Paying off $50,000 in Credit Card Debt

Paying off $50,000 in Credit Card Debt

Not all debt is bad. In fact, taking out loans and using credit cards responsibly is how most people build credit to access low-interest loans in the future. However, a problem arises if budgeting is poorly managed or finances become tight.

In either case, it’s easy to slide further and further into debt with no clear path to financial freedom. Before you know it, you may end up with $50,000 in credit card debt, which can feel insurmountable. But instead of throwing up your hands, here are some tips for how to pay off $50,000 in credit card debt and get your finances back on track.

Tips for Paying Off $50,000 in Credit Card Debt

Unsure of how to pay down $50,000 in credit card debt? Here are some paths forward you may consider, depending on your financial situation and preferences.

1. Pay More Than the Minimum

If you only pay the minimum balance on your card each month, it will take you much longer to pay off the debt. That’s because you will continue to pay a high interest rate. If you can pay off more than the minimum and start chipping away at the principal loan amount, you’ll pay less in interest over time, and the debt will disappear faster.

2. Focus on High-Interest Debt First

High-interest debt is the most expensive, so you’ll save money if you can get rid of it sooner. Check your credit cards to see which one has the highest annual percentage rate (APR), and then pay that one off first. Then, use the amount you save once that card is paid off to work on paying down the card with the next-highest APR.

3. Pay Off the Card With the Lowest Balance First

A different approach to paying down credit card debt is to initially focus on the card with the lowest balance. This is known as the snowball method, and it can help you stay motivated to pay down debt when you see each card’s balance getting paid off one by one.

4. Review Your Expenses

You might be able to free up cash to put toward paying off your credit card debt by taking a close look at how you spend your money and perhaps creating a budget that’s a bit stricter.

A good place to start when looking for areas to cut back are monthly subscriptions that you’re not using or don’t need, such as streaming services or audiobooks. You might also consider whether you can change your lifestyle. Look for ways to reduce your expenses — perhaps you can eat out less, buy cheaper groceries, or downsize your home.

5. Use Extra Cash to Pay Down Your Debt

If you’re lucky enough to receive a bonus at work or an unexpected windfall, use it to pay down your debt rather than adding it to your spending pool. Also think about whether you could take on some gig work, which would allow you to increase your income temporarily while you focus on paying down some of your debt.

Debt Management Program

Another option you might explore to get a handle on $50,000 of credit card debt is a debt management program (DMP). Credit counseling agencies offer DMPs to help people better manage their finances through education and counseling.

These agencies are non-profit organizations that assign counselors to individuals who need help. The counselors provide advice and guidance, and negotiate with the client’s creditors to develop reduced payment plans. Creditors are eager to get paid back, so they’re usually amenable to lowering interest rates and waiving fees for clients who work with a DMP and show they’re serious about repaying their debt.

If you choose to work with a DMP, you’ll usually make a single monthly payment, which then gets distributed to your creditors. The DMP will lower the amount of interest you’re paying overall and remove late fees, which means more of your money goes toward paying down your principal. This translates to your debt getting paid off quicker.

There’s usually a fee for a credit counselor’s services, and you will be required to close all of the accounts under the DMP so that you don’t continue to rack up debt. Still, a DMP can help relieve financial stress since you’re taking concrete steps to improve your financial situation.

Credit Card Debt Forgiveness

Credit card forgiveness occurs when a creditor forgives you of debt. While this might sound like a surefire path to financial freedom, this is rare for credit card companies, and it usually comes at a cost. Instead, what credit card companies might do is agree to negotiate a settlement whereby you pay a portion of the amount you owe with penalties. If you’re three or more months behind and unable to catch up with payments, it’s possible to negotiate a settlement with a credit card provider.

That being said, a creditor is more likely to offer forgiveness right before selling your debt to a collector because they’ll have to sell the debt for less than the full amount you owe and lose money. Negotiating a settlement with you instead may minimize their losses. It’s even easier to pursue debt forgiveness from a debt collector because collectors can profit even if you only pay some of the amount you owe.

Note that forgiven debt is considered income by the IRS, so you will owe taxes on the forgiven amount.

Additional Options for Paying Off Debt

Other options for paying off $50,000 in credit card debt include taking out a debt consolidation loan, which is a common type of personal loan, or turning to a home equity loan or a balance transfer credit card.

