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

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

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

•   The pros of paying down debt first

•   How to start paying down debt

•   The advantages of saving money

•   How to start saving money

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

What Are the Benefits of Paying Down My Debt?

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

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

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

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

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

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

When Might I Make Paying Down Debt a Priority?

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

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

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

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

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

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

How Can I Start Paying Down My Debt?

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

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

Some of the most popular options include:

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

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

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

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

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

What Are the Benefits of Saving Money?

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

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

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

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

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

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

When to Consider Saving Money Over Paying Down Debt

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

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

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

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

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

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

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

Potential Strategies to Start Saving Money

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

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

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

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

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

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

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

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

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

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

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

Does Starting an Emergency Fund Make Sense?

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

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

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

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

Banking With SoFi

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

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

How much money should I save before paying down debt?

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

Is it better to pay down debt or save money?

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

What bills should I pay down first?

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

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Photo credit: iStock/malerapaso

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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

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

•   Why people fall behind on bills

•   Tips for how to catch up on bills

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

Why People Fall Behind on Their Bills

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

A Loss Of Income

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

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

Medical Emergencies

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

Family Emergencies

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

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

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

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

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

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

Auto Accidents

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

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

Household Emergencies

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

Spending Too Much

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

Tips for Getting Caught up on Bills

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

Making a List

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

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

Paying Priority Bills

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

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

Negotiating Bills

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

Creating a Budget

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

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

Side Hustles or Second Jobs

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

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

When You Are Caught Up

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

Following Your Budget

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

Saving for an Emergency Fund

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

Paying on Time

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

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

Tracking Spending

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

Bank Accounts That May Help You Save and Budget

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

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

Banking With SoFi

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

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Should I pay all my bills at once?

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

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

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

What bills should I prioritize?

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

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Photo credit: iStock/Ratana21

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Paying down debt can be an important financial priority, but should you use your savings in order to do so? While it can be tempting to throw your full efforts into paying off debt, maintaining a healthy savings account for emergencies and saving for retirement are also important financial goals.

Continue reading for more information on why it may not always make sense to use savings to pay off debt and ideas and strategies to help you expedite your debt repayment without sacrificing your savings account.

The Case Against Using Savings to Pay Off Debt

Emptying your savings account to pay off debt could cause you to rely on credit cards to cover expenses, which has the potential to create a cycle of debt. Think of it this way — it can be much harder to get yourself out of debt if you keep using credit cards to cover unexpected costs.

Consider creating a plan to pay off high interest debt while maintaining or building your emergency fund. This way, you’ll be better prepared to deal with unexpected expenses — like a trip to the emergency room.

How to Start Paying Off Debt Without Dipping Into Your Savings

First off, if you do not have an established emergency fund, consider crafting a budget that will allow you to build one while you simultaneously focus on paying down debt. The exact size of your emergency fund will depend on your personal expenses and income. A general rule of thumb suggests saving between three and six months worth of living expenses in an emergency savings account. Having this available to you can help you avoid taking on additional debt if you encounter unforeseen expenses.

Make a Budget

Now’s the time to update or make a budget from scratch. Understanding your spending vs. income is essential to help you pay off your debt and avoid going into further debt. Review all of your expenses and sources of income and figure out how to allocate your income across debt payments, while still allowing you to save for your future.

Establish a Debt Payoff Strategy

Review each of your debts. Make note of the amount owed and interest rates. This is important to create a full picture for how much you owe. Then, pick a debt pay-off strategy that will work for you. Popular debt payoff strategies include:

•   The Snowball Method. For this method, list debts from smallest balance to largest — ignoring the interest rates. While making minimum payments on all debts, all extra payments should go toward the smallest debt. As the debts are paid off, move to the next largest debt until all debts are paid off.

•   The Avalanche Method. Similarly to the snowball method, this debt payoff strategy focuses on paying off debts with high-interest rates first. By focusing extra payments on the highest interest rate debts, this strategy helps minimize the amount of interest you pay, which might save you money in the long term.

