that every week or month is a race to see whether you can make it to the next payday. Sometimes you make it, and sometimes you don’t—but either way, it’s anxiety-inducing.

•   Overdrafting your account. Sometimes, the result of living paycheck to paycheck is finding yourself overdrafting your bank account, which often results in a harsh fee.

•   Paying bills late and missing bill payments. Whether done knowingly or by accident, consistently missing bill payments—and racking up those damning late fees—is a hallmark of those struggling to manage their money.

•   Debts are growing or staying at the same level. You’re making payments on your debts, but they aren’t getting any smaller. Maybe, they are even growing larger. Ideally, debt balances would move in the other direction.

How to Be Better with Money

Here are some ideas for getting better at money management, broken down into the following categories: Money mindset, budgeting, saving, and debt repayment.

Money Mindset

A big piece of being good with money is having a positive and confident mindset. This is unlikely to happen right away, and it takes ongoing work, but that doesn’t mean that it’s not important. Here are some ways to start thinking about money in a new light:

•   Confronting closely-held beliefs. Spend some time dissecting the previously-held beliefs you have about money. You learn a lot about money from a young age—that money is good or money is evil, for example.

Some people may grow up believing that money is a scarce resource, while others understand money as a tool. There are many numbers of qualities that get assigned to money that are not objectively true.

If you have major fear or shame regarding money, you may want to consider working through these emotions with a financial therapist. Your feelings are valid—but that doesn’t mean you have to live with them.

•   Integrating affirmations into your daily routine. This one is admittedly a bit hippie-dippie, but you may find affirmations to be a grounding part of your day. For example, affirmations such as “I am worthy of wealth,” “I am capable of managing my money,” and “There is money out there to be made by me” could act as helpful reminders that you are in charge of your money and not the other way around.

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Budgeting

•   Tracking your cash flows. Before you can ever build a budget, you need to understand the money that is coming in and the money going out. There is no way to set reasonable budgeting categories without some understanding of your current spending patterns.

You may find it helpful to simply track your spending for a month or two, either by journaling, tracking in Excel, or using a service that hooks up to your bank accounts, giving you helpful snapshots into your spending—such as SoFi Relay.

This may sound obvious, but it’s Money Management 101: It is ideal that you are not spending more than you are earning or bringing in. To work towards a place where you’re able to spend only money you have on hand, you need to know both how much money you have on hand and the categories where you’re overspending.

•   Finding a budgeting method that works for you. There are many ways to budget, and one is not necessarily superior to another. it’s all about finding a method that works for you—and sticking to it. Budgeting isn’t hard, per se, but it does require diligence. The challenge is making your chosen budget part of your everyday life.

Try taking it back to basics by using a cash-only budget, using cash envelopes, or doing zero-based budgeting. Any of these budgets can be used within the very basic budgeting framework of 50/30/20, which is the idea that 50% of your budget should go to necessities, 30% goes to fun spending, and 20% goes to savings goals. And while this is a helpful guide, you still need to enact a strategy within this framework.

Saving

•   Learning to say no. Most people cannot afford to buy everything they want. That’s just a reality of being alive and having relatively easy access to just about anything you could ever dream of buying.

If you truly want to learn how to be better with money, you need to do some soul-searching and figure out what it is that really matters to you—and say no to the rest. This will help you avoid damaging FOMO spending.

•   Automating your savings. Once you have graduated from being at risk of overdrafting your accounts, the next step is to automate your savings. That means setting an automatic flow of money from your checking account (or wherever your money is deposited) and into accounts designated for saving. This can be done on a monthly (or bi-monthly) basis, a few days after your paycheck hits.

Don’t make saving a chore that you have to remember to do once or twice a month—you’re busy and you might forget. Let technology do the heavy lifting for you.

That way, you can practice the good investor behavior of spending what is left after saving, and not the other way around.

If you’ve never moved a surplus of cash into a savings account after the month is through, it is time to find a better way.

•   Earning more money. Do you feel like you’re cutting back on spending as much as possible, but not getting anywhere? You may need to work on earning more money. There is a limit to what you can cut out, but there is no limit to what you can earn.