Home Equity Loan

If you have equity in your home, a home equity loan might offer a lower interest rate than your credit card and provide cash to pay off some of that higher-interest debt.

However, you will have to factor closing costs into the equation. Also know that you’re putting your home at risk if you can’t stay on top of monthly payments.

Personal Loan

Among the many common uses for personal loans is debt management and consolidation. If approved, you can use the funds you receive from a personal loan to pay off your credit cards. This will consolidate your debt, leaving you with just one payment to worry about each month.

Ideally, you’ll be able to secure a lower interest rate as well, which can offer savings. A personal loan calculator can help you determine if lowering your interest rate and monthly payments with a personal loan could help you save on total interest.

Recommended: Get Your Personal Loan Approved

Balance Transfer

With a balance transfer, you move your existing credit card debts to another card, ideally one that offers a lower interest rate. Some balance transfer credit cards even offer a temporary introductory APR that’s as low as 0%, though you’ll generally need solid credit to qualify for the most competitive offers.

Just note that a balance transfer fee will apply, so you’ll need to factor that into your overall costs. Also make sure that you’ll be able to pay off your balance in full before the introductory APR ends — otherwise, the interest rate could rise dramatically.

The Takeaway

Figuring out how to pay off $50,000 in credit card debt can seem overwhelming. Luckily, there are a number of options at your disposal. You might try a debt payoff method like the debt snowball or the debt avalanche, or you might look for ways to cut back or bring in extra money to put toward debt payments. Seeking help through a DMP is another option if you’re struggling to get your financial life back in order.

Another possibility is consolidating your debt by taking out a personal loan. Loan amounts range from $5,000 to $100,000, and it’s possible to get funds the same day you sign – or you could have SoFi pay off your credit card directly.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Should I sign up for a debt management program?

Consider signing up for a debt management program if you feel overwhelmed by your debt. A credit counselor can consolidate your debts into one payment and simplify the debt repayment process, as well as offer general advice and guidance.

Should I seek credit card forgiveness?

Credit card forgiveness is rare to receive. However, you might be able to negotiate with your creditor to reduce the amount you owe, which can help relieve some of your debt burden.

How long will it take to pay off $50k in credit card debt?

How long it will take you to pay off $50,000 in credit card debt depends on the APR and the amount of your monthly payment. For example, assuming you’re not continuing to add to your debt, if you have an APR of 19.07% and make monthly payments of $2,000, it will take you 33 months to pay off your debt. If you were only paying $1,000 a month at that APR, it would take you 101 months.


Photo credit: iStock/milan2099

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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Paying Off $20,000 in Credit Card Debt

Paying Off $20,000 in Credit Card Debt

Having credit card debt of any amount can feel overwhelming, but this is especially true with a steep amount like $20,000. Not sure how to pay off $20,000 in credit card debt? There are a number of options to consider to get your credit card debt under control and paid off.

For one, you might consolidate the debt using a balance transfer credit card or debt consolidation loan. Or, it might come down to adjusting your monthly budget or simply choosing the repayment method that works for you. Another option is pursuing a debt management program. Really, once you understand the potential solutions at your fingertips, paying off $20,000 in credit card debt can start to sound more doable.

Tips on Paying Off $20,000 in Credit Card Debt

Having $20,000 in credit card debt does present a challenge to the borrower working to pay that amount off, but it is possible to make progress and become debt-free. Let’s look at some ways you can make progress on paying off your debt.

Open a Balance Transfer Credit Card

Paying off credit card debt can be more difficult when you’re juggling multiple credit card balances. To help simplify the debt repayment process, you might consider opening a balance transfer card.

It’s possible to transfer just one credit card balance or multiple to a balance transfer card. This can be a good move to make if you can qualify for a balance transfer card with an introductory annual percentage rate (APR) of 0%.

While this 0% APR period is temporary, it can last at least six months and sometimes longer than a year. Not having to pay interest during that time period means all payments go toward the principal balance. This makes it a lot easier to pay down credit card debt faster, and it can save a lot of money in the process.

The trick here though is to pay off the entire balance before that introductory period ends and the interest rate shoots up.

