Financial Topics Archives

Jan

2026

What Is Revolving Credit?

By Jody McMaster | Credit, Debt Payoff, personal_loan, Terminology | No Comments

Revolving credit is a flexible type of borrowing that allows you to access money as you need it (up to predetermined limit), repay some or all of the balance, and then borrow again. Unlike a one-time loan, revolving credit becomes available again — or “revolves” — as you pay it back. This makes it a convenient option for covering ongoing expenses or handling emergencies.

Common examples of revolving credit include credit cards, personal lines of credit, and home equity lines of credit (HELOCs). Understanding how revolving credit works, how it compares to other types of debt, and how to use it responsibly can help you avoid high-interest debt traps and maintain a healthy credit profile.

Table of Contents

How Revolving Credit Works
Revolving Debt vs. Installment Debt
Secured vs. Unsecured Debt
Types of Revolving Credit
How Revolving Debt Can Affect Your Credit Score
Tips for Managing Revolving Debt
The Takeaway
FAQ

Key Points

• Revolving credit lets you borrow money up to a set limit and repay it as needed, with interest charged only on the amount used.

• Examples of revolving credit include credit cards, personal lines of credit, and home equity lines of credit (HELOCs).

• To use revolving credit effectively, it’s important to borrow only what you can repay, pay on time, and keep your balances low.

• Revolving credit is more flexible than installment debt (like car loans or mortgages) but often has higher interest rates.

• Personal loans are an increasingly popular alternative to high-interest credit card debt. These unsecured loans are cheaper, safer, and more transparent than credit cards.

How Revolving Credit Works

When you open a revolving credit account, your lender sets a credit limit, which is the maximum amount you can borrow at any given time. You can use all or part of this limit, and you only pay interest on the amount you borrow, not the entire limit.

As you make payments, your available credit increases. For example, if your credit limit is $5,000 and you spend $1,000, you’ll have $4,000 in available credit. If you pay back the $1,000, your available credit goes back up to $5,000.

Revolving credit accounts usually require a minimum monthly payment to keep the account in good standing. If you carry a balance from one statement period to the next, you’ll pay interest on your balance. Annual percentage rates (APRs) vary but can be steep for credit cards.

💡 Quick Tip: There is a lot of debate around credit card interest caps. For consumers carrying high-interest credit card balances, however, one of the shortest paths to debt relief is switching to a lower-interest personal loan. With a SoFi credit card consolidation loan, every payment brings you closer to financial freedom.

Revolving Debt vs. Installment Debt

Revolving debt is different from installment debt (or non-revolving credit) in a few key ways:

• Structure: Installment loans (like mortgages, personal loans, or auto loans) give you a lump sum upfront, which you repay in fixed monthly installments over a set term. Revolving credit allows you to continuously borrow and repay within your credit limit.

• Repayment: Installment loans have fixed payment schedules and, in some cases, there may be a prepayment penalty. Revolving accounts offer variable payments depending on your balance.

• Interest rates: Revolving credit often has higher interest rates than installment loans, especially unsecured revolving accounts like credit cards.

• Usage flexibility: Revolving credit is generally more flexible than installment debt, since it lets you borrow as needed without reapplying for a loan. Also, some installment loans are only approved for a specific purpose, such as a car loan or mortgage.

Both types of debt can be useful tools. Which one is a better fit will depend on your borrowing needs. Revolving credit can be a good option for short-term or variable expenses, while installment debt is generally better for large, fixed purchases.

Recommended: Revolving Credit vs Line of Credit

Secured vs. Unsecured Debt

Revolving credit can be either secured or unsecured:

• Secured revolving credit: With this type of credit, you must pledge an asset as collateral to guarantee repayment. If you fail to make payments according to the loan agreement, the lender has the right to seize and sell the collateral to recover their losses. Examples of secured revolving credit include a HELOC (backed by your home) and a secured credit card (backed by a savings account). Secured revolving accounts often have lower interest rates due to reduced risk to the lender.

• Unsecured revolving credit: An unsecured debt is not backed by collateral. If you fail to repay the debt, the lender cannot automatically seize a specific asset (like your house or car) to recover their losses. Instead, they rely on your promise to pay. Most credit cards and personal lines of credit are unsecured. Because lenders take on more risk, interest rates on unsecured debts tend to be higher than they are on secured debts.

Types of Revolving Credit

Here’s a look at some of the most popular types of revolving credit.

Credit Cards

You can use a credit card to make purchases, pay bills, or withdraw cash up to your credit limit. If you pay your balance in full each month, you can generally avoid interest charges. If you carry a balance, on the other hand, interest will accrue, often at rates above 20% APR. Credit cards may also offer rewards, cash back, or other perks, making them a potentially valuable financial tool when managed well.

Personal Lines of Credit

A personal line of credit is similar to a credit card but with a few key differences. For one, they typically have a draw period and a repayment period. During the draw period (often two to five years), you can access your credit line and use the funds for virtually any purpose. When you make payments during this period, you free up funds to borrow again. At the end of the draw period, you’ll begin the repayment period. During this period, you no longer have access to the line of credit and must pay off the balance in full.

Home Equity Lines of Credit (HELOCs)

A HELOC is a revolving line of credit secured by your home’s equity, and your home is used as collateral for the credit line. During your draw period (often 10 years), you can borrow up to your credit limit as needed. As you repay your balance, the funds are available to borrow again. After the draw period, you enter the repayment period (usually 20 years).

HELOCs typically have lower interest rates than unsecured revolving credit because they’re backed by collateral. They are often used for home improvements, emergency expenses, or consolidating higher-interest debt. However, because your home is at risk if you default, they require careful consideration.

How Revolving Debt Can Affect Your Credit Score

Revolving credit can have both positive and negative impacts on your credit profile. Here’s a breakdown of the key factors involved in calculating your credit score and how revolving credit can impact each of them:

• Credit utilization ratio: Your credit utilization ratio measures how much of your available credit you’re using on your credit cards and other lines of credit and is expressed as a percentage. A high utilization (above 30%) can negatively influence your credit file, while keeping it low can have a positive influence.

• Payment history: Making regular, on-time payments on a revolving credit account adds positive information to your payment history. Late or missed payments, on the hand, can do significant credit damage.

• Length of credit history: Lenders often view a longer history of responsible credit management as a positive indicator of your creditworthiness. Keeping revolving accounts open and in good standing over many years can have a favorable impact on your credit profile.

• Credit mix: Your credit mix describes the different types of credit accounts you have. A healthy mix of revolving and installment accounts can positively influence your credit.

Bottom line: If you max out your credit limits or fall behind on your payments, revolving credit can adversely impact your credit. However, if you consistently pay on time and keep your credit utilization ratio low, a revolving credit account can benefit your credit file over time.

Tips for Managing Revolving Debt

If you’re struggling to manage credit card (or other revolving credit) balances, these strategies can help you get ahead of your debt and potentially save money on interest.

Budget Strategies

Making some shifts in your budget can help you pay down your balances systematically. Two strategies to consider:

• The debt avalanche: This method focuses on paying off the debt with the highest interest rate first, while making minimum payments on the rest. Once the highest-rate debt is cleared, you target the next-highest, and so on. This minimizes total interest paid and can save you money over time.

• The debt snowball: Here, you target the debt with the smallest balance first, regardless of interest rate. After paying off the smallest debt, you apply its payment amount to the next smallest, and so on. This approach provides quick wins, which can boost motivation and momentum.