This could mean something different for everyone. Maybe this means sitting down with a boss and creating a path towards earning more money. This could entail taking on more responsibility or hitting certain numbers and metrics. For others, this could mean picking up a “side hustle,” whether related to a current career or not.

Understanding (and Paying Down) Your Debts

Many bad financial habits are born from the easy access consumers have to money that isn’t theirs—and that they need to pay back, with interest.

•   Listing out all of your debts. The first step in conquering your debts is knowing exactly what you’re up against. In a spreadsheet or on some other document, list out each source of debt that you currently hold.

This includes student loans, credit cards, car loans, and any other sources of debt. Include the loan servicer, the size of the debt, the interest rate, and the amount and date of the monthly payment on each debt.

•   Learning about interest rates. Interest rates are the cost of using someone else’s money (the bank’s, usually). They might not seem like a big deal, but interest charges can rack up quickly and can make a purchase much more expensive than the initial sticker price.

To get an idea of how interest can impact how much it costs to borrow money, you might find it helpful to play around with interest rate calculators, such as this credit card interest calculator.

Here’s an example of how expensive interest charges can be. Using the calculator, consider $1,000 charged on a credit card with a 16% fixed rate of interest. If you make a $20 payment to the card each month, you’ll pay an additional $659 in interest charges as you make those payments over the course of nearly seven years.

And this is assuming that you don’t add any more money to the credit card while you’re paying off the current balance.

As you can see, getting out of credit card debt is hard work due to interest charges along with the temptation to charge even more to the card, as more room on that credit “frees up” as the balance is lowered.

While you are using the calculator, look at how much money you could save if you were to pay off a loan or credit card faster, or by having a lower interest rate.

•   Making all monthly debt payments, but choose one to focus on. This may be the source of debt with the highest interest rate, or you may opt for the smallest overall balance, giving yourself the psychological victory of kicking a source of debt to the curb. It doesn’t really matter which method you choose—just choose one and get aggressive. Put extra money towards the balance (principal) of that debt.

•   Avoid charging more to credit. Getting better at managing your money is hard to do when you’re adding to your credit card balance. Credit cards are notoriously difficult to pay back when you’re only making the minimum payments, and nearly impossible if you’re doing that while adding to the balance.

Tools for Better Money Management

You don’t have to master all of the above concepts right away. Becoming a person who is “good with money” is a journey.

Consider taking it step by step, starting with one area and moving on to the next as you feel you have mastered each concept.

One place to start is getting organized and staying organized and there are some really great tools for that.

First, track down all of your money, both assets and liabilities. Make a master list that includes all passwords, and consider storing those passwords in a secure place.

Start building familiarity with your financial situation, and look for small ways to improve it every day. You may find it helpful to take a look at accounts once a day or once a week as you are getting to know what your money looks like. This may also help you gain some understanding of your spending habits over shorter periods.

To give you a useful snapshot of your spending, consider opening up a SoFi Money® cash management account. You’ll be able to track your spending with your weekly dashboard within the app.

Get your money on track, get started with SoFi Money today.


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.
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. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.

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How to Escape High-Interest Credit Card Debt

You had a long day—there was a crisis at work, you have a major school assignment, or one of your kids has a cold. Exhausted, you’re finally plumping up your pillow, ready to catch some Zs. But sleep won’t come. Why? Because you’re stressing out about your credit card debt.

You aren’t alone. Americans are carrying more credit card debt than they ever have before, and as of January 2020, the average credit card APR, or annual percentage rate, on new offers is 17.30% (and has been hovering around 17% and 18% for the last six months).

When it comes to debt, credit card debt is sometimes classified as “bad debt,” while student loans or a mortgage may be categorized as “good debt.” This is because student loans or a mortgage loan imply that your debt is an investment in something—whether in a house that could appreciate in value or an education that can boost your income. In contrast, credit card debt is rarely an investment. And because of the way credit card interest is charged, it can end up costing you a lot.

Not only can credit card debt mount quickly, but a large credit card balance may adversely impact your credit score. And a credit score plays a big role in our lives in terms of qualifying for mortgages, car loans, and apartment leases, among other things.