Use a Debt Consolidation Loan

If someone has multiple sources of credit card debt, they might also consider consolidating that debt using a debt consolidation loan. This will lead to taking out a $20,000 loan, but it can help streamline the debt repayment process. In fact, debt consolidation is one of the common uses for personal loans.

After you apply for and get your personal loan approved, the way a debt consolidation loan works is that you’ll then use the loan funds to pay off your other sources of debt. This could be multiple credit cards or other types of debt, like personal loans mixed with credit cards.

Ideally, when someone applies for this new loan, they’ll be able to qualify for a lower interest rate than they’re currently paying on their other sources of debt. That way, they’ll spend less on interest and can afford to put more money each month toward repaying their debt. This can make it easier to pay the debt off faster and save on interest (you can even determine your exact savings with a personal loan calculator).

Another benefit of a debt consolidation loan is that it takes multiple sources of debt and turns them into just one source, with a single interest rate, minimum monthly payment, and payment due date.

Choose the Right Repayment Method

Paying down debt takes a lot of work and discipline, and sometimes you need the right type of motivation to stay on track with debt repayment. This is where the debt snowball and debt avalanche repayment methods can come into play, with some consumers finding one method helps them make more progress than the other.

•   Debt snowball. With this method, the borrower makes the minimum payments on all credit cards each month, but focuses on making extra payments on the card with the lowest balance. Once they pay that one off (it will be the fastest to pay off), they’ll move onto focusing on the card with the next lowest balance. Making progress quickly like this can be really motivating for some people.

•   Debt avalanche. Again, the borrower will continue to make all minimum debt payments each month. With this strategy though, any extra payments go toward the debt with the highest interest rate first. This method saves the most money, which can free up room in someone’s budget to make more debt payments each month.

Debt Management Program

Another option consumers have for getting help paying down their $20,000 credit card debt is to join a debt management program. This can be a good path forward for consumers who can’t afford to make extra debt payments each month or whose credit score doesn’t make it possible for them to qualify for a balance transfer card or a personal loan for debt consolidation.

Debt management plans are offered by credit counseling agencies. During the course of these programs, the credit counselor will alert the borrower’s creditors that they’re working with a debt management plan. From there, the counselor will attempt to negotiate a lower interest rate or lower monthly payments.

These plans tend to last three to five years, but they can help consumers make progress on their debt and avoid bankruptcy.

Credit Card Debt Forgiveness

Unfortunately, it can be very difficult to negotiate credit card debt forgiveness and it rarely happens. When someone opens a credit card, they agree to repay the money they borrow.

It can, however, be possible to negotiate a new payment plan that is easier on the borrower’s budget, especially if some kind of hardship occurred that’s making repayment challenging.

Additional Options for Paying Off Debt

One of the best ways to make progress on paying off debt is simply to make repayment a priority. To stay on track, consumers need to make their minimum required debt payments a fixed part of their monthly budget. By budgeting for debt payments and prioritizing them over other spending temptations, it’s more likely to make faster progress.

Another way to make progress on paying off $20,000 in credit card debt is to work on making additional room in your budget for extra credit card payments. Finding ways to lower expenses and other bills can leave more money each month to pay off debt. Remember — the faster you pay off your debt, the less you’ll spend on interest.

It may be necessary to make some spending sacrifices until you’re debt free, but once you are, you’ll have a lot more room in your monthly budget to add fun spending back in. Cutting back on dining out, shopping, traveling, and entertainment now can really pay off in the future.

The Takeaway

It is possible to pay off $20,000 worth of credit card debt, but it will take time. Patience is key here, as is assessing which approach for tackling $20,000 in credit card debt will be right for you. For some, a debt consolidation loan (one of the types of personal loans) may make sense, while others may opt for the debt snowball or avalanche method. Spending time focusing on paying off credit card debt can really help improve your financial outlook though, and it’s very much worth the effort.

If someone decides that consolidating their debt would really help them streamline repayment and possibly even save them money on interest, they may want to research their personal loan options. SoFi makes personal loans easy — it’s possible to check your rates in 60 seconds, and you can borrow up to $100,000.

Apply for a SoFi Personal Loan in minutes!


Photo credit: iStock/filadendron

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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Comparing Personal Loans and Balance Transfer Credit Cards

Balance Transfer Credit Cards vs Personal Loans

Three ways to consolidate and pay off debt are a balance transfer credit card, a personal loan, or a combination of the two. Which option is best depends on the type and amount of debt you have and your ability to pay off that debt over time.