Debt Consolidation

If you have multiple high-interest debts, consider consolidating them into a single loan, such as a personal loan, with a lower interest rate. This can simplify repayment and potentially reduce interest costs. An online debt consolidation calculator can help you determine how much you could potentially save by taking out a personal loan and using it to pay down your current balances.

💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.

Balance Transfer

A balance transfer involves moving your revolving debt from one credit card to another card that has a lower or 0% introductory APR. This can save money on interest, but be mindful of transfer fees and the length of the promotional period.

Credit Counseling

Working with a nonprofit credit counseling agency can be a good way to get free or low cost help with managing revolving debt. A certified counselor can help create a debt management plan, negotiate lower interest rates, and provide education on responsible credit use. This can be a good option if you’re struggling but want to avoid more damaging solutions like bankruptcy or settlement.

Debt Settlement

If you’re struggling with high-interest revolving debt and have exhausted other solutions, you might consider debt settlement. This involves negotiating with creditors, typically through a third-part debt settlement company, to accept less than the full amount owed. While this can reduce your total debt, it typically hurts your credit and should only be considered as a last resort before bankruptcy.

The Takeaway

Revolving credit offers flexibility and convenience, which can make it a handy tool for managing expenses and building credit. However, its easy access and potentially high interest rates mean it can also become a financial burden if mismanaged.

By understanding the differences between revolving and installment debt, knowing the types of revolving credit available, and following sound debt management practices, you can make revolving credit work for — and not against — your financial health.

Credit cards have an average APR of 20%–25%, and your balance can sit for years with almost no principal reduction. Personal loan interest rates average 12%, with a guaranteed payoff date in 2 to 7 years. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. See your rate in minutes.

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

Are revolving credit and revolving debt the same thing?

Revolving credit and revolving debt generally refer to the same thing — a type of debt where you can draw funds as needed, repay the money, and then borrow it again. This differs from installment debt, where you borrow a fixed sum of money and agree to pay it back over a set period through regular, fixed payments. Revolving credit or debt comes with credit limits and typically has variable interest rates. With this type of credit, you only pay interest on what you borrow, not the entire credit line.

Does revolving debt hurt your credit score?

Revolving debt can affect your credit in positive and negative ways, depending how it’s managed. If you carry large balances or max out cards, it will increase your credit utilization rate (how much available credit you’re using) and suggest higher credit risk to lenders. Missing payments or paying late can also negatively impact your credit file. However, if you keep credit utilization low and make on-time payments consistently, having revolving debt can strengthen your credit profile over time.

How can I reduce my revolving debt quickly?

To reduce revolving debt quickly, focus on paying more than the minimum each month and target high-interest balances first (the avalanche method) to save on interest. You can also try the snowball method — paying off smaller debts first — for quicker wins. Another option is to consolidate balances with a lower-interest personal loan or a balance transfer card with a 0% annual percentage rate (APR). This can reduce costs and help speed repayment.

What is a good credit utilization ratio for revolving accounts?

A good credit utilization ratio is generally below 30%, meaning you’re using less than 30% of your total available credit. For example, if your combined credit limit is $10,000, you’ll want to try to keep balances under $3,000. Credit scoring models often reward lower usage because it signals responsible credit management and less risk of default.

Can you have too much revolving credit?

Yes, it’s possible to have too much revolving credit. While a high credit limit offers a potential safety net and might positively impact your credit file (by lowering your credit utilization ratio), it also comes with some potential downsides. One is that having access to multiple open credit lines can tempt overspending. Another is that lenders may view high credit limits as a potential risk, since you could potentially utilize all that credit. This could make it harder to qualify for loans and credit with favorable terms in the future.

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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.

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

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

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SOPL-Q325-013

Jan

2026

What Is the Average Amount of Student Debt for College Graduates in 2026?

By Kayla McCormack | Fresh Out of School, Student Loans, student_loan | No Comments

The average student loan debt for a graduate with a bachelor’s degree is $35,530, according to the latest data from the Education Data Initiative (EDI).

The specific amount of student loan debt a borrower has depends on factors like the type of school they attended, whether or not they pursued an advanced degree, and any scholarships they may have received.

Read on for more details about the average student loan debt after graduation and information about repaying student loans.

Key Points

• The average student loan debt for a bachelor’s degree graduate is $35,530.

• Graduates of public four-year colleges owe $31,960; those who attend private nonprofit colleges owe $39,510; and grads of private for-profit schools owe $47,730.

• Graduate students borrow more, averaging $17,240 a year in federal loans, compared to undergraduates, who averaged $3,900.

• Average monthly student loan payments range from $200 to $299, but can vary by loan amount, interest rate, and repayment plan.

• Student loan repayment plans include Standard, Graduated, Extended, and Income-Driven Plans, each with different terms and payment structures.

Average Student Loan Debt After College

As noted, the latest data from the Education Data Initiative found that the average student debt after four years of college was $35,530 per borrower. Forty-four percent of borrowers with undergraduate and graduate degrees have student loan debt, according to the EDI.

As of May 2025, the total amount of student loan debt in the U.S. was approximately $1.77 trillion. According to EDI, 42.7 million borrowers have student loan debt.

How Student Loan Debt Has Changed Over the Last Decade

It’s no secret that college is expensive and has only gotten more costly in the last decade or so. According to data compiled by U.S. News & World Report, the cost of attending in-state public universities increased by nearly 133% from 2005 to 2025.

Student loan debt statistics are just as eye-opening. From 2014 to 2024, total outstanding student loan debt grew from $1.24 trillion to $1.77 trillion in order to cover those costs. This student loan debt is taking a financial toll on graduating students, potentially affecting their credit and home-buying prospects, among other things.

Student Loan Debt at Public vs. Private Colleges

According to the latest information from the Education Data Initiative, graduates of public four-year institutions had an average college debt of $35,530, compared to private, nonprofit school borrowers, who graduated with an average debt of $39,510.

Those who attended four-year private for-profit colleges had an average debt of $47,730. Students at for-profit schools tend to take out more in student loans.

Undergraduate vs. Graduate Student Loan Debt

There are also some significant differences in the student loan debt of undergraduate and graduate students. The College Board’s annual survey of student aid trends found that, on average, undergraduates took out $3,900 in federal student loans in the 2023-2024 school year. That same year, graduate students took out $17,240 in federal loans.

There are about 6.8 million people under the age of 24 with student loan debt. As a group, they owe just over $96.3 billion, according to Federal Student Aid, an office of the U.S. Department of Education.

Student Loan Debt by State: How Does It Compare?

Federal student loan debt totals average approximately $29.9 billion per state (including the District of Columbia and Puerto Rico), according to the Education Data Initiative.

The latest data from EDI show that the District of Columbia has the highest student loan debt, and North Dakota has the lowest — as well as the distinction of being the only state in which the average student debt ($29,647 per borrower) is less than $30,000.

These are the 10 states with the highest average student loan debt per borrower:

• District of Columbia: $54,795

• Maryland: $43,692

• Georgia: $42,026

• Virginia: $40,137

• Florida: $39,262

• Illinois: $39,055

• South Carolina: $38,770

• North Carolina: $38,695

• New York: $38,690

• Delaware: $38,683

The states with the lowest average student loan debt per borrower are:

• Kansas: $33,119

• Wisconsin: $32,628

• Nebraska: $32,377

• West Virginia: $32,358

• Oklahoma: $32,103

• Wyoming: $31,503

• Puerto Rico: $32,022

• South Dakota: $30,928

• Iowa: $30,925

• North Dakota: $29,647

What’s the Average Monthly Student Loan Payment?