•   The Fireball Method. This strategy combines both the Avalanche and Snowball methods. Individuals group their debts into good or bad categories. Good debt is considered debts that help build net worth and generally have an interest rate of 7% or less. While making the minimum payments on all accounts, the Fireball focuses on paying the highest interest loan with the smallest balance first.

Different people may prefer one strategy over another, the key is to select something that works best with your debts, income, and financial personality.

Recommended: Explaining the Snowball Method of Paying Down Debt

Consider Debt Consolidation

If you have debt with a variety of lenders, one option is to consider consolidating your debt with a personal loan. Instead of making multiple payments across lenders you’ll instead have just one payment for your personal loan. One common use for personal loans include consolidating credit card debt. Because credit card debt generally has a high interest rate, consolidating it into a lower-interest personal loan can potentially lower the amount of money owed in interest during debt-payoff.

There are a couple different types of personal loans. For example personal loans can be secured or unsecured and may have either a fixed or variable interest rate. To find the best personal loan for you, review the options available at a few different lenders.

Review the application requirements with your chosen lender. Having the required documentation ready can streamline the application process and hopefully, get your personal loan approved. During the application process lenders evaluate factors including your income and credit history, among other considerations, to make their lending decisions.

How to Reduce Spending to Pay Off Debt Quicker

Reducing your spending can make more room in your budget for debt payments. Making overpayments can help speed up debt payoff, but it can be challenging to amend your spending habits. To lower your spending, take an honest look at your current expenses and spending habits. Review your budget and credit card statements to see where your money is going.

Think seriously about your needs vs. your wants. Start making spending cuts in the wants category, for example reducing the amount of takeout you order, limiting streaming services, or other indulgences.

For less luxurious expenses like internet or your cell phone bill, call your service provider and see if they are willing to negotiate with you or evaluate if you are able to switch to a less expensive plan.

If you’ve already got a tight budget, the alternative is to increase your revenue stream. Consider a side hustle to boost your income and funnel that additional money toward debt payments. You may even be able to find a side gig that allows you to make money from home.

Paying Off Debt the Smart Way

It can be tempting to throw your savings at debt to avoid racking up expensive interest charges. But draining your savings account — or failing to save at all — in favor of debt payoff might not be a smart strategy. With little or no savings, you’ll be less prepared for any emergency expenses in the future, which could lead to even more debt. Consider building your savings while paying off debt by creating a budget, cutting your expenses or boosting your income, and finding (and sticking to) a debt repayment strategy.

One option worth considering is using a personal loan to consolidate your debt. Using a personal loan to pay off debt may sound counter-intuitive at first, by securing a personal loan with a more competitive interest rate than your existing debts, you could lower the amount you spend in interest. To see how using a personal loan to consolidate your debt might benefit you, take a look at SoFi’s personal loan calculator.

If you are looking at borrowing a personal loan, consider SoFi.

SoFi offers competitive interest rates and some borrowers may qualify for same-day funding.

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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.

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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Sometimes you need a loan for a venture that a traditional bank might not approve. In these instances, a peer-to-peer (P2P) loan might be what you’re looking for. Peer-to-peer lending, also known as social lending, rose out of the 2008 financial crisis. When banks stopped lending money as freely as they had in the past, potential borrowers had fewer loan options. At the same time, low interest rates meant lower returns from savings accounts or CDs.

Enter P2P lending sites. P2P lenders essentially cut out the middleman (banks and traditional lenders) and created a space for borrowers and investors to do business. Since then, the concept of lending person-to-person has taken off, with the rise of a number of peer-to-peer lending platforms.

Wondering if a P2P loan is right for you? Or if investing in P2P lending is a smart way to diversify your portfolio? Let’s take a look at some of the pros and cons.

What Is Peer-to-Peer (P2P) Lending?