If you feel underwater when it comes to carrying a credit card balance, it’s good to know that there are tools you can use to help get out of high interest credit card debt.

Unfortunately, there is no magical quick fix to help you escape credit card debt, but there are actionable steps you can take to reduce and eventually eliminate your credit card debt. It can take some time and effort, but being free of the emotional and financial burden credit card debt can create is often worth it.

The Problem with Carrying Credit Card Debt

Having credit cards is not an inherently bad thing. They help you establish a credit history, which in turn can help you towards owning a car, a home, or your own business. But on the other hand, it’s not hard to amass a large amount of credit card debt.

This is because for every billing cycle where you’re not able to pay the statement balance in full, you’re charged interest. This might show up on your credit card statement as a “purchase interest charge.”

The interest you’re charged on a credit card compounds. Compound interest means interest is calculated not only on the principal amount owed, but also the accumulated interest from previous pay periods.

Essentially, it means your interest is earning interest. Compound interest can pile up quickly, to the point where it might feel like you’re paying financial catch up month after month.

By the time you pay off your credit card debt, you could not only be paying off your purchases, but you could also be paying every interest charge you’ve incurred on that balance.

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Getting Out of High Interest Credit Card Debt

Because interest charges grow your credit card debt, it can be hard to get rid of it once and for all. And as already noted, credit card interest rates run pretty high—averaging between 17% and 18% currently. That is because credit cards are considered to be “unsecured” debt vs a mortgage loan which is recorded as a lien on the home. To put that in perspective, as of January 2020, mortgage interest rates are around 3.84%.

So the interest you’re paying on a credit card is approximately four times as much as the interest you would pay on a mortgage. Reducing your credit card debt comes down to the financial strategies you use. Here are three ways you can potentially manage your credit card debt, and in time, completely pay it off.

There’s no single right way to pay off debt, and certain methods might suit you better than others. While paying off high interest debt is a numbers game, it’s also an emotional one.

The best method may be the one you‘ll likely stick to—the debt repayment method that motivates you. If you want to repay your debt, it may not matter which method you select, as long as it helps you stay on track to repay.

To get an idea of the total amount of interest you are likely to pay on your debt, you can consult our Credit Card Interest Calculator.

1. Using the Snowball Method

The snowball method is a popular debt payoff option—people use the snowball method to pay off their student loans, too. For credit card debt, the snowball method works if you have debt across multiple credit cards. First, you’d make a list of all of your credit card debts and put them in order of the smallest to largest balance.

Then, you would focus on paying off the smallest balance first (while making the minimum payments on your other credit cards). Once you’ve paid your smallest balance, you could focus on the next smallest balance, and so on.

By paying the smallest balance first, you will potentially gain momentum that may motivate you to pay off your other debts. Thus, your effort “snowballs.”

Say, for example, you have the following loans:

•   $1,200 medical bill with no interest and a $150 monthly payment

•   $11,000 student loan with 5.5% interest and a $235 monthly payment

•   $15,000 credit card balance with 16% interest and a $400 monthly payment

Using the snowball method, you’d work to tackle the medical bill first, while still paying the monthly minimums on the rest of the debt. Once you pay off the medical bill, you could start contributing its monthly payment, plus additional spare funds, towards the student loan, and so forth. The small debt repayment snowballs into the larger debts.

Some argue that the snowball method isn’t the most efficient way to pay off debt, but in some cases it may be the most effective. The snowball method could dictate paying off a small no-interest loan in its entirety even if a high-interest credit card carried a higher balance.

But, for some people, paying off those small debts is a motivating experience, and can help them stay on track. If those small wins make a difference for your mentality, the snowball method could be for you.

2. Tackling the Highest Interest Debt First

If the snowball method doesn’t appeal to you, you can try tackling your highest interest debt first, sometimes called the debt avalanche. This is similar to the snowball method, except you start with your highest interest debt instead.

A good first step might be making a list of all of your credit card debts and their interest rates. Then, you could pay off the credit cards with the highest APR first, while making the minimum payments on your other debts.