Borrowers’ monthly student loan payment can vary depending on the amount of debt they carry — the typical borrower with a bachelor’s degree owes $35,530 after four years of college — and the type of repayment plan they choose. According to the latest data from the Federal Reserve, typical monthly payments for student loans can range from $200 to $299.

How Long It Takes to Pay Off Student Loans

The standard amount of time it takes to pay off federal student loans is 10 years, but repayment terms can range as long as 20 or 25 years, depending on the repayment plan a borrower opts for.

Options for student loan repayment plans include:

• Standard Repayment Plan: This gives you 10 years to pay off your loans, and you pay a fixed amount each month. You may pay less overall under this plan because of the relatively short repayment term.

• Graduated Repayment Plan: Borrowers who choose this plan pay lower monthly payments at the beginning, and the payments gradually increase at two-year intervals. The repayment term is 10 years (30 years for those with a Direct Consolidation Loan).

• Extended Repayment Plan: Borrowers who owe more than $30,000 in federal student loans may be eligible for this plan. If you qualify, you can extend your loan term up to 25 years, which could make your monthly payments smaller. However, you may pay more in interest overall.

• Income-driven Repayment (IDR) Plans: These plans base borrowers’ monthly loan payments on their discretionary income and family size. For many borrowers, this means their payments will be lower. The repayment terms for those on income-driven plans is 20 to 25 years. At the end of that time, any remaining balance you owe on your loans may be forgiven.

In general, the sooner a borrower pays off their student loans, the more they may save in the long run because they won’t be accruing interest for as long.

The interest rate on student loans also affects a borrower’s payments. If your student loan interest rate is higher than you’d like, you might want to consider student loan refinancing to see if you can qualify for a lower interest rate or more favorable terms.

Another option is loan consolidation. If you have federal student loans, a Direct Consolidation Loan allows you to combine them into one single loan. Although this may not save you money, it could simplify your payments since you’ll have just one bill to pay.

You can consider the pros and cons of student loan consolidation vs refinancing to determine if either option is right for you.

Refinancing Student Loans With SoFi

Those in search of options to manage student loan payments might consider student loan refinancing. This process involves replacing your current student loans with a new loan from a private lender. Ideally, you may qualify for a lower interest rate.

Borrowers who refinance may also be able to adjust their repayment term. Extending the term could lower your monthly payments, but you might also end up paying more over the life of the loan.

It’s possible to refinance both private and federal student loans. Just be aware that refinancing federal loans with a private lender means losing access to federal benefits like income-based repayment.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

What is the average student debt after college in 2026?

The average student loan debt after college for a borrower with a bachelor’s degree is $35,530. On average, 20% of all U.S.adults with undergraduate degrees have student loan debt.

Is $50,000 more than the average student debt after college?

Yes, $50,000 is a significant amount of student loan debt. According to data from the Education Data Initiative, the average student loan debt in the U.S. for an undergraduate is $35,530.

How many U.S. borrowers have student loan debt in 2026?

In the U.S., 42.7 million borrowers have student loan debt, according to the Education Data Initiative.

What is the average someone pays a month for student loans?

The average monthly student loan payment is approximately $200 to $299, according to the latest date from the Federal Reserve. However, the amount a borrower pays per month will vary based on factors like their total loan amount, their interest rate, and the repayment plan they selected.

What is the total student loan debt in the U.S. in 2026?

The total amount of student loan debt in the U.S. is approximately $1.77 trillion, as of May 2026, according to the Education Data Initiative.

How long does it take most borrowers to pay off student loans in 2026?

The time it takes borrowers to pay off their federal student loans typically ranges from 10 to 25 years, depending on their financial situation and the repayment plan they’re on. The repayment terms for private student loans vary.

What is the average amount of student debt for college graduates today?

The average amount of student debt for college graduates with a bachelor’s degree today is $35,530, according to the Education Date Initiative. Borrowers who graduated from public four-year colleges have $31,960 in student debt; those who attend private nonprofit colleges owe $39,510; and graduates of private for-profit schools owe $47,730 in debt.

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.

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SOSLR-Q225-016

Jan

2026

A close-up of a person's hands signing a document at a cafe table, likely completing their Master Promissory Note.

How a Master Promissory Note (MPN) Works

By Kayla McCormack | Student Loans, student_loan, Terminology | No Comments

A Master Promissory Note (MPN) is a legally binding document that outlines your promise to repay borrowed funds, along with the terms and conditions that govern your student loans.

Understanding how an MPN works can help you avoid surprises and make more informed borrowing decisions. From how long the agreement remains valid to what responsibilities you’re agreeing to, knowing the details of an MPN ensures you’re fully prepared before accepting student loan funds.

Table of Contents

What Is a Master Promissory Note?
Key Information to Review in Your MPN
When Is the Promissory Note Signed?
How Long Does the Master Promissory Note Process Take?
FAQ

Key Points

• A Master Promissory Note is a legally binding agreement in which a borrower promises to repay a student loan and any accrued interest and fees to the lender.

• Federal student loans may use a Master Promissory Note valid for up to 10 years.

• The promissory note includes details on interest rates, fees, and repayment options, and must be signed before loan disbursement.

• Deferment options allow postponement of payments, though interest may accrue depending on the loan type.

• You can get a copy of your note by logging into your account on StudentAid.gov or (for private loans) contacting your lender.

What Is a Master Promissory Note?

A Master Promissory Note (MPN) is a legal document that contains the terms and conditions for federal student loans. When you sign an MPN, you are promising to repay your loan(s) and any accrued interest and fees to the U.S. Education Department.

Borrowers with federal student loans can typically sign just one MPN that covers multiple years of borrowing, rather than signing a new MPN each year. This means you are accepting the amount of each year’s new loans under the terms of the existing MPN.

There are two types of MPNs:

• Direct Subsidized/Unsubsidized Loan MPN: A student borrower must complete and sign this MPN before a school can make the first disbursement of a Direct Subsidized or Direct Unsubsidized Loan.

• Direct PLUS Loan MPN: A graduate/professional student borrower or parent borrower must complete and sign this MPN before a school can make the first disbursement of a Direct PLUS Loan. Keep in mind that as of July 1, 2026, new Grad PLUS Loans will no longer be available. Those that received one before June 30, 2026 may continue borrowing under current terms through the 2028-29 academic year.

Key Information to Review in Your MPN

A promissory note will provide you with a wealth of information about your student loan (or loans). Here’s a closer look at what you’ll find in a Master Promissory Note.

Repayment Options

Federal loans come with several options to help you manage your debt post-graduation, such as income-driven repayment plans and forgiveness programs. These options are all outlined in your MPN. You’ll want to take time to review them, especially as you enter the repayment phase of your borrowing journey.

If you have private student loans, your promissory note will also outline your repayment options and any borrower benefits you have access to (such as reduced-payment plans or forbearance). Before signing the contract, you’ll want to review the repayment details and make sure everything you have discussed with your lender is reflected in the promissory note.

Student loan refinancing is an alternative repayment strategy that allows borrowers to replace one or more existing student loans with a new loan from a private lender, ideally at a lower interest rate or with different terms. While refinancing can simplify repayment and reduce monthly payments or total interest costs, it also converts federal loans into private debt, meaning borrowers will give up any federal benefits. Refinancing replaces your original MPN with a new agreement.