For instance, a balance transfer credit card might be a smart choice if you have good credit and debt across a few credit cards. On the other hand, a personal loan might be better if you have multiple types of debts (credit cards plus other types of loans) and need more time to pay off your debt.

Read on to learn more about the choice between a balance transfer or personal loan, including the pros and cons of each option and how to leverage the benefits of both.

What Is a Personal Loan?

A personal loan is a lump sum borrowed from traditional banks, credit unions, or online lenders that you agree to pay back over time, usually with interest. The borrower will make regular payments, usually on a monthly basis, to the lender over a fixed period of time until the loan is repaid.

Unlike many other types of loans, personal loans can be used for just about anything. Often, these loans are used to resolve short-term cash flow problems, cover unexpected expenses during an emergency, or pay for large expenses.

Personal loans are also used for debt consolidation, where a borrower takes out a personal loan and uses it to pay off balances on high-interest credit cards and other debts. Because personal loans typically have lower interest rates than credit cards, the borrower can potentially save money while paying off their debt.

Though there are different types of personal loans, they’re most often unsecured loans. This means they’re not backed by collateral like, say, your mortgage is backed by your house. As such, the lender will usually assess your creditworthiness and financial situation when determining whether to approve you for the loan.

Recommended: Check Your Personal Loan Rate

What Is a Balance Transfer Credit Card?

A balance transfer credit card is a credit card that allows you to transfer balances from other accounts. Let’s say an individual has outstanding balances on three or four high-interest credit cards. They could transfer that debt to a balance transfer credit card that charges a lower or even 0% annual percentage rate (APR).

If a lower rate is offered, it will usually last for a limited period of time — 12 to 18 months is the norm. Should that person pay off their debt within that window, they could save money on interest and have all of their payments go directly toward paying down the principal. After the promotional period ends, however, the interest rate could be quite high, usually higher than the interest rate on a personal loan.

Balance Transfer vs Personal Loan for Debt Consolidation

When deciding on either a balance transfer credit card or personal loan for debt consolidation, consider the type of debt you have and your capacity for monthly payments.

A balance transfer credit card might be the right choice if you’re confident you can pay off your debt within the APR introductory period. However, a personal loan might be the better choice if you find it difficult to resist spending on a credit card, or if you have debt that needs to be paid off over a longer period of time. Personal loans are also preferable if you want a fixed interest rate and would like to know ahead of time how much your monthly payment will be, as it’s going to be the same each month.

Balance Transfer Credit Card vs. Personal Loan

Balance Transfer Credit Card

Personal Loan

Types of Debt You Can Consolidate

•   Generally best for credit card debt

•   Good for multiple types of debt

Interest Rates

•   Can offer a lower intro APR, after which the rate will likely be higher than a personal loan

•   Generally a variable rate

•   Tend to have lower rates compared to credit cards

•   Typically a fixed rate

Fees

•   One-time balance transfer fee that’s usually 3% to 5% of the amount transferred

•   One-time origination fee ranging from 0% to 8% of the loan amount

Terms

•   Promo APR offers generally limited to 18-21 months

•   Can have terms up to 72 months or longer

Repayment

•   Only have to make the minimum required payment

•   Fixed payments over a set period of time, with a predetermined payoff date

Credit Score Requirements

•   Generally need at least good credit (670+) to qualify

•   Best rates and terms reserved for those with good credit

Credit Score Impacts

•   Might increase credit utilization, which can negatively affect credit

•   Might lower your credit utilization, which can help credit

Pros and Cons of Personal Loans

Both balance transfer credit cards and personal loans can be good options depending on the amount and type of debt you have. Personal loans generally offer lower APRs, which can be helpful if you have a variety of types of debt that may take some time to pay off. Personal loan terms vary, but it’s possible to borrow up to $100,000 and pay off the balance over several years.

However, your interest rate will also depend on your credit score — a low score can mean a high interest rate. It’s smart to compare a few rates, such as SoFi personal loan rates against those of other lenders.

