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Got credit card debt? You’re certainly not the only one. Americans owe a total of $905 billion n in credit card debt alone. Finding your way out of credit card debt can be pretty stressful. But maybe the energy you’re expending watching your balance creep up could be better spent devising a payoff plan.

Paying off credit card debt is a crucial step toward saving for the future. Credit card debt, unfortunately, might slow you down if you’re saving for a house, or trying to open your own business. That’s why knocking out credit card debt now may help your finances in the long run.

If you’re feeling overwhelmed by your monthly credit card payments, creating a debt payoff plan is an excellent way to reclaim control over your debt and your financial life. Even if you’re making multiple debt payments every month, having a plan to get through it all may put you at ease. This guide will help you make a step-by-step plan to getting debt-free.

Organize Your Budget

Before you clean up your debt, you first have to organize it. Start by figuring out your monthly income after taxes, your non-negotiable expenses, and the debt payments you have to make each month.

And when you’re writing this all down, make sure you include every debt, from your student loan payments to that $500 medical bill you you’re paying off over the next few months. When you’re writing out your expenses, don’t forget about utilities, groceries, gas, and your designated take-out budget.

This is a good time to check if there are expenses in your budget that you could easily cut out. Maybe just in going through your bank statements, you’ve noticed you’re spending too much on eating out. To help you easily track your spending, sign up for SoFi Relay. You can keep tabs on your cash flow and spending habits so you know where you stand.

Or perhaps you could save some cash by shopping at a less expensive grocery store, or using public transportation more. The more excess spending you can shave from your budget, the easier it can be to put more money toward your credit card debt.

Based on your monthly expenses, figure out how much money you are able to contribute to your credit card debt each month. If you are just paying the minimum on your credit card each month, determine how much additional cash you could contribute to your debt each month.

Then factor it right into your budget. If you plan to pay $400 toward your credit card debt each month, for example, and you get paid twice a month, maybe you get into the habit of always paying $200 to your credit card debt the day after you get paid.

Choose a Debt Payoff Method

For some of us, our credit card debt isn’t on one card, but is instead spread out over multiple cards. You can either order your credit card debts from smallest to largest (i.e., “The Snowball Method”) or from highest to lowest interest rate.

If you want to use the Snowball Method, you’re going to pay your smallest credit card debt off first, and then turn your attention toward the next smallest, and so on. By ordering your debts from smallest to largest, you build momentum, because you’re potentially knocking out debts more often.

When you are working on paying off your smallest credit card debt, you may want to put any extra resources you have toward getting rid of that debt. In the meantime, don’t forget to pay the minimum balance due to the rest of your credit cards.

On the flip side, the advantage of paying off your credit card debt starting with the highest interest rate card is pretty straight forward: It saves you the most money. Why? Because the cards with the highest interest rates are, naturally, costing you more.

If you want to pay your debt off in the most cost-effective way, start with the highest interest rate credit card, while paying the minimum balance on all the other cards. Once you’re done with the highest interest rate card, turn your debt payoff attention to the next highest interest rate card. Continue until you’re credit card debt free.

And don’t forget to put extra cash toward your debt when you can. Paying additional money toward your debt is called “The Snowflake Method”—there’s a lot of snow analogies when it comes to debt payoff). Holiday bonuses? Put it toward your debt. Birthday cash? Right to your credit card payment. Tax return? Instead of springing for a vacation, re-route that cash to your credit card.

Consolidating Your Credit Card Debt

If you’re not a number cruncher, complicated debt repayment methods might create more stress than they’re worth. Instead of these methods, you could consider replacing your multiple credit cards with a single credit card consolidation loan. That would mean making one monthly payment, instead of trying to keep up with paying off multiple credit cards.

By taking out a personal loan, it’s finally possible to focus on paying off one bill with one fixed interest rate and a set loan term. Depending on your financial history, you could qualify for a much lower interest rate on a personal loan than you’re paying on your credit cards. And paying your credit card debt off with a low-rate personal loan could help simplify and expedite your credit card debt payoff plan.