Deferment Options

Student loan deferment lets you postpone payments on your student loans for a certain period of time. You won’t have to pay your student loan bills during a deferment, but interest might accrue during this time, depending on your loan type.

Federal loans offer deferment during a number of different situations, including being enrolled in school at least half-time (and for six months after you graduate), being unemployed, economic hardship, and active military service. Under Trump’s One Big Beautiful Bill, however, loans made after July 1, 2027 will no longer be eligible for deferments based on unemployment or economic hardship.

Like federal student loans, private student loans are typically placed into deferment while you’re enrolled at least half-time in school, and you may also have a six-month grace period after you graduate before you need to start making payments. Interest will generally accrue on private student loans during a period of deferment. Private loans may also offer other deferment options, but every lender is different, so you’ll need to check your promissory note.

Recommended: Do Student Loans Build Credit?

Interest Rate: Fixed vs Variable

Interest rates on student loans can be fixed or variable. With a fixed-rate loan, your interest rate will remain the same for the life of the loan. With a variable-rate loan, the interest rate on the loan fluctuates based on a market benchmark or index rate.

Federal student loans have fixed interest rates, which are set each year by federal law. To view current interest rates for federal student loans as well as previous years’ interest rates, visit the U.S. Education Department’s website.

Private student loans may give you a choice of fixed or variable rates. Your rate and whether it’s fixed or variable will be listed in your loan’s promissory note. If the rate is variable, it may start off lower than a fixed-rate option, but could rise over time leading to higher payments.

Student Loan Fees

Your promissory note will also detail any additional costs, such as any student loan fees. For example, federal student loans and some private student loans charge an origination fee, which is a percentage of your loan amount. This fee is typically taken from the loan before it is dispersed, which means you receive less than the full loan amount you accepted. Since the origination fee is included in the principal, you will also pay interest on it (even though you did not receive those funds).

Other student loan fees you may see listed on a promissory note include application fees, late payment fees, and collection agency fees (in the event you default on your loan and it goes to collections).

Borrower Rights and Responsibilities

When you sign a Master Promissory Note, you have the right to clear disclosure of your loan terms, including interest rates, fees, repayment options, and conditions for deferment or forbearance. You’re also entitled to information about loan servicing, access to income-driven repayment plans (for federal loans), and protections such as grace periods and cancellation or discharge options if you qualify.

Your responsibilities as a borrower include repaying the loan on time, keeping your contact information current, and using the funds for approved educational expenses.

When Is the Promissory Note Signed?

In general, borrowers will need to sign the promissory note for their loans before receiving any funds. Students who are borrowing federal student loans are able to sign their master promissory note online by logging into their federal student loan account. Typically, you’ll need to sign only one MPN for multiple subsidized and unsubsidized loans, and it will be good for up to 10 years of continuous education.

A private student loan lender may allow you to sign a promissory note online, or you may need to print it out, sign, and send it via regular mail.

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Company by U.S. News & World Report.

What if a Promissory Note Is Not Signed?

For federal loans, a signed promissory note is required before the loan is disbursed. So, failing to sign the promissory note could mean you won’t receive your funds, or at least won’t receive them until the promissory note is signed.

A signed promissory note is also generally required for disbursement of a private student loan, though each lender will have their own requirements.

Do You Need a New Promissory Note Every Year?

Private lenders typically require students to sign promissory notes for each loan taken out, which means you may sign a new promissory note every year. Generally, federal student loan borrowers can sign a one-time Master Promissory Note that is good for up to 10 years of continuous education.

Do Your Parents Need to Sign?

If you are borrowing a private student loan and a parent is acting as your student loan cosigner, they will likely need to sign the promissory note.

If you’re taking out a federal student loan for your undergraduate education, you are the only borrower and your parents do not need to sign your MPN.

If a parent is borrowing a Parent PLUS Loan to help pay for your college education, however, they will need to sign an MPN. As with a student MPN, a parent needs to sign only a single MPN once every 10 years. The government can provide multiple loans based on one parent MPN.

How Long Does the Master Promissory Note Process Take?

According to the Education Department, most people complete their Master Promissory Note online in less than 30 minutes. When you log into your account to fill out your MPN, keep in mind that the entire process must be completed in a single session, since you cannot save your progress.

Recommended: Financial Aid vs Student Loans

The Takeaway

A Master Promissory Note is a binding agreement that defines your responsibility as a student loan borrower. By understanding what the MPN covers and how long it remains valid, you can make informed decisions, borrow with confidence, and avoid unexpected issues as you manage your student loans.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Do you have to do a master promissory note every year?

No, you do not have to sign a Master Promissory Note (MPN) every year for federal student loans. Once signed, it’s typically valid for up to 10 years and allows you to borrow multiple loans under that same MPN. MPNs are also not school-specific so you can typically use the same MPN even if you transfer colleges.

How do you get your student promissory note?

For federal loans, you can complete your Master Promissory Note on the Federal Student Aid website. It takes about 30 minutes to fill out and two to three business days to process. You will then be able to access (and download) your student promissory note by logging into your account. For private loans, you may be able to sign your promissory note online or you may need to print it out, sign it, and mail it to the lender. You’ll receive a copy of your promissory note along with your other loan materials.

How long does it take for a master promissory note to process?

Once you submit the Master Promissory Note (MPN) online, it usually takes about one to two business days for processing. This time frame allows for the U.S. Education Department to verify your information and communicate with your school regarding the loan. After your MPN is processed, your school will credit the loan funds to your account, and you can check your loan status on the Federal Student Aid website.

How do I get a copy of the promissory note for my student loan?

You can get a copy of your signed Master Promissory Note (MPN) for federal student loans by logging into your account on StudentAid.gov using your FSA ID. Navigate to your loan documents to find the MPN. You can then view, download, or print a copy for your personal records.

With a private student loan, your lender will typically provide you with a copy of the promissory note, along with several other documents, when they finalize the loan. If you can’t locate a copy, you can reach out to your lender and ask them to send you one.

Do I have to pay my student loans if I drop out of college?

Yes, even if you drop out of college, you’re still required to repay your student loans. Once you’re no longer enrolled in school at least half-time, student loans typically enter a grace period, which is often six months. After that, repayment begins. Dropping out does not eliminate your obligation to repay the debt, and failure to make payments could lead to loan default.

Will a student loan affect my credit score?

Yes, student loans directly affect your credit score. Once you take out a student loan, it becomes part of your credit report and, like other types of loans, can impact your payment history, length of your credit history, and credit mix. Making timely payments can help you build a positive credit history. However, missed or late payments can negatively affect your credit and score.

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.

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.

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.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOSLR-Q126-015

Jan

2026

What Is Consumer Debt, and How Can You Get Out of It?

By Jamie Cattanach | Credit, Debt Payoff, personal_loan | Comments Off

Consumer debt refers to any money you borrow for personal, family, or household purposes. It includes credit card debt, student loans, auto loans, mortgages, personal loans, and payday loans.

White “debt” can have negative connotations, having consumer debt isn’t necessarily a bad thing. Borrowing money allows you to achieve your goals, such as buying a house or going to college. However, consumer debt can become a burden if you borrow too much or for the wrong reasons.