Pros and Cons of Personal Loans for Debt Consolidation

Pros

Cons

Loans can be large enough to consolidate many types of debt. The interest rate may be high if you have bad credit.
Those with good credit can secure low APRs. It could be a few years before your debt is fully paid off.
Budgeting is easier with fixed interest rates and monthly payments. There’s less flexibility in your monthly payments, as they’re fixed.
You have the option to choose from different loan terms. An origination fee may apply, which could be up to 8% of the loan amount.

Pros and Cons of Balance Transfer Credit Cards

If you only have debt on a few credit cards, a balance transfer credit card might allow you to save on interest while you pay it down. These cards can offer lower or even 0% APRs for a certain period of time, usually for 12 to 18 months. This gives you time to pay off the total balance transferred from other cards.

However, suppose you do not pay off the balance within that window. In that case, the interest rate could rise above the rate you were initially paying before you consolidated the amounts to your balance transfer credit card.

Pros and Cons of A Balance Transfer Credit Card for Debt Consolidation

Pros

Cons

You can get a low or 0% APR for an initial period, thus saving on interest. You need a good to excellent credit score to qualify.
Once your debt is paid off, you have an additional open credit line, which may boost your credit score. You may not be able to transfer the full amount of your debt to the card.
Some balance transfer credit cards offer rewards, points, or other perks. There may be a balance transfer fee, which generally is 3-5% of the balance transferred.
You’ll have the flexibility to pay off as much as you’d like each month with no fixed payment schedule. If you don’t pay off your debt during the promo period, the interest rate may become higher than that of your initial debt.

Using A Balance Transfer Credit Card and a Personal Loan

A third option for debt consolidation is to use both a personal loan and a balance transfer credit card. You could use a balance transfer credit card to pay off as much high-interest credit card debt as you can at a low APR. Then, you’d take out a personal loan to pay off the rest of your debt at a lower interest rate than what you’re currently paying.

To figure out how much of a personal loan to take out in this scenario, add up your total debt. Next, calculate how much you would have to pay each month in order to pay off your debt in full by the end of the promotional APR.

For example, if you had $4,000 in credit card debt and a 0% APR that lasted for 18 months, you’d have to pay $222 each month. If you weren’t able to pay that much, you could consider applying for a personal loan to pay off the remaining amount.

The Takeaway

Three ways to proactively consolidate and pay off debt are to use a balance transfer credit card, a personal loan, or a combination of the two. To determine what’s right for your situation, it helps to know the differences between a balance transfer credit card vs. personal loan. In general, a balance transfer credit card is best for those with good credit and primarily credit card debt. Those with various types of debts and who need a structured debt payment plan may prefer a personal loan.

Deciding which option to choose requires some research upfront on how much debt you have, what type of debt it is, and how long you will need to pay it off. Those looking to consolidate their debt should also check the terms and fees of their options.

One option to explore might be SoFi, which offers personal loans for debt consolidation. The online application is convenient and fast. Plus, our personal loans have zero origination, prepayment, or late payment fees. They offer low fixed rates, and amounts range from $5,000 up to $100,000.

Apply today for a SoFi personal loan!

FAQ

What is a balance transfer loan?

A balance transfer is a credit card transaction whereby debt is moved from one account to another. These cards often offer a 0% introductory APR for 12 to 18 months, which means any balances moved to the card could potentially be paid off interest-free. The downsides are that there is often a balance transfer fee, and there may be a limit to the total amount you can transfer to the new card.

Does a balance transfer hurt your credit?

It depends. Opening a new credit card and transferring all your other credit card balances to it could push your credit utilization ratio to its limit, which would hurt your credit score. Your score is also negatively affected from the hard inquiry that results from applying for a new card. However, if you use a balance transfer credit card wisely and pay off all of your higher-interest cards, that will lower your credit utilization ratio and lift your score.

Is there a difference between a loan and a balance transfer?

Both a loan and a balance transfer are ways to consolidate debt, but they are not the same thing. A debt consolidation loan is where you take out a loan to pay off your existing debt, while a balance transfer allows you to move your existing debt onto one credit card. Each option has unique pros and cons.


Photo credit: iStock/PeopleImages

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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 .

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Why your debt-to-income ratio matters

Why Your Debt to Income Ratio Matters

Imagine you’re a lender, and a wellness entrepreneur comes to you to borrow thousands or hundreds of thousands of dollars. The loan seeker is the picture of health, drives a Tesla S, and lives in a solar-powered manse. But what if the would-be borrower is overextended, and not in a yoga-like way?

