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The Growing Average Credit Card Debt in America

Hard as this may be to imagine, 75 years ago, we didn’t have anything like today’s modern credit cards. Nowadays, studies are conducted annually to monitor the rising average credit card debt in our country, and this figure is seen as an indicator of the economy and of people’s individual spending habits.

It wasn’t as easy to buy what you needed in the pre-credit card era, and this form of payment has important benefits, including giving users a short window of time to make purchases on credit without paying interest on the balance.

But, the ease of credit card use also makes it ultra-easy to build up a mountain of debt, and the credit card debt spiral can be especially challenging to break. We’ll share more about why that’s so, later on in this post, along with tried-and-true methods to get out of this unwanted spiral of debt.

First, though, we’ll answer two commonly asked questions:

•  What is the average credit card debt this year?

•  How can I get out of credit card debt?

What is the Average Credit Card Debt This Year?

BusinessInsider.com reported on a 2018 study that shared how more than 40% of households in the United States have credit card debt, with the average household having a balance of $5,700. This average varies by where exactly you live in the country.

On the one hand, the percentage of Americans who have credit card debts has been decreasing for the past 10 years. On the other hand, when looking at people who do have this kind of debt, the average amount has been increasing.

Related: What is the Average Debt by Age?

From an economic standpoint, this is useful information to have. This data can also be helpful in allowing you to place your own financial situation into context. And if you’re unhappy with the amount of debt you’re carrying, the real question is how to get out of credit card debt. Fortunately, we’ve got plenty of insights and solutions to share.

First, let’s take a closer look at that average amount of credit card debt: $5,700. This takes into account every household, about 40% of which are in debt. However, if you just count the households in debt that don’t pay off their balances every month, that average debt increases to $9,333.

If you don’t have the means to pay the debt balance off all at once, then as you’re making payments interest keeps accruing, often compounding daily. So, it can be challenging to pay down that debt, especially if you’re making minimum payments or an amount that’s not significantly more than the minimum.

Here are a few more credit card facts to consider:

•  About one in every five adults in the United States has a credit card balance that’s higher than the amount of funds in their emergency savings accounts.

•  Men have, on average, higher credit card balances than women do, about 22% more.

•  About 68% of Americans have credit card debt when they die, on average $4,531. Compare that to the number of people who have mortgage loans when they pass away (37%) and those who have car loans (25%), and you can see how prevalent credit card really is.

Rising credit card debt can be exacerbated when there isn’t an emergency savings account to fall back on, and our cultural climate of consumerism, one where more is always better, doesn’t help.

If you no longer want to be average in the amount of your credit card debt, meaning you want to get out from underneath your debt, there are solutions.

Tips to Get Out of Credit Card Debt

To break the cycle of debt, it’s important to reverse engineer how it works and understand what makes it so challenging to get out of. Credit card companies typically compound interest, which means that interest accrues on the debt, and then you also pay interest on the interest.

Related: What is the Average Credit Card Debt for a 30-Year Old?

To make the situation even more challenging, interest is sometimes compounded daily, and so it’s easy to see how interest can quickly add up. This is true especially when you make minimum payments. It’s even true if you pay more than what’s owed as a minimum payment, but still have a remaining balance. If you’re late on a payment, you’re often charged a late fee, which is added to your balance—and then you’ll owe interest on that new total amount, as well.

So, What Can You Do?

Here are four methods to consider to ultimately pay off your high-interest credit card debt. You can choose the strategy that fits your financial philosophy and needs best, continue paying on all your debts, and then focus on not adding to your credit card debt as you pay down what you currently owe.

Choices include:

•  Debt snowball method: Using this method, you’d rank your credit card debts by outstanding balances. Then, focus on paying off your smallest debt first, and use the sense of accomplishment you’ll feel to fuel your motivation going forward. Then, pay off the smallest of your remaining debts, continuing until you’ve paid off your credit card debt entirely. A Harvard Business Review study showed that people using this method tend to pay off their credit card debts the quickest.

•  Debt avalanche method: In this method, you’d rank your credit cards by the interest rate charged. Then, focus on paying off the card with the highest interest rate first, and then the next highest and so forth. This is also known as the debt-stacking or ladder method.

•  Debt snowflake method: As a different strategy, you can use any extra money collected—from gathering change to a side gig—to pay down your credit card balances.

•  Debt consolidation method: Using this method, you would consolidate your credit cards into one debt, with low-rate personal loans/a>. You can potentially reduce your interest rate by using a personal loan and streamline the number of bills you need to pay monthly.

Here’s another idea to consider. What has been billed to your credit cards that you don’t really need? It’s pretty common to subscribe to a service you think you’ll need but don’t use, or one that you’ll need for a short period of time only.

Yet, until you cancel that service/subscription, the monthly charge will keep getting added to your credit card balance. So, review those monthly charges and consider tools that help identify places you can cut back on expenses.