Unfortunately, many Americans are currently saddled with high levels of debt. Total consumer debt hit a new record in the first quarter of 2025, ringing in at $18.203 trillion according to the New York Fed’s quarterly Household Debt and Credit Survey (HHDC). The average total consumer household debt, according to Experian, was $105,056 in 2024, a 13% uptick from 2020.

Here, take a closer look at the different types of consumer debt, including how each can help — or hurt — your finances, plus how to pay off high levels of consumer debt.

Key Points

• Consumer debt serves personal, family, or household purposes.

• Types of consumer debt include credit card, student, auto, mortgage, and personal loans.

• Excessive debt can impede financial goals and stability.

• Debt consolidation can offer a simplified repayment process.

• Consistent on-time payments can build credit scores, while missed payments lower them.

What Is Consumer Debt?

Consumer debt, as its name implies, is debt held by consumers, meaning private individuals as opposed to governments or businesses. It includes debts you may already have or might seek in the future — credit cards, student loans, auto loans, personal loans, and mortgages. It doesn’t include business loans or lines of credit or business credit cards.

Consumer debt products are offered by banks, credit unions, online lenders, and the federal government. They generally fall into two major categories: revolving debt and non-revolving debt.

With revolving debt, you repay your debt monthly (credit cards are a prime example). With non-revolving debt, you receive a loan in one lump sum and then repay it in fixed payments over a defined term. Non-revolving credit typically includes auto loans, student loans, mortgages, and personal loans.

Consumer debt can also be broken down into secured vs unsecured debt. Secured debt is debt backed by an asset (such as a home or car) used as collateral. If the loan isn’t paid back, the lender has the option to seize the asset. Unsecured debt, on the other hand, does not require collateral. The lender simply relies on the borrower’s ability to repay the loan.

Recommended: What Is a Credit Card Interest Cap?

The Different Types of Consumer Debt

Consumer debts vary widely in terms of how they work, their terms, and their impact on your financial well-being. Here a closer look at some of the most common types of consumer debt.

Mortgage Debt

Mortgage debt is the most common (as well as the largest) type of debt in the U.S. This type of consumer loan is used to purchase a home and the home is used as collateral.

Mortgages are installment loans, which means you pay them back in a set number of payments (installments) over the term of the loan, typically 15 or 30 years. Mortgage interest rates are usually lower than other types of consumer loans, and the interest may be tax deductible if you itemize your taxes.

If you make your payments on time, a mortgage can have a positive impact on your credit profile, since it shows you are a responsible borrower. If you stop making payments on a mortgage, however, it can negatively impact your credit. Plus, the lender can begin the foreclosure process, which typically includes seizing the property and selling it to recoup its losses.

Student Loan Debt

Student loans are unsecured installment debt used to pay for education expenses, such as tuition and room and board. They are offered by federal or private lenders and issued in one lump-sum payment. The borrower is then responsible for making repayments in regular amounts, typically after they graduate or are no longer in school.

Student loans are often one of the first debts consumers take on and can be an important way to build a positive credit history, provided you make on-time payments. Interest rates vary by lender. If you get a student loan from the U.S. Department of Education, the interest rate is set by the federal government and will remain fixed over the life of the loan.

Depending on your income, interest paid on student loans may be tax-deductible up to certain limits.

Auto Loan Debt

Auto loans are secured installment loans used to purchase a vehicle. These loans can have varying terms and interest rates, and the vehicle serves as collateral for the loan. You can get an auto loan through a bank or through a lender connected with a car dealership.

Unlike a house, a car depreciates in value over time. As a result, you, ideally, only want to take out financing for a vehicle if you can get a low interest rate. Some car companies offer low- or no-interest financing deals for individuals with good credit.

You get the proceeds of an auto loan in one lump sum then repay that amount, plus any interest, in a set number of payments (typically made monthly) over an agreed-upon period of time, often three to six years. If you stop making payments, the lender can repossess your car and sell it to get back its money.

Like other types of consumer loans, making on-time payments on your auto loan can help you build a positive credit history.

Personal Loans

Personal loans are consumer loans that individuals can use for a wide variety of purposes, such as debt consolidation, home improvements, or emergency expenses. You can get a personal loan with an online lender, bank, or credit union. They typically have fixed interest rates and set repayment terms, often one to seven years.

Personal loans are typically unsecured, meaning you don’t need to provide any collateral. Instead, lenders look at factors like credit score, debt-to-income ratio, and cash flow when assessing a borrower’s application.

Once approved for a personal loan, you receive a lump sum (which can be anywhere from $1,000 to $50,000, $100,000, or more) and start paying it back, plus interest, in fixed monthly payments over the loan’s term. On-time loan payments can help build your credit, but missed payments can damage it.

Credit Card Debt

Credit card debt arises from using credit cards to make purchases or cover expenses. This type of debt is revolving, meaning you don’t have to pay it off at the end of the loan term (usually the end of the month). If you carry a balance from month to month, you pay interest on the outstanding amount.

Credit card debt is an unsecured loan, since it isn’t tied to a physical asset the lender can repossess to cover the debt if you don’t pay your bills. Interest rates vary depending on the card, your credit scores, and your history with the lender, but currently average around 24%.

To remain in good standing, you’re required to make a minimum payment on your balance each month. However, only paying the minimum allows interest to accrue, which can make the debt increasingly harder to pay off. As a result, credit card debt is often the most problematic type of debt for consumers.

A long history of making on-time payments can have a positive impact on your credit profile, while missing and late payments (and using a large amount of your available credit line) can have a negative impact on your credit.

💡 Quick Tip: Everyone’s talking about capping credit card interest rates. But it’s easy to swap high-interest debt for a lower-interest personal loan. SoFi credit card consolidation loans are so popular because they’re cheaper, safer, and more transparent.

Payday Loans

Payday loans are a type of short-term credit offered to consumers looking to get access to cash fast. Generally, these loans are for relatively small amounts of money ($500 or less) and must be repaid in a single payment on your next payday, hence the name. Payday loans are typically available through storefront payday lenders or online.

Although these fast-cash offers can be tempting, the high cost associated with them make them a last resort. A typical two-week payday loan will charge $15 for every $100 you borrow, which is the equivalent of a whopping 400% annual percentage rate (APR).

Generally, payday loans are not reported to the three major consumer credit bureaus, so they are unlikely to impact your credit scores.

Pros and Cons of Consumer Debt

There are both benefits and drawbacks to consumer debt. Here’s a look at how they stack up.

Pros of Consumer Debt

• Access to immediate funds Consumer debt allows individuals to make large purchases (like a home or car) or cover expenses (like a college education) when they do not have the necessary cash on hand.

• Building credit history Responsible borrowing and timely repayments can help establish and build an individual’s credit history and credit score.

• Emergency financial support Consumer debt, such as a personal loan, can provide a safety net in unexpected situations when someone needs funds immediately.

Cons of Consumer Debt

• High interest rates Many forms of consumer debt, such as credit card debt or payday loans, carry high interest rates, making them costly in the long run.

• Risk of overborrowing Without careful financial planning, consumer debt can lead to excessive borrowing, making it difficult to manage monthly payments and potentially causing financial stress.

• Negative impact on financial goals Excessive consumer debt can hinder individuals from achieving long-term financial goals, such as saving for retirement or buying a home.

Getting Out of Consumer Debt

To get out from under unhealthy levels of consumer debt, consider the following steps:

• Assess your debts You might start by making a list of all your debts, noting balances, interest rates, and minimum monthly payments. This will allow you to see where you stand and make a plan for debt repayment.