P2P lending links up people who want to borrow money with individual investors who want to lend money. P2P lending sites like Lending Club, Prosper, and Upstart — three of the largest P2P lenders — provide low-cost platforms where borrowers can request loans and investors can bid on them.

Most of the personal loans offered on P2P platforms range from $1,000 to $40,000 and have repayment periods of approximately 36 months. Interest rates can vary widely, from around 6% to 36%, depending on factors including the purpose of a loan and the individual’s credit history and perceived risk.

The lending platforms make money from serving as the intermediary in this process. In exchange for keeping records and transferring funds between parties, they charge a fee — typically a 1% annual fee — to the investors lending the money. Some platforms also charge origination or closing fees to the borrowers, which typically range from 1% to 5% of the loan amount.

In addition to personal loans, many P2P platforms may also offer small business, medical, and education loans as well.

Is Peer-to-Peer Lending Safe?

The bulk of the risk of peer-to-peer lending falls onto investors. It’s possible that borrowers will default on their loans, and that risk increases if the investor opts to lend to those with lower credit ratings. If the loan were to go into default, the investor may not get paid back.

Further, peer-to-peer lending is an investment opportunity, and returns are never guaranteed when investing. There is the risk that investors could lose some or all of the amount they invest. Unlike deposit accounts with a traditional bank or credit union, P2P investments are not FDIC-insured.

How Does Peer-to-Peer (P2P) Lending Work?

The basic P2P lending process works like this: A borrower first goes through a quick soft credit pull with the P2P lending platform of their choice to determine initial eligibility. If eligible to continue, the lender likely will conduct a hard credit pull and then assign a borrower a “loan grade,” which will help lenders or investors assess how much of a risk lending to them might be.

The borrower can then make a listing for their loan, including the interest rate they’re willing to pay. With most P2P lending platforms, the borrower has an opportunity to make a case for themselves; they can provide an introduction and describe why they need the loan. A compelling, creative listing might have more luck grabbing a lender’s attention and trust.

Next, lenders can bid on the listing with the amount they can lend and the interest rate they’d be willing to offer. After the listing has ended, the qualified bids are combined into a single loan and that amount is deposited into the borrower’s bank account.

Peer-to-Peer (P2P) Lending Examples

With the rise of P2P lending, there are now a number of lending platforms to choose from. Here are some examples of popular peer-to-peer lending sites:

•   LendingClub: LendingClub offers loans of up to $40,000 that can be used for a variety of purposes, including paying down high-interest debt or funding a home improvement project. Borrowers can receive funding in as little as 24 hours upon loan approval.

•   Prosper: Prosper can provide loans in amounts anywhere from $2,000 up to $40,000. Loan terms are three or five years, and funding can happen in as little as one business day.

•   Upstart: Upstart can offer borrowers loans of up to $50,000, with loan terms of either three or five years. It’s possible to check your rate in minutes, and most loans are funded within one business day after signing.

Peer-to-Peer (P2P) Lending for Bad Credit

It is possible to get a peer-to-peer loan with a bad credit score (meaning a FICO score below 580). However, those with lower credit scores will almost certainly pay higher interest rates.

Additionally, those with bad credit may have more limited options in lenders, though there are peer-to-peer lending for bad credit options. Many platforms have minimum credit score requirements, which tend to be in the range of fair (580-669) to good (670-739). For instance, Prosper, one of the major P2P lending platforms, requires a minimum score of 680.

If you have bad credit and are seeking a P2P loan, you might first work to improve your credit score before applying. Or, you could consider getting a cosigner, which can increase your odds of getting approved and securing a better rate if you’re finding it hard to get a personal loan.

Peer-to-Peer (P2P) Lenders Fees

Peer-to-peer lending platforms can charge fees to both borrowers and investors. Which fees apply and the amount of these fees can vary from lender to lender.