You’re going to want to compare their current income to their debts to help gauge how likely you are to be paid back.

Makes sense, right? A debt-to-income ratio helps to determine whether someone qualifies for a loan, credit card, or line of credit and at what interest rate.

A low DTI ratio demonstrates that there is probably sufficient income to pay debts and take on more. But what’s “low” or “good” in most lenders’ eyes?

First, a Debt to Income Ratio Refresher

In case you don’t know how to calculate the percentage or have forgotten, here’s how it works:

DTI = monthly debts / gross monthly income

Let’s say monthly debt payments are as follows:

•   Auto loan: $400

•   Student loans: $300

•   Credit cards: $300

•   Mortgage payment: $1,300

That’s $2,300 in monthly obligations. Now let’s say gross monthly income is $7,000.

$2,300 / $7,000 = 0.328

Multiply the result by 100 for a DTI ratio of nearly 33%, meaning 33% of this person’s gross monthly income goes toward debt repayment.

What Is Considered a Good DTI?

The federal Consumer Financial Protection Bureau advises homeowners to consider maintaining a DTI ratio of 36% or less and for renters to consider keeping a DTI ratio of 15% to 20% or less (rent is not included in this ratio).

In general, mortgage lenders like to see a DTI ratio of no more than 36%, though that is not necessarily the maximum.

For instance, DTI limits can change based on whether or not you are considering a qualified or nonqualified mortgage. A qualified mortgage is a home loan with more stable features and without risky features like interest-only payments. Qualified mortgages limit how high your DTI ratio can be.

A nonqualified mortgage loan is not inherently high-risk or subprime. It is simply a loan that doesn’t fit into the complex rules associated with a qualified mortgage.

Nonqualified mortgages can be helpful for borrowers in unusual circumstances, such as having been self-employed for less than two years. A lender may make an exception if you have a high DTI ratio as long as, for example, you have a lot of cash reserves.

In general, borrowers looking for a qualified mortgage can expect lenders to require a DTI of 43% or less.

Under certain criteria, a maximum allowable DTI ratio can be as high as 50%. Fannie Mae’s maximum DTI ratio is 36% for manually underwritten loans, but the affordable-lending promoter will allow a 45% DTI ratio if a borrower meets credit score and reserve requirements, and up to 50% for loans issued through automated underwriting.

In the market for a personal loan? Some lenders may allow a high DTI ratio because a common use of personal loans is credit card debt consolidation. But most lenders will want to be sure that you are gainfully employed and have sufficient income to repay the loan.

Front End vs Back End

Some mortgage lenders like to break a number into front-end and back-end DTI (28/36, for instance). The top number represents the front-end ratio, and the bottom number is the back-end ratio.

A front-end ratio, also known as the housing ratio, takes into account housing costs or potential housing costs.

A back-end ratio is more comprehensive. It includes all current recurring debt payments and housing expenses.

Lenders typically look for a front-end ratio of 28% tops, and a back-end ratio no higher than 36%, though they may accept higher ratios if a credit score, savings, and down payment are robust.

How Can I Lower My Debt-to-Income Ratio?

So what do you do if the number you’ve calculated isn’t your ideal? There are two ways to lower your DTI ratio: Increase your income or decrease your debt.

Working overtime, starting a side hustle, getting a new job, or asking for a raise are all good options to boost income.

Strangely enough, if you choose to tackle your debt by only increasing your payments each month, it can have a negative effect on your DTI ratio. Instead, it can be a good idea to consider ways to reduce your outstanding debt altogether.

The best-known debt management plans are likely the snowball and avalanche methods, but there’s also the fireball method, which combines both strategies.

Instead of canceling a credit card, it might be better to cut it up or hide it. In the world of credit, established credit in good standing is looked upon more favorably than new.

The Takeaway

Your debt-to-income ratio matters because it affects your ability to borrow money and the interest rate for doing so. In general, lenders look at a lower DTI ratio as favorable, but sometimes there’s wiggle room.

If you’re struggling with student loan debt, refinancing might be a good option if you can lower your interest rate. And if you’re trying to pay off high-interest credit card debt, one method is to consolidate the debt with a fixed-rate personal loan. This can lower your monthly payment, thus changing your DTI ratio.