When the highest-interest card is paid off, you could tackle the credit card with the second highest APR, and so on—until your credit card debt is completely paid off. If you choose this payoff method, the goal is to reduce how much you spend on interest overall.

So using our earlier example, you have the following loans:

•   $1,200 medical bill with no interest and a $150 monthly payment

•   $11,000 student loan with 5.5% interest and a $235 monthly payment

•   $15,000 credit card balance with 16% interest and a $400 monthly payment

In this case, you’d throw your support towards paying off the credit card balance first. Once it’s paid off, you’d allocate that $400 a month towards the student loan, making the repayment much faster with additional payments each month. Finally, you’d tackle the medical bill.

This method focuses on building momentum, leading to an “avalanche” of repayments once you really get moving. For some, this method can be discouraging, because, unlike the snowball method, you are budgeting for the long game. However, once the wins come, they may avalanche much faster.

3. Consolidating Your Credit Card Debt into a Personal Loan

If you are paying off several credit cards every month, it may be overwhelming. But if you consolidate all your debt into a personal loan, you’re likely only making one payment each month.

Here’s how it works: You’d take out a personal loan, consolidate all your credit card debt with it, and then you pay back the single personal loan.

The best part? Personal loans typically come with a lower interest rate than your credit cards, and you may be able to set more manageable terms with your lender. And since you’ll only have one payment every month, and you can usually choose a fixed interest rate, it may be easier to keep track of.

Using the above example debt profile, you could end up putting your medical bill and credit card debt into one monthly payment, making a simple single transaction for those two debts each month. (You can’t typically use a personal loan to pay for education debt, but student loans can be consolidated or refinanced, hopefully, for better rates and terms.)

In paying your credit card debts off with a personal loan, you can consolidate into one simple payment, and possibly save money by potentially paying a lower APR.

SoFi offers personal loans—without any fees. You can apply online in just minutes and manage your payments online as well. Additionally, you’ll have access to customer support, 24/7. With a SoFi personal loan, depending upon the terms, you could potentially get out of debt faster and with less stress—setting you up for a better financial future.

Consolidating credit cards with a personal loan can help improve your financial position. Check out SoFi personal loans.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation 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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What Is Credit Card Consolidation?

First you take out a credit card because it has a great airline rewards program. Then you take out a card because it gives you a fabulous discount at your favorite retail spot.

Maybe you had some bills you couldn’t pay off right away, and so you decided to open up another card to cover those costs. And on and on you went, until suddenly you have a wallet full of credit cards—and a hard time keeping track of them.

If you find yourself in this situation, you may want to stop and assess to be sure you haven’t set yourself up to overspend, forget to make payments, and run up a heap of credit card debt. Consolidating your cards can sometimes provide a solution, allowing you to ditch keeping track of your excess cards and focus your energy on just one bill.

How Credit Card Consolidation Works

Credit card consolidation is the practice of combining your credit card balances with one new loan from a financial institution or another credit card company. Ideally, the new loan or credit card consolidation terms will allow for multiple credit cards—perhaps some with sky-high or variable interest rates—to be consolidated with one loan, ideally at a more manageable interest rate.

If you’re not quite sure how that could help your debt management, think of it this way: We all have that one closet or drawer that is just filled to the brim with random stuff—knick-knacks, boxes, childhood toys, and clothes that you just don’t have room for. It gets so bad that either you’re too afraid to open your closet, or the closet is so full that you physically can’t open it.

That closet represents your credit card debt. You might have one, two, three, or four or more cards—and you may even be making minimum payments—but with so many cards to juggle, you may not be paying attention to details on the bill, like how much interest and fees you’re accruing.

It may seem easiest to put this debt out of sight and out of mind. This feeling is understandable; credit card debt can be overwhelming to the point that it seems easier to just keep the closet door closed.

When you consolidate your credit cards, instead of having to remember multiple payment deadlines (and accruing multiple separate fees and interest balances), you’ll only have one payment.

Not only is debt easier to manage and pay off when you only have one loan, consolidating your credit card debt may mean that you could also get a lower interest rate, which may help reduce how much you pay over the long-term.