A common fee that borrowers may encounter is an origination fee, which is typically a percentage of the loan amount. Other fees that borrowers may face include late fees, returned payment fees, and fees for requesting paper copies of records.

Investors, meanwhile, may owe an investor service fee. This is generally a percentage of the amount of loan payments they receive.

Pros of Peer-to-Peer (P2P) Lending

There are upsides to peer-to-peer lending for both borrowers and investors. However, the benefits will differ for both parties involved.

Pros of P2P Loans for Borrowers

•   Easier eligibility: The biggest advantage for a borrower getting a personal loan peer-to-peer is being eligible for a loan they might not have been able to get from a traditional lender.

•   Faster approval and competitive rates: P2P lenders might approve your loan faster and offer a more competitive rate than a traditional lender would.

•   Possible to pay off credit card debt: One way that people are using P2P loans is to crush their credit card debt. People with high credit card balances could be paying up to 20% APR or higher in interest charges. If they can wipe it out with a P2P loan at a lower interest rate, it can save them a lot of money.

•   Option to finance upcoming expenses: Those who are facing a lot of upcoming expenses might find it more cost-effective to take out a P2P loan rather than put those expenses on a high-interest credit card.

Pros of P2P Loans for Investors

•   Promising alternative investment opportunity: Some see P2P lending as a promising alternative investment. When you lend money P2P, you can earn income on the returns as the borrower repays you. Those interest rates can be a few percentage points higher than what you might earn by keeping your money in a savings account or a CD. While there is some risk involved, some investors see it as less volatile than investing in the stock market.

•   Option to spread out risk: P2P lenders also offer many options in terms of the types of risk investors want to take on. Additionally, there are ways you can spread the amount you’re lending over multiple loans with different risk levels.

•   Sense of community: For borrowers and investors, the sense of community on these sites is a welcome alternative to other forms of lending and investing. Borrowers can tell their stories and investors can help give their borrowers a happy ending to those stories.

Cons of Peer-to-Peer (P2P) Lending

Though there are upsides to peer-to-peer lending, there are certainly problems as well. These include:

•   Risk for investors: The biggest disadvantage of P2P lending is risk. Since P2P loans are unsecured, there’s no guarantee an investor will get their money back. The borrowers on a P2P site might be there because traditional banks already declined their application. This means investors might need to do extra legwork on their end to evaluate how much risk they can take on.

•   Potentially higher rates for borrowers: For borrowers, while P2P lenders might approve a loan that a traditional bank wouldn’t, they might offer it with a much higher interest rate. In these cases, it could be wiser to search for alternatives rather than accepting a loan with a costly interest rate.

•   Effort and personal exposure for borrowers: There can be a lot of effort and personal exposure involved for the borrower. Borrowers have to make their case, and their financial story and risk grade will be posted for all to see. While we’re used to sharing a lot of our lives online, sharing financial information might feel like too much for some borrowers.

•   Relatively new industry with evolving regulations: Then there’s the risk of P2P lending itself. The concept is still relatively new, and the decision on how best to regulate and report on the industry is still very much a work in progress. Some lending platforms have already hit growing pains as well. As regulations around the industry change and investors are tempted elsewhere, the concept could lose steam, putting lending platforms in danger of closing.

Peer-to-Peer (P2P) Loans vs Bank Loans

When it comes to P2P loans compared to bank loans, the biggest difference is who is funding the loan. Whereas bank loans are funded by financial institutions, peer-to-peer loans are funded by individuals or groups of individuals.

Further, bank loans tend to have more stringent qualification requirements in comparison to P2P loans. This is why those with lower credit scores or thinner credit histories may turn to peer-to-peer lending after being denied by traditional lenders. In turn, default rates also tend to be higher with peer-to-peer lending.

The Takeaway

Peer-to-peer lending takes out the middleman, allowing borrowers and investors to do business. For borrowers, P2P loans can offer an opportunity to secure financing they may be struggling to access through traditional lenders. And for investors, P2P loans can offer an investing opportunity and a sense of community, as they’ll see where their money is going. However, there are drawbacks to consider before getting a peer-to-peer loan, namely the risk involved for investors.