SoFi doesn’t provide tax or legal advice. Individual circumstances are unique. Consult with a qualified tax advisor or attorney.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit.
The information provided is not meant to provide investment, tax or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory and automated services offered through SoFi Wealth LLC. An SEC registered investment advisor. SoFi Securities LLC, member FINRA / SIPC .
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Most consumers are aware of major types of loans, like mortgages, auto loans, and student loans. But there’s another type of loan that’s becoming increasingly popular as consumers seek out attractive rates and terms: personal loans. Though this kind of loan may enjoy less brand recognition, personal loan rates have become more competitive, and more popular as a result.

Average personal loan balances are expected to rise to nearly $8,000 by the end of this year, even as delinquency rates remain low.

Rising balances mean more money is available to customers who qualify for a personal loan and could use a cash infusion—or want to take advantage of competitive personal loan rates by using them to pay off existing loans at a lower interest rate. But what does it mean for the economy?

Take a superficial glance at household debt in the U.S., and you’ll notice that our current debt has exceeded 2008 levels. A closer look, however, makes it clear that the borrower profile in 2017 is much healthier than it was a decade ago. There is less housing debt now, and more loans are going to borrowers with good credit.

At the same time, bankruptcy has reached record lows, according to a Federal Reserve Bank of New York report released in May 2017.

And those personal loans? In order to figure out if they’re right for you, you need a comprehensive understanding of personal loan rates, including how they’re calculated, and whether they’re compatible with your financial timeline. Here’s some more info on personal loan rates.

How Personal Loan Rates Are Determined

Lenders use several factors to determine the interest rate on a personal loan, including details about your financial background and about the loan itself. What kind of financial questions can you expect?

Well, when lenders talk about a borrower’s creditworthiness, they’re usually referring to elements of your financial background such as your credit history, your income and employment, how much debt you already have, and whether you have a cosigner.

The loan terms can also affect the rate; for example, the size of the loan or how long you want to take the loan out for often affects personal loan rates. (Loan term is something borrowers should be thinking about as well. A longer loan term might sound appealing because it makes each monthly payment lower, but it’s important to understand that a longer-term loan may cost you significantly more over time due to interest charges.)

While borrower qualifications and loan type are the main factors lenders use to determine personal loan rates, borrowers also need to consider another essential question: Which lender is the best fit when they all offer different personal loan rates?

Average Personal Loan Interest Rates

The average interest rate for two-year personal loans from commercial banks was 10%, as of May 2017. Though there are several factors that determine personal loan rates (see more on this above), one of the big ones is credit history. A lower credit score generally means you can expect a higher interest rate on your personal loan.

If the interest rate is higher, the terms of your loan are likely to be less favorable, because taking out a personal loan with a higher rate means you’ll ultimately have more money to pay back than someone who takes out the same loan with a lower rate.

Borrowers with poor credit may face a loan rate as high as 36% APR, which in many cases is the highest rate that can legally be applied to personal loans.

How to Calculate Personal Loan Rates

There are many personal loan calculators available online, but you need some basic information about the kind of loan you’re looking for before you can use any of them. Loan calculators typically ask for your desired loan amount and loan term, and they may ask you to put in other details, such as your ideal interest rate and loan start date, your location, or your estimated credit rating.

Once you put in the requested information, the calculator can tell you your estimated monthly payment and possibly the total payment due, the payoff date, and the personal loan rate you’d be likely to get.

To find out how a SoFi personal loan can save you money by helping you pay off high-interest debt, the SoFi personal loan calculator can help. No matter which loan calculator you use, keep in mind that these are rough estimates and may not match the actual rates you receive when a lender has conducted a more complete loan review.

How Personal Loan Rates Compare to Home Equity Rates

A home equity line of credit, or HELOC, requires homeowners to put up their homes as collateral so they can access a revolving line of credit. It has traditionally been an adjustable-rate loan, meaning the interest rate changes and can rise during the repayment period.

The loan can be used for expenses such as large purchases or home renovations. HELOC borrowers can borrow up to their approved credit limit (which usually amounts to most of their home’s equity, depending on their qualifications) and pay interest on the amount they withdraw.

For personal loans, typically borrowers don’t need to put up a home or other collateral to get the money, and they can choose a fixed or variable rate. A HELOC loan is a secured loan, which means it requires collateral, whereas a personal loan is typically an unsecured loan, which takes collateral completely out of the equation.

If you’re unable to pay back a secured loan, the bank can seize your collateral, which in the case of a HELOC loan is your house. Therefore, a personal loan can be safer because you don’t have to put valuable collateral on the line.

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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