This factor may be especially helpful considering that the average credit card interest rate hovers around a whopping 17%.

Here’s a look at some of the common methods you may consider using in order to consolidate your cards.

Consolidating with a Credit Card Balance Transfer

One common way to consolidate your credit card debt is with a credit card balance transfer that puts all of your credit card debt onto one new card. In fact, many credit card companies will offer low interest—or even 0% interest—transfers for a certain period of time to encourage you to use a balance transfer for consolidation.

However, if you’re considering this route, there are a few things to remember. First, as mentioned, the low or 0% interest rate may only be introductory rates, which means you’ll have a limited amount of time to take advantage of them.

After the introductory period, rates my skyrocket, perhaps becoming even higher than your interest rates from before. So, this strategy may work best if you have a manageable amount of debt and could pay it off within the introductory period or shortly thereafter.

You may also have to pay a balance transfer fee, which may be a fixed fee or a percentage of the amount that you owe. If you carry a high balance on your cards, this fee could be prohibitively expensive.

Additionally, new purchases on this card may not be treated the same way as your transferred debt. For example, you may have to start making interest payments on new debt immediately.

Using a Debt Consolidation Loan

Your bank may offer a specific debt consolidation loan that allows you to corral your credit card debt—and even medical debt or personal loan debt—under one loan. One single loan can simplify your payments, and may even carry a lower interest rate than your credit cards.

As with credit card balance transfers, beware the teaser rate with these loans. Low interest rates may only last a short period of time before your bank hikes your interest rate. Consider the cost of fees to take out the loan as well.

Another important factor to consider is the term of the loan. While your interest rates may be lower, the length of time over which you’ll be paying may actually increase the amount of money you pay over time.

Taking out a Personal Loan

You may also want to consider a personal loan to help you consolidate your debt. Banks and lenders typically offer these unsecured loans. Interest rates may be lower than those you are currently paying, but you may want to consider that, depending upon your credit history and the lender’s criteria, the lowest interest rates may not be offered to you. Also, personal loans may come with origination fees, which may be between 1% and 8% of your loan.

Potential Benefits of Credit Card Consolidation

Credit card consolidation is an option to help make your debt more manageable. While it won’t magically whisk away your debt, better terms may give you the confidence, organization, and time you need to get rid of it altogether.

A credit card consolidation loan may help you pay the debt off sooner, or at a lower interest rate, and give you emotional and financial relief.

And because with consolidation all of your debt will be combined into one new loan, you’ll only have to remember one payment deadline, helping to reduce the likelihood of late payments and fees.

Unlike filing for bankruptcy or defaulting, although credit card consolidation may have an initial negative effect, if you do pay off your debt you may be able to raise your credit score in the long run. It may provide you with a tangible solution to tackle your credit card debt head on.

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Should You Consider Credit Card Consolidation?

If you have a large amount of high-interest debt and want a simple, more streamlined way to manage your credit card payments, you may want to consider credit card consolidation via a fixed-rate, unsecured personal loan.

Understanding whether this is the right avenue for you also depends on your personal financial situation. Here are a few hypotheticals:

You…

Have a plan to pay off your debt.

Is credit card consolidation right for you?

Credit card consolidation isn’t a quick fix. It typically works best if you have a long-term debt management plan that includes budgeting and a plan to cut spending.

You…

Have manageable debt.

Is credit card consolidation right for you?

One possible way to figure out if your debt is manageable is if you answer “yes” to either of the following questions: Can you pay off your debt in five years? Is your debt less than half your yearly income?

You…

Are serious about paying off your debt.

Is credit card consolidation right for you?

Sometimes credit card consolidation can boost your confidence a little too much, resulting in a more relaxed approach to debt payoff. You can potentially avoid this pitfall by taking your debt payment plan seriously and committing to making the necessary payments (at least the minimums) each month.

You…

Can pay off your credit card debt in six months or less.

Is credit card consolidation right for you?

Probably not. If you can pay off your debt that quickly, then the savings you’d receive from consolidating your credit card debt would likely be minimal.