Whether you’re getting a P2P loan or a loan from a traditional lender, it’s important to shop around to find the most competitive terms available to you. SoFi makes it easy to compare personal loan rates, and you can then apply online in just one minute.

Check out SoFi personal loans today to learn more!

FAQ

Is peer-to-peer lending safe?

There are certainly risks involved in peer-to-peer lending, particularly for investors. For one, borrowers could default on their loan, resulting in investors losing their money. Additionally, there’s no guarantee of returns when investing.

What is peer-to-peer lending?

Peer-to-peer lending is a type of lending wherein individual investors loan money directly to individual borrowers, effectively cutting out banks or other traditional financial institutions as the middlemen. This can allow borrowers who may have been denied by more traditional lenders to access funds, and provide investors with a shot at earning returns.

What is an example of peer-to-peer lending?

Some popular P2P lending sites include Lending Club, Prosper, Upstart, and Funding Circle. Borrowers can use peer-to-peer loans for a variety of purposes, such as home improvement, debt consolidation, small business costs, and major expenses like medical bills or car repairs.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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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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The credit limit on a credit card is the maximum amount you can spend before needing to repay it. You can request a credit limit increase, but credit card issuers sometimes automatically increase the credit limit of those who have improved their credit scores or who have shown to manage credit well. But is a higher spending limit a good thing? It may not be for everyone’s financial situation. Here’s how to know if your credit card spending limit is too high.

How Does My Credit Card Spending Limit Work?

Credit cards are a form of revolving debt, which means that there is an upper spending limit, but the credit can be repaid and used again. It revolves between being available to use, being unavailable because it’s being used, and being available to use again after it’s been repaid.

A credit card issuer typically bases the credit limit on factors such as the applicant’s credit score, income, credit history, debt-to-income ratio, and others. However, every credit card company is different in what it considers and how much emphasis it places on each component.

There may be multiple types of credit limits on the same credit card, e.g., a daily spending limit or cash advance limit.

Why Your Credit Card Issuer Increased Your Spending Limit

Your spending limit isn’t set in stone, though. Even if you haven’t specifically requested a credit limit increase, your credit card issuer may automatically increase the credit limit on your card.

There are various reasons this might happen.

•   Your credit has improved, resulting in a higher credit score.

•   Your income has increased.

•   The credit card issuer wants to retain you as a customer by offering a higher credit limit.

By increasing your credit card spending limit, the credit card issuer may have hopes that you’ll carry a balance on your card.

One stream of revenue for them is interest charges and fees. If you carry a balance, rather than paying your balance in full each month, you’ll be charged interest on the outstanding amount. And if you fail to make at least the minimum payment due or pay the bill late, you’ll likely be charged a late fee.

Both interest charges and fees are then added to the balance due on the next statement, and themselves incur interest. Essentially, you’ll be paying interest on interest.

Pros of a High Credit Card Spending Limit

For some people, and for their financial needs or goals, there may be practical reasons for having a high credit card spending limit.

•   It can be helpful in an emergency situation. Even if you’ve accumulated an emergency fund or rainy day fund, there might be instances when you need more than that. For instance, if your refrigerator suddenly stops working, you’ll probably want to replace it sooner rather than later. Large appliances can cost several thousand dollars to purchase and have installed.

•   Having a high credit limit while using a small percentage of it can lower your credit utilization rate. Your credit utilization rate is the relationship between your spending limit and your balance at any given time. If your limit is $10,000, and your balance is $1,500, your credit utilization is 15%. Generally, the lower your credit utilization rate, the better.

•   If you have a rewards credit card, having a higher spending limit on it could mean reaping greater rewards, whether that’s cash back, miles, or another type of reward. Being financially able to pay the account balance in full each month is key to making the most of this strategy.