• Create a budget Next, you’ll want to assess your average monthly income and expenses to determine how much you can allocate towards debt repayment each month. At the same time, you may want to look for ways to cut back on nonessential spending; any funds you free up can go towards extra payments.

• Prioritize repayment If you have multiple high-interest debts, you may want to focus on paying off the highest-interest debt first, while making minimum payments on other debts. Or, you might focus on repaying the debt with the smallest balance, making minimum payments on all your debts. Once that is paid off, you move on the next-highest balance.

• Explore debt consolidation options Consider consolidating multiple debts into a single loan to simplify repayment and, ideally, save money. One way to do this is through a debt consolidation loan, a personal loan that may come with lower interest rates than your existing debts.

• Negotiate with creditors Another option is to reach out to your creditors to see if you can negotiate lower interest rates, extended payment terms, or possible debt settlement options.

• Seek professional help if needed If you are struggling with debt, you may want to consult a nonprofit credit counseling service. Credit counselors help you go over your debts to devise a plan for repayment, and they can also help you with budgeting and other personal finance basics.

The Takeaway

Consumer debt is debt you take on for personal, rather than business, reasons. But all consumer debt is not created equal. Some debts, such as mortgages or student loans, can be characterized as “good” debts, since they can benefit your long-term financial health. Other debts, like high-interest credit card debt or payday loans, on the other hand, can be considered “bad debts,” since they can put your financial health at risk.

SoFi’s Personal Loan is cheaper, safer, and more predictable than credit cards.

FAQ

What is considered consumer debt?

Consumer debt is debt taken on for personal consumption vs. business or investment needs. It can include such things as credit card debt, student loans, mortgages, car loans, and personal loans.

Is a credit card a consumer loan?

No, a credit card is a revolving line of credit. A loan typically involves receiving a lump sum of cash and paying it back over time.

Is a credit card considered debt?

Yes, a credit card is a kind of debt. With a credit card, you are borrowing money from the card issuer to make a purchase. You then pay back the amount of the purchase, possibly plus interest and fees.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

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

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.

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SOPL-Q225-093

Jan

2026

A man stands on a staircase in an office building, looking at a tablet.

Tips for Paying Off Outstanding Debt

By Janet Schaaf | Debt Payoff, personal_loan | Comments Off

Table of Contents

What Is Considered Outstanding Debt?
Types of Outstanding Debt
How to Find Outstanding Debt
Outstanding Debt Amounts
How Does an Outstanding Debt Impact Your Credit?
Should I Pay Down Outstanding Debt?
Outstanding Debt Management Strategies
Outstanding Debt Payoff Methods
When to Seek Professional Help
FAQ

If you carry some debt, you’re not alone. The total household debt in the U.S. rose to $18.59 trillion in the third quarter of 2025, according to the latest statistics from the Federal Reserve Bank of New York.That includes everything from mortgages to credit card balances to student loans.

If you’re among the ranks of those with outstanding debt and want to pay it off, here are strategies to help you do just that.

Key Points

• Outstanding debt represents any unpaid balance owed to a creditor; tracking all debts is a crucial first step to understanding the total amount.

• An expedited debt repayment plan is beneficial when monthly payments are unmanageable, interest rates and/or fees are high, or you need to free up funds.

• Two widely used strategies for debt repayment are the debt snowball and debt avalanche, both emphasizing focused attention on one debt source.

• Borrowers can often save on interest by sweeping their credit card debt into a lower rate personal loan.

• Finding the best debt repayment method depends on individual circumstances, with options ranging from consolidation loans to credit counseling.

What Is Considered Outstanding Debt?

Outstanding debt refers to any balance on a debt that has yet to be paid in full. It is money that is owed to a bank or other creditor.

When calculating debt that’s outstanding, you simply add all debt balances together. This could include credit cards, student loans, mortgage loans, payday loans, personal loans, home equity lines of credit, auto loans, and others. You should be able to find outstanding balance information on your statements.

Types of Outstanding Debt

Outstanding debt can take a few different forms. Here are some key types to know about:

• Secured debt: This is debt that’s backed by an asset or collateral. For instance, with a mortgage, your home is the collateral; with an auto loan, your car secures the loan. If you default on your loan, the lender may seize your collateral.

• Unsecured debt: This is a debt that is not backed by collateral. The lender offers you money, to be paid back with interest, based on their evaluation of your creditworthiness. Examples of this kind of debt include most personal loans as well as credit card balances.

• Revolving debt: With this kind of debt, you can borrow up to a certain limit. Credit cards and HELOCs (home equity lines of credit) are examples of this kind of debt. If, say, you have a $10,000 limit and you spend $9,000 of it, you only have $1,000 remaining to access. But if you make a payment of $3,000 toward your debt, you’ll have $4,000 available to spend.

• Installment debt: With installment debt, the lender disburses a lump sum, which the borrower pays back over time with interest. Examples of this kind of outstanding debt include mortgages and personal loans.

Recommended: What Is the Average Debt by Age?

How to Find Outstanding Debt

When paying off outstanding debt, a good first step is to track it all down and account for it to understand the total.

As you move through your debt payoff journey, you may find it helpful to start a file (hard copies or digital) for your statements and correspondence. Also, you could create a list or input information into a spreadsheet. Organizing your information is necessary for building a debt payoff strategy.

It can be a good idea to build a list of all debts with the most useful information, such as the outstanding balance, the interest rate, the monthly payment, the type of debt, and the creditor. If you have an installment loan, such as a personal loan, the principal amount of the loan is another helpful piece of information.

What If I Can’t Find All My Outstanding Debts?

If you feel as though you’ve lost track of some debts, you may want to start by requesting a credit report.

Checking Credit Reports and Account Statements

In this case, you’ll want to get your credit report from at least one of the three major reporting agencies, Experian®, TransUnion®, or Equifax®. You are currently legally entitled to one free copy of your credit report from each of the three agencies per week. It’s easy to request a credit report from AnnualCreditReport.com.

(If you’re curious about just your score, you might also see if your financial institution offers credit score monitoring. This could be an easy way to keep tabs on your creditworthiness.)

A credit report includes information about each account that has been reported to that particular agency, including the name of the creditor and the outstanding debt balance.

It is possible that some outstanding debts may have been sold to a collection agency. The name of the original creditor may be included on the credit report. Some outstanding debts, however, may not appear on a credit report. Creditors are not required to report to the agencies, but most major creditors do. That said, a creditor could choose to report to none, one, two, or all three of the agencies. If you’re in information-collecting mode, you may want to consider requesting reports from more than one agency or from all three.

Another step in accounting for outstanding debt is to review all the account statements that may come your way, scan your checking account statements for automatic withdrawals (for example, for any payment plans you may have forgotten about), and review payment apps. This can help you see what debt you are carrying.

Outstanding Debt Amounts

Aside from how a debt is structured — revolving or installment debt; installment or lump sum — it can also be thought of as “good” debt or “bad” debt.

• Good debt: Generally, if borrowing money (and thus incurring debt) enhances your net worth, it’s considered good debt. A mortgage is one example of this. Even though you might incur debt to purchase a home, the value of the home will likely increase. As it does, and as you pay down the mortgage balance, your net worth has the potential to increase.

• Bad debt: On the other hand, if debt taken on to purchase something that will depreciate, or lose value, over time, that is considered bad debt. Going into debt to purchase consumer goods, such as cars or clothing, will not enhance your net worth.