Potential Cons, and Other Factors to Consider

When you consolidate your credit cards, it’s easy to feel like you have a new lease on life. But in taking out a consolidation loan (or balance transfer), you are still taking on debt and will still need to make payments on time to avoid late fees and damaging your credit. Avoid simply kicking the proverbial can down the road by making a plan to pay off your new loan.

Lenders take your credit history, income, and other factors into account when considering you for a personal loan to consolidate your credit card or other debt.

If you’ve been making on-time payments, meet income criteria, and have a credit history that meets the lender’s eligibility requirements, then consolidating your credit card debt might be worth looking into. The sooner you can set yourself up to pay off your debt successfully, the better (generally), and credit card consolidation can be one way to go about it.

With a SoFi personal loan, you can check your rate and terms without affecting your credit score1 and if you like what you see you can apply to consolidate your credit card debt into a new loan with no origination, prepayment, or late fees—and that could help give you that confidence, organization, and time you need to get a better handle on your debt.

Visit SoFi to learn more about consolidating your credit card debt with a personal loan and see what rates you may qualify for.


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.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation 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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Secured vs. Unsecured Personal Loans—What’s the Difference?

The beauty of a personal loan is that in most cases the funds can be used for just about anything you need, from making a larger purchase to paying off bills to consolidating outstanding debt.

This type of loan can be quite appealing since its versatility allows it to be used in a broad range of situations where you may need a quick infusion of cash.

More specifically, a personal loan allows an individual to borrow money from a variety of sources such as a bank, credit union, or online lender in order to cover major expenses such as medical bills or home repair costs.

It can also be used to consolidate high-interest credit card debt. Personal loans typically come in two different forms: secured and unsecured. The major difference between the two is collateral.

In this post, we will be explaining the difference between secured versus unsecured loans and highlighting some of the pros and cons of each. We should mention up front, however, that this is a very high-level overview of personal loan types, and isn’t a substitute for advice.

Everyone’s financial situation is unique, and you should always consult with a professional if you have questions about financial topics like personal loans.

What are Secured Personal Loans?

With a secured loan, the borrower offers something of value, such as their car as backing—also called “collateral”—for the loan. An example of this type of loan is a car title loan.

Other times, lenders may loan out money using the borrower’s savings, investment account or certificate of deposit as collateral. The lender has the right to take ownership of the collateral in the event that the borrower stops making payments.

A lender will usually give the borrower notice that they have defaulted on their loan and allow them the opportunity to become current in their payments before they lay claim on any collateral, however.

Pros of Secured Loans

Given that a secured loan involves collateral, the lender typically views these types of loans as less “risky.” The borrower is less likely to default because it would put the collateral at risk.

And because there is less risk for the lender, they may offer better terms such as a lower interest rate or higher loan amount than they might for unsecured loans. Plus, if you’re in the process of rebuilding credit, a lender may be more willing to loan you money if it’s secured by collateral.

Cons of Secured Loans

The major drawback of a secured loan is that the borrower faces the potential risk of losing their collateral if they are unable to continue paying. Further, a secured loan is typically used to purchase a particular asset, like a car or a home, and the funds usually can’t be used for anything else.

The other major drawback is that the approval process can be more complicated and usually requires more time and paperwork.

What are Unsecured Personal Loans?

With an unsecured loan, a borrower doesn’t have to offer collateral in order to qualify. This type of loan is sometimes called a “signature loan” because after loan approval, the funds are provided with only the borrower’s signature as a commitment to pay back the money.

Because there is no collateral backing up the loan, a lender will rely on the borrower’s creditworthiness (among other personal financial factors that vary from lender to lender) in order to determine whether to approve the loan.

Pros of Unsecured Loans

The approval process for an unsecured loan is typically simpler and faster (but not necessarily easier in terms of getting qualified, since unsecured loans typically require a stronger credit and financial history than secured loans). It also typically requires less paperwork. Additionally, with an unsecured loan, the borrower doesn’t risk losing valuable property in the event of nonpayment.

Cons of Unsecured Loans

Given that an unsecured loan is generally considered riskier for the lender, the loan limits may be smaller. Lenders may also charge a higher interest rate than they would for a secured loan.