Check your rate on SoFi’s student loan refinancing and personal loans.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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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What Is Net Worth and Why Should You Know Yours?

A person’s net worth describes their total financial value, and is calculated by subtracting their liabilities from their assets. Though we generally discuss net worth in relation to very wealthy individuals, it can be important for people who aren’t billionaires to know their net worth as well.

A person’s net worth can be an important reference point in understanding one’s financial position. Net worth can be negative, especially early on in one’s careers. But net worth can help an individual figure out how much they need to save, how much spending they need to cut back on, or how much they’ve saved for retirement.

How to Calculate Net Worth

If you’re wondering how to calculate net worth, it’s actually a simple formula:

Assets – Liabilities = Net Worth

The hard part is usually determining a person’s assets and liabilities. And a person’s assets can go beyond what they have in their checking account. In fact, a person’s assets can include a whole host of things.

Assets

Assets basically boil down to how much money you have, as well as the value of things you own. In order to know one’s net worth, estimate the value of each asset below:

•   Money in savings accounts

•   Money in checking accounts

•   Money in investing or retirement accounts. Brokerage accounts or 401(k)s are in this bucket.

•   Physical cash

•   Value from insurance policies

•   Value from business ownership or stakes

•   Value of cars

•   Valuable personal goods, like jewelry or art

•   Value of real estate, including home

Calculating the value of a home can be a task in itself. It’s important to research the value of the homes around you, the size of your home, any deferred maintenance on the home, additional benefits like parking spots, backyard space, room count, etc. There are a number of home value calculators online, too.

Recommended: Understanding Property Valuations

There are other ways to think about assets:

•   Liquid Assets: Items like stocks, bonds, mutual funds, or ETFs that are easy to sell quickly and whose sale will not greatly affect their price.

•   Fixed Assets: These are items that would take a longer time to convert to cash. These assets are often deposited for extended periods of time in exchange for high interest accrual and thus cannot be cashed before their agreed-upon time frame is up.

•   Equity Assets: Equity assets include your shares in a company, either private or public.

Intangible Assets, such as brand recognition for a company or any other intellectual property like patents, trademarks or even goodwill, are trickier to factor into your net worth due to the complexity of measuring their value.

Liabilities

Liabilities are debts. The following categories are what most often make up liabilities:

•   Auto loans

•   Student loans

•   Personal loans

•   Business loans (personally guaranteed)

•   Credit card balances

•   Mortgages

While liabilities are on the negative side of the net worth equation, it doesn’t necessarily have to symbolize something negative about your finances. For example, student loans or mortgage loans are typically seen as necessary loans that individuals take on as they reach milestones in life, like going to college, graduate school or buying a home.

Meanwhile, knowing one’s total liabilities can help with figuring out a plan to start paying off debt that has higher interest rates, like from credit card balances.


💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

Median and Average Net Worth in US

An individual or household’s net worth isn’t set in stone, and it ebbs and flows all the time. For that reason, it can be difficult to nail down median or average net worth figures for both individuals and households in the U.S. You can find some numbers if you search for them, but they’re often several years old, and may not be accurate given the time lapse.

For instance, the Federal Reserve tracks median and average net worth data in the U.S., but generally, they do so using survey data that it publishes once every few years. So, while data from a few years ago may be fine, large-scale world events–such as a pandemic, natural disaster, recession, or similar–may have led to large changes in those numbers.

This is all something to keep in mind if you seek out average net worth numbers. It’s not that they’re inaccurate, it’s simply that the data may be hard to capture and synthesize in a reasonable amount of time.

Remember, too, that it’s important to keep abreast of your net worth because this number may fluctuate depending on factors such as stock values, interest rates, real estate trends, and other tides of the financial world. It’s important to have an idea of overall trends so you can generally understand your financial health and have an idea of your true wealth.


💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

The Takeaway

True wealth can be an important factor in knowing when you might expect to retire. It’s a good idea to focus on your gains year over year, rather than the number you get at the end of the equation. If you’re concerned about your net worth or are hoping to increase it, especially for future retirement goals, then it might be helpful to consider investing.

There are a multitude of things that can have an effect on your net worth. And focusing strictly on your net worth probably shouldn’t be your focus. If you’re concerned about it, though, it may be worthwhile to talk to a financial professional.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.


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