In terms of how much outstanding debt is too much, know this: Each person has a unique financial situation, level of comfort with debt, and ability to repay debt. What one person may be able to justify may be completely unacceptable to another.

How Does an Outstanding Debt Impact Your Credit?

Outstanding debt can impact your credit in a few ways. Here’s a closer look.

Debt-to-Income Ratio (DTI)

During loan processing, lenders may consider the applicant’s debt-to-income ratio (DTI), which compares how much you owe each month to how much you earn. Lenders will often look at this number to determine their potential risk of lending. Different lenders have different stipulations about this ratio, so asking a potential lender about theirs is a good idea.

Calculating DTI is done by dividing monthly debt payments by gross monthly income.

• Monthly debt payments can include rent or mortgage payment, homeowners association fee, car payment, student loan payment, and other monthly payments. (Typically, monthly expenses such as utilities, food, or auto expenses other than a car loan payment are not included in this calculation.)

• Gross income is the amount of money you earn before taxes and other deductions are taken out of your paycheck.

Someone with monthly debt payments of $2,000 and a gross monthly income of $8,000 would have a DTI of 25% ($2,000 divided by $8,000 is 25%).

Generally, a DTI of 35% or less is considered a healthy balance of debt to income.

Credit Utilization Ratio

Another way that debt impacts your credit: your credit utilization ratio. This ratio expresses how much of your revolving credit limit you are using. For instance, if your credit limit on your two credit cards totals $40,000 and you are carrying a balance of $10,000, your ratio is 25%. You are using a quarter of what is available.

Ideally, a person’s credit utilization would be 10% of less, but up to 30% is considered acceptable. Go over that amount, and lenders may see you as financially unstable and living beyond your means. This can negatively impact their willingness to extend more credit at a favorable rate.

Payment History and Delinquencies

Whether you pay your bills on time also impacts your credit. Making payments on time is the single most important factor when it comes to your credit score. It accounts for 35% of your rating. In fact, late (or delinquent) payments that are reported to the credit bureaus can stay on your report for seven years, although their impact can diminish over time if you make timely payments.

It can be wise to use autopay or set up reminders to ensure you don’t pay your creditors late or skip payments entirely.

Should I Pay Down Outstanding Debt?

Barring extenuating circumstances, it’s a good idea to make regular, consistent payments on your debt. Whether or not you decide to pay the debt back on an expedited schedule is up to you.

Some may not feel the need to aggressively tackle their outstanding debt. They may be just fine to continue paying off a balance until the loan’s maturity date. This may apply to people with manageable debt payments, those who have debts with lower interest rates, or those focusing on other financial goals.

For example, someone with a low-interest-rate mortgage loan may not feel the need to pay it down faster than the agreed-upon schedule. So they continue to make regular, scheduled payments that make up a manageable percentage of their monthly budget. Therefore, they are able to work on other financial goals in tandem, such as saving for retirement or starting a fund for a child’s college.

Other scenarios may call for a more aggressive strategy to pay down debt. Some reasons to consider an expedited plan:

• Your debt levels, and therefore monthly payments, feel unmanageable.

• You’re carrying debts with higher interest rates, like credit cards.

• You want to avoid missed payments and added fees.

• You simply want to have zero debt.

You’ll also want to keep in mind that carrying a large debt load could negatively affect your credit. One factor in a credit score calculation is the ratio between outstanding debt balances and available credit on revolving debt, like a credit card — the credit utilization rate.

Using no more than 30% of your available credit is recommended. So, if a person has a $5,000 credit limit on a card, that would mean using no more than $1,500 at any given time throughout the month. Using more could result in a ding on their credit score.

Carrying debt also means paying interest. While some interest may not be avoidable, it’s generally a sound financial strategy to pay as little in interest as possible.

Credit cards tend to have some of the highest interest rates on unsecured debt. The average interest rate on a credit card was almost 22% according to Experian as of November 2025. With high rates, it’s worth seriously considering paring back debt balances.

Outstanding Debt Management Strategies

The next step is to pick a debt reduction plan.

Two popular strategies for paying off debt are called the debt snowball and the debt avalanche. Both ask that you isolate one source of debt to focus on first.

Simply put, you’ll make extra payments or payments larger than the minimum monthly payment on that debt until the outstanding balance is eliminated. You’ll continue making the minimum monthly payment on all your other debts.

Debt Snowball

A debt snowball payoff plan involves listing all of your debt in order of size, from smallest to largest, ignoring interest rate. You then put extra funds towards the debt with the smallest balance, while making the minimum required payments on the rest. Once that debt is paid off, you put extra money towards the next-smallest debt, and so on.

The idea here is that there’s a psychological boost when a card is paid off, so it makes sense to go after the smallest first. That way, when a person works up to the card with the next highest balance, they can focus singularly on it, without a bunch of annoying, smaller payments getting in the way of the ultimate goal.

It’s called a snowball because the strategy starts small, gaining momentum as it goes.

Debt Avalanche

Alternatively, the debt avalanche method starts by listing debt in order of interest rate, from highest to lowest. You then put extra money towards the debt with the highest interest rate. Because this source of debt costs the most to maintain, it is a natural place to focus. Once that debt is paid off, you focus your extra payments towards the debt with the next-highest interest rate.

The debt avalanche is the debt payoff strategy of choice for those who prefer to look at things from a purely mathematical standpoint. For example, if a person has one credit card with a 27% annual percentage rate (APR) and another with a 22% APR, they’d focus on that 27% card with any extra payments, no matter the balance.

Of course, it is also possible to modify these strategies to suit personal preferences and needs. For example, if one source of debt has a prepayment penalty, maybe it drops to the bottom of the list. If there’s a particular credit card you tend to overspend with, perhaps that’s a good one to focus on.

Debt Consolidation Strategy

The two methods described above aren’t your only options. You might also pursue debt consolidation, in which you combine multiple debts into a single, more convenient loan, possibly with a lower interest rate.

For example, if you are carrying a balance on two or three credit cards, you might apply for a personal loan to pay off credit card debt. In this case, the debt consolidation loan, if approved, would be used to pay off the credit card balances. Then, instead of making monthly payments to the credit card companies, you would pay just your personal loan. This can simplify your financial life, and the new loan could offer a lower interest rate vs. credit cards.

Outstanding Debt Payoff Methods

Once you decide on a strategy, whether it’s one discussed above or something that works better for your financial situation, you’ll need to figure out where the money will come from to pay down outstanding debt.

A good first step is to simply list your monthly income and expenses. If you find that you have enough money to begin making extra payments toward your outstanding debt balances, then you might choose to start right away.

Some people choose to keep a 30-day spending diary to get a clear picture of what they spend their money on. This can be a good way to pinpoint areas you might be able to cut back on to have more money to apply to outstanding debt.

If your existing budget is already tight and won’t accommodate extra payments, you might consider looking for some other financial strategies.

Increasing Income

Sometimes the answer is to make more money. Granted, this can be easier said than done. But some people can get a part-time job, start a side hustle, or sell things they no longer need or want to raise cash. You might also think about looking for a new, higher-paying job or asking for a raise at your current job.

Using Personal Savings

Tapping into money you’ve saved can be another way to pay down outstanding debt. Savings account interest rates, even high-yield savings accounts, generally pay much less interest than you’re paying on your outstanding debts. Keeping enough money in a savings account as an emergency fund is recommended, but if you have a surplus in your personal savings, putting that money toward your debt balances is a good way to make headway on outstanding debt.