Personal Loans with SoFi

If, as part of your financial plan, you’ve decided to apply for a low-rate personal loan to consolidate your credit card debt, there are numerous reasons why SoFi could be a great choice. This includes:

•  We don’t charge an origination fee.

•  We don’t charge any prepayment penalties.

•  We make it fast, easy, and convenient to apply for your personal loan online.

•  Live customer service support is available every day of the week.

•  If you lose your job, we can temporarily pause your payments—and even help you find a new job.

•  You can find your rate in just two minutes’ time!

Ready to get started? Apply for your personal loan at SoFi today!


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.
No brands or products 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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Living in the Now vs Saving for the Future

Life is filled with tough decisions, including the mother of all: do I live in the now, or save for tomorrow?

It’s tough because this is the decision that generally seals our fate. Most of us would rather not think that far ahead; after all, retirement is decades from now. We often feel that we can’t afford to do both. And the expression “you only live once” (YOLO) is a temptation to put off tomorrow while you live in the moment.

Other ways we put off saving for our future — and this is where it gets heavy — could be the blame game: our parents, our government, the banks, the system. The feeling that everything is already rigged against us makes it easy to live life without an end plan.

If you would like to change your way of thinking, try this splash of cold water: imagine yourself at age 65. Where will you be living? How would you be paying for food, heat and electricity? Will you be existing solely on Social Security (if it’s still around)?

We’re not trying to scare you, even though the thought is scary. In fact, there are solutions to this dilemma that you can put into action today. We’re going to show you that there is a way to have your cake and eat it too. You can save for the future while living your current life to the fullest.

Follow these simple steps to live in the now while saving money for the future.

Start With a Clear Eye

Get a bird’s eye view of your situation and the way you roll by devising a list of questions that get to the heart of the matter. Give serious consideration to the quality of your crib, your wheels, your wardrobe, and other materialistic matters. Don’t forget to asses the even more important stuff, like the degree of your happiness and spirituality, your romantic life, your circle of friends, and so on. You don’t have to share this list with anyone, so don’t be afraid to get really honest.

Ready for a Better Banking Experience?

Open a SoFi Checking and Savings Account and start earning 1% APY on your cash!


Divide Your Goals into Categories

Distinguish the goals that address your wants from the goals that will take care of your needs. All of this should be based on your income and financial standing as it is at this moment. Try your list this way:

Bucket list

Write down all the things you want to do before you die, and get busy checking them off. Parasailing? Learning French? Cooking a multi-course meal? No goal should be out of reach. The idea is that, eventually, you will have the satisfaction of having lived your life to the absolute fullest.

Retirement

Make a list of the ways you want to spend your golden years. Will you have the money to cover these goals? What must you do now in order to reach those financial goals? For some perspective, see if your on track for the retirement you want with our retirement calculator.

Budget

Take a cold, hard look at what you’re spending, and where. Include your rent/mortgage, utilities, transportation-related payments, groceries, wardrobe, eating out, and other assorted obligations. See where you can make cuts or reductions, and where you can redirect that spending into a retirement or emergency fund.

You don’t have to cut your budget so close to the bone that you’re life becomes dull; it may take a while to figure out just the right balance between living in the now and saving for the future. It could mean something as simple as brown-bagging your lunch or taking the bus to work instead of your car. You also don’t have to fix any spending that isn’t broken. If it’s working for you, keep it.

Current Income and Savings

To get a good understanding of where you can go from here, make a list of all your sources of monthly income. This includes your take-home pay (after taxes!), your retirement and savings accounts, Flexible Spending Accounts (FSA), and your emergency fund and vacation fund.

Debt

Create a detailed list of what you owe to creditors and lenders every month, including credit cards, school loans, and any other loans. Once organized, you can start deciding on a debt repayment plan that best suits your situation.

Evaluate Your Financial Situation

Be brutal in your estimation of where you stand. Ask yourself if you think you are saving enough for retirement, if you are paying your bills on time, if you are happy with your credit score, and if you have enough disposable income to have the fun you want to have (after your responsibilities are met).

Review and Revise

Once you discover your weak links, you’ll need to figure out how to change, adjust or alter your lifestyle. The emphasis for improvement should be more on the things you need. Once you take care of that, the things you want will be easier to achieve.

Start On Your Spending Cuts

Now that your entire financial life is laid out before you and you’ve realized your priorities, it’s time to get the scalpel. See what you can cut out completely, or at least reduce; see if there is a way to pay off your debt faster.

Adjust Your Plan Where Needed

The closer you watch your spending and the the more proactive you get with monitoring and switching up your budget, the more cash you may see become available for your future. It may take some trial and error, but don’t give up and don’t allow yourself to fall short of your goals. Always keep them in front of you, and understand that sometimes painful changes in your current situation can lead to incredible improvements in your life and your future.