While a borrower doesn’t risk losing collateral, the lender still has the right to take steps to collect the debt. Depending upon circumstances, Failure to pay back the loan could have an impact on a borrower’s credit score, and the damage can last for years.

An unsecured loan is riskier for the lender

Both secured and unsecured personal loans can be a great way to help a borrower access funds without having to incur high interest credit card debt. As with any loan, a borrower should carefully evaluate the advantages and risks in order to make an informed decision based on their unique financial situation.

The extra cash a personal loan provides could help a borrower cover an emergency and maybe even achieve some financial goals that may otherwise not have been possible, such as consolidating credit cards or other high-interest debt into better terms, or conducting a major home renovation.

Secured vs Unsecured: Which to Consider

So now that you know the difference between secured and unsecured loans, how can you determine which is the right choice for you?

In general, individuals may have a better chance at qualifying for a secured loan because of the collateral attached to the loan.

Additionally, secured loans could offer better terms in some cases, because the lender has something of value to make them whole in the event of non-payment. Plus, lending limits can be higher on secured loans—if a larger loan amount is most important for your needs.

But, if you have a solid financial profile, you may be able to qualify for an unsecured loan with favorable terms, which you would not have to put up any collateral for. This can be a better route for some people who do not want to risk any of their belongings (like a car) or may not have any collateral to offer.

It’s a good idea to shop around with different lenders to compare interest rates, fees, lending limits, and types of personal loans to see which is the right fit for you. Each of these aspects can vary widely by lender; plus, loan qualification requirements may also vary significantly.

In general, banks and most other lenders prefer personal loan consumers with higher credit scores, as this can be a good indicator of how a person manages their credit. Credit unions may offer a little more wiggle room when it comes to their eligibility requirements, but you’d likely need to be a member to qualify.

Online lenders may have better loan terms if you have decent credit, but you’ll need to make sure that the lender can issue a personal loan in your state. (You can take a look at the states where SoFi currently holds lending licenses here.) And, of course, lenders consider a variety of financial information when evaluating consumers.

Credit Score Insights

Because credit scores typically play a big role in whether or not you can get approved for a personal loan—and what your loan terms would be if you did get approved—it may be helpful to know your credit scores before you apply.

Some people may find that their credit scores give them the freedom to choose between a secured and unsecured personal loan; others may have a score that would ultimately cause a lender to require collateral, while still others may feel the need to improve their scores before they apply in order to obtain the best terms ona personal loan.

Although individual lenders may have differing eligibility requirements when it comes to loan approvals and qualifying credit scores, here is some general information. The majority of lenders, more than 90% in fact, use the FICO® Score to review a borrower’s credit. Using that system, scores can range from 300 to 850 (with some industries using a system from 250 to 900).

A FICO Score that’s below 580 can be perceived as poor, signaling to lenders that you’re a risky borrower. Borrowers with this type of score may have trouble qualifying for loans. A score between 580 and 669 is considered to be “fair.” This ranking is below average, but depending upon the reason for the low score, wouldn’t necessarily prevent some lenders from approving a loan application.

Each lender can have unique guidelines on what’s considered a good score for lending purposes. According to FICO®, a “good” credit score usually falls in between the range of 670 and 739, and this is about the average for consumers in the United States. A “very good” score, according to FICO, falls between 740 and 800, while a score of 800 or above is “exceptional.”

If you are looking to work on your score, here are a few commonly suggested tips from MyFICO that could potentially help.

SoFi Personal Loans

If you are interested in applying for an unsecured personal loan, check out SoFi. SoFi offers low-rate unsecured personal loans with no fees. Yes, that’s right.

No origination fees, no prepayment fees, and no late fees. Whether you have a cross-country move coming up or need help with unexpected medical bills, you can check your personal loan rate in just minutes.

Take a look at SoFi’s personal loan calculator to get an idea of how much interest you could save if you consolidated high-interest loans with a SoFi personal loan.

Interested in learning more about a SoFi Personal Loan? Check to see what rates you may qualify for.


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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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation 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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