Cons of a High Credit Card Spending Limit

As attractive as the benefits might sound, there can be drawbacks to having a high credit card spending limit.

•   You might be tempted to spend because you can, even if you can’t pay your credit card balance in full at the end of the billing period. This will result in purchase interest charges being added to the unpaid balance, and interest will accrue on this new, larger balance. It can become a debt cycle for some people.

•   Having a high credit limit and using a large percentage of it can increase your credit utilization rate. This rate is one of the most important factors in the calculation of your credit score — it accounts for 30% of your FICO® Score, and is considered “extremely influential” to your VantageScore®. It’s generally recommended to keep your credit utilization rate to 30% or less.

•   Requesting an increase in your credit card spending limit could cause your credit score to decrease slightly. The credit card issuer might do a hard credit inquiry into your credit report, which can mean a ding of a few points to your credit score, depending on your overall credit. It’s usually a temporary drop, but if you’re planning to apply for a loan or other type of credit, it could make a difference in the interest rate you’re offered.

What Happens if You Go Over Your Spending Limit

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act) put consumer protections against unfair credit card practices into place. One of the stipulations in this Act is that credit card issuers cannot charge an over-the-limit fee unless the card holder opts into an agreement for charges above the credit limit to be paid.

If you choose not to opt in to this agreement, any charges you try to make that exceed your credit card spending limit will be denied.

If you do opt in, the excess charges will be paid, but the credit card issuer may charge a fee for covering the overage amount. Generally, the first-time fee can be up to $25. If you exceed your spending limit a second time within six months, you could be charged up to $35. The fee can’t be larger than the amount you went over your credit limit by, though. So, if you charge a purchase that’s $100, but you only have $90 of available credit, the over-limit fee would be $10.

Before you opt in to an agreement like this, the credit card issuer must tell you what potential fees there might be. They must also provide you with confirmation that you opted in.

If you opted in to an over-the-limit agreement, but no longer want it, you can opt out at any time by contacting your credit card issuer’s customer service department.

Recommended: Maxed-Out Credit Card: Consequences and Steps to Bounce Back

Taking Control of Credit Card Debt

A higher spending limit can be a good thing if it’s used responsibly. Looking for a credit card that has more favorable rewards or offers perks that your current credit cards don’t have could be a good option for managing your debt.

The SoFi Credit Card may be one to explore. Its cash-back rewards could go toward debt payments, helping you pay down your debt. SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.

If you’re struggling with credit card debt and a higher credit card spending limit is not an option for your financial situation or comfort level, another possible option could be to consolidate high-interest credit card debt with a personal loan.

With a credit card consolidation loan, all your balances are merged into one new loan with just one monthly payment and one interest rate instead of several. This new interest rate could end up being lower than the rates on your current individual credit cards, which could lower your monthly debt payment. Also, a personal loan is installment debt, which means there will be a payment end date. Credit cards are revolving debt with no firm end date.

The Takeaway

A higher credit card spending limit may or may not be a positive thing, depending on your financial situation. You may have requested a credit limit increase or your credit card issuer may have automatically increased your spending limit because of factors such as an improved credit score or increased income, among others. But if the amount of credit you’ve been approved for results in poor financial decision making or increased debt, your credit card spending limit may be too high.

Multiple high-interest credit cards could be consolidated into one new personal loan. A SoFi Personal Loan is a fixed-rate loan with interest rates that may be lower than the rates on your current credit cards.

Transferring multiple balances to a credit card that has more favorable rewards or offers perks that your current credit cards don’t have could be another option for managing your debt.

The SoFi Credit Card may be one to explore. Its cash-back rewards could go toward debt payments, helping you pay down your debt. SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.¹

Learn more about the SoFi Credit Card

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¹See Rewards Details at SoFi.com/card/rewards.

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.

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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 cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, a statement credit, or pay down eligible SoFi debt.

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