Consolidating With a Credit Card

Using a credit card to pay off debt may seem like an unwise choice, but it can make sense in some situations. If your credit score is healthy enough to qualify for a credit card with a zero- or low-interest promotional rate, you might consider transferring a higher-rate balance to a card like this.

The benefit of this strategy is having a lower interest rate during the promotional period, potentially resulting in savings on the overall debt.

There are some drawbacks to credit card balance transfers though. One is that promotional periods are limited, and if you don’t pay the balance in full during this period, the remaining debt will revert to the card’s regular rate. Also, it’s typical for a promotional-rate card to charge a balance transfer fee, which can range from 3% to 5%, or more, of the balance transferred. This fee will increase the amount you will have to repay.

Consolidating With a Personal Loan

As noted above, using one new loan to pay off multiple outstanding debt balances is another debt payoff method. A personal loan with a lower overall rate of interest and a straightforward repayment plan can be a good way to do this.

In addition to one fixed monthly payment, a debt consolidation loan provides another benefit — the balance cannot easily be increased, as with a credit card. It’s easy to swipe a credit card for an additional purchase, potentially undoing the progress you’ve made on your debt repayment plan.

To consolidate your outstanding debt with a personal loan, you might want to look around at different lenders to get a sense of what interest rates they might offer for you. Typically, lenders will provide a few options, including loans of different lengths.

💡 Quick Tip: Credit card interest rates average 20%-25%, versus 12% for a personal loan. And with loan repayment terms of 2 to 7 years, you’ll pay down your debt faster. With a SoFi personal loan for credit card debt, who needs credit card rate caps?

Negotiating With Creditors

One other alternative is to reach out to creditors and try to negotiate with them. Some lenders may be interested in negotiating with borrowers who are struggling with debt. Doing so can help them recoup some if not all of the money they are owed. You might call your creditor, explain your situation, and see if they will reduce your interest rate, shift your loan terms, pause payments for a time, or otherwise help you pay what you can.

There are also debt settlement companies that are third parties. These offer to negotiate with creditors on your behalf, often advising clients to withhold payments for a period of time, which can cause their credit score to drop. Proceed with caution as these companies can charge high fees and results are not guaranteed.

When to Seek Professional Help

In some situations, you may want to get professional help with your debt. Perhaps you are feeling overwhelmed, barely able to make minimum payments, dealing with collections agencies, and finding the amount you owe rising. When this kind of stressful scenario occurs, you may find relief by reaching out for qualified assistance.

There are several types of professionals who might help. You could reach out to a nonprofit credit counseling agency (NFCC and FCAA are two to consider) for guidance on managing your debt. You could consult a financial advisor or financial therapist for advice and insights into how you can avoid future debts. If you are facing legal action, such as foreclosure, a debt attorney could be your best resource.

Do check references and make sure you are working with a well-regarded professional or organization so this difficult situation doesn’t become more challenging.

The Takeaway

Outstanding debt can be a heavy burden. Many people owe large amounts of debt but don’t know how to start making a dent in their balances. A good place to begin is by identifying your current income and expenses to see your overall financial picture. From there, you may decide to focus on paying down certain debts over others. You can then choose the best paydown method for your financial situation, whether that means using the debt avalanche technique or taking out a personal loan.

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

What is the best method to pay off outstanding debt?

There is no single best method to pay off outstanding debt. Much depends on an individual’s unique situation and financial profile. For some, a debt snowball or avalanche method works well; others will prefer a debt consolidation loan, balance transfer card, or a consultation with a credit counseling agency. Research your options to find the best fit.

Can outstanding debt be negotiated or settled?

Yes, you may be able to negotiate or settle outstanding debt. You can contact your creditors directly yourself, or work with a debt settlement company (but be sure you understand the fees involved and that they may not be successful). In these situations, you can expect your credit score to be significantly lowered.

Does paying off outstanding debt build your credit score?

Yes, paying off outstanding debt typically has a positive impact on your credit score. This happens because you are lowering your credit utilization, meaning you are not owing as much vs. your credit limits. However, paying off debt could trigger a small decrease in your score as well, since it might reduce your credit history and mix, which contribute to your score.

How long does outstanding debt stay on your credit report?

Negative debt information can stay on your credit report for up to seven years and, in the case of bankruptcies, up to 10 years.

What happens if you ignore outstanding debt?

Ignoring outstanding debt can lead to serious financial and legal consequences. For instance, your credit score could drop significantly, collection agencies could pursue payment, you might have your salary garnished, and/or you could face the loss of an asset used as collateral on a loan.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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 Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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.

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SOPL-Q425-061

What Is Revolving Credit?

How Revolving Credit Works

Revolving Debt vs. Installment Debt

Secured vs. Unsecured Debt

Types of Revolving Credit

Credit Cards

Personal Lines of Credit

Home Equity Lines of Credit (HELOCs)

How Revolving Debt Can Affect Your Credit Score

Tips for Managing Revolving Debt

Budget Strategies

Debt Consolidation

Balance Transfer

Credit Counseling

Debt Settlement

The Takeaway

FAQ

Are revolving credit and revolving debt the same thing?

Does revolving debt hurt your credit score?

How can I reduce my revolving debt quickly?

What is a good credit utilization ratio for revolving accounts?

Can you have too much revolving credit?

What Is the Average Amount of Student Debt for College Graduates in 2026?

Average Student Loan Debt After College

How Student Loan Debt Has Changed Over the Last Decade

Student Loan Debt at Public vs. Private Colleges

Undergraduate vs. Graduate Student Loan Debt

Student Loan Debt by State: How Does It Compare?

What’s the Average Monthly Student Loan Payment?

How Long It Takes to Pay Off Student Loans

Refinancing Student Loans With SoFi

FAQ

What is the average student debt after college in 2026?

Is $50,000 more than the average student debt after college?

How many U.S. borrowers have student loan debt in 2026?

What is the average someone pays a month for student loans?

What is the total student loan debt in the U.S. in 2026?

How long does it take most borrowers to pay off student loans in 2026?

What is the average amount of student debt for college graduates today?

How a Master Promissory Note (MPN) Works

What Is a Master Promissory Note?

Key Information to Review in Your MPN

Repayment Options

Deferment Options

Interest Rate: Fixed vs Variable

Student Loan Fees

Borrower Rights and Responsibilities

When Is the Promissory Note Signed?

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What if a Promissory Note Is Not Signed?

Do You Need a New Promissory Note Every Year?

Do Your Parents Need to Sign?

How Long Does the Master Promissory Note Process Take?

The Takeaway

FAQ

Do you have to do a master promissory note every year?

How do you get your student promissory note?

How long does it take for a master promissory note to process?

How do I get a copy of the promissory note for my student loan?

Do I have to pay my student loans if I drop out of college?

Will a student loan affect my credit score?

What Is Consumer Debt, and How Can You Get Out of It?

What Is Consumer Debt?

The Different Types of Consumer Debt

Mortgage Debt

Student Loan Debt

Auto Loan Debt

Personal Loans

Credit Card Debt

Payday Loans

Pros and Cons of Consumer Debt

Pros of Consumer Debt

Cons of Consumer Debt

Getting Out of Consumer Debt

The Takeaway

FAQ

What is considered consumer debt?

Is a credit card a consumer loan?

Is a credit card considered debt?

Tips for Paying Off Outstanding Debt

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