Start an Account to Start Saving Money

Rather than use credit cards for the things you want now (vacations, tech, wardrobe, etc.), open separate savings accounts dedicated to each individual goal. For instance, label one savings account “Trip To France.” Label the next one “My New Laptop.” Even if you can only contribute a few dollars a week, your goal will get nearer with each deposit, and you’ll be able to pay for your goal in sweet cash. That saves you from getting deeper into debt and paying more interest, and helps you save for the future more effectively.

SoFi Checking and Savings®, a checking and savings account, may be able to help you see this through. SoFi Checking and Savings earns you 0.20% Annual Percentage Yield on all your cash and has no account fees.

We work hard to give you high interest and charge zero account fees. With that in mind, our interest rate and fee structure is subject to change at any time.”

Introducing SoFi Checking and Savings®

Sometimes a plan like this can feel overwhelming and even hopeless. It’s a common feeling, but don’t let it get the best of you. Consider getting some help without it costing you a penny. SoFi Checking and Savings can help you track your spending in your weekly dashboard all within the app.

SoFi Checking and Savings is a checking and savings account where you can spend, save, and earn all in one place. Once you are able to stick to your goals and your budget with the help of SoFi Checking and Savings, your lifestyle can change for the better and your financial situation can improve.

Get started with SoFi Checking and Savings!


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How to Get Student Loans Out of Default

As student loan debt increases, so does the number of borrowers defaulting on their student loans. Student debt in the U.S. has reached crisis levels—in 2018, outstanding student loans totaled $1.5 trillion .

It’s no wonder that people are having difficulty repaying their student loan debt. The latest estimates indicate as many as 40% of student loans will be in default by 2023.

Approximately one million borrowers default on their student loans every year, for a variety of reasons—including dealing with an overwhelming amount of debt or even facing sudden unemployment.

Failure to make payments on your student loans can result in serious consequences. If you’re struggling with your student loans and are in danger of defaulting, there are options. The sooner you take action to remedy your student loan troubles, the better.

If your loans are already in default, there are steps you can take to recover. (And before we dive in, a quick note: This information was primarily obtained by the Department of Education’s website for Federal Student Aid . Shout out to that website.)

What is Considered Student Loan Default?

At its most basic, default happens when you have failed to make payments on your student loans. If you have a federal student loan, there are a few steps that occur before your loan is considered to be in default.

With a federal loan, the U.S. Department of Education considers your loan delinquent the day after you miss your first payment. After 90 days, your failure to pay will be reported to all three big credit bureaus, which may negatively impact your credit score.

If your loan is delinquent, there are steps you can take to prevent the loan from going into default . If you’ve failed to make a payment or two, consider applying for deferment or forbearance, especially if you are facing a temporary financial hardship.

If you’re having long-term difficulty paying your monthly student loan payments, consider seeing if you can change your payment terms to reduce your monthly bill. This process will extend the life of the loan (lowering your monthly loan payments usually involves lengthening your loan term) and you’ll most likely pay more in interest over the life of the loan, but making payments on time can help you avoid defaulting and the consequences that come with it.

After 270 days of nonpayment, the loan is considered in default, triggering a series of potential problems for the borrower. The consequences of defaulting can be quite severe. The default and history of missed payments can stay on your credit report for years to come.

If you default on your student loan, you are no longer eligible for payment assistance such as forbearance, deferment, and student loan forgiveness. Any costs associated with collecting the loan are added to your balance due, and the government has the ability to garnish your wages or seize your tax refund.

Tips for How to Get Student Loans Out of Default

If you’re wondering “how to get my student loans out of default,” you may have options. These include: loan rehabilitation, consolidation, refinancing, or paying off the loan in full—including any additional interest accrued. Often times borrowers in default are unable to repay their loans in full, so other options may be more practical.

1. Loan Rehabilitation

You may be able to remove a default from your credit report through student loan default rehabilitation . The specifics on how to remove your default via student loan default rehabilitation depend on the type of loan you have . However, here’s roughly what the process looks like if you have federal loans in default:

First, you’d contact your lender’s customer service office to request a rehabilitation plan for your loan. Second, you’ll want to be sure you can commit to the program since you can’t rehabilitate a loan a second time.

Third, you’d just follow your lender’s plan. That means making nine payments on time, usually at a lower payment rate (your lender determines the monthly payment amount, usually equal to 15% of your annual discretionary income, divided by 12).

Once you’ve successfully made all payments, the default can be removed from your credit report, but sometimes it takes about 90 days. Note that missed payments prior to the default on your loan will remain on your credit report, and your loan holder may still take involuntary payments (like wage garnishment) until your loan is no longer in default and/or you begin making rehabilitation payments.

Once you’ve again become a borrower in good standing with your lender, you now have the opportunity to get further relief through forbearance or deferment, especially if you’re still struggling.

2. Loan Consolidation

If you have federal student loans, you may be able to consolidate your student loans into one Direct Consolidation Loan. By consolidating , you’re paying off the other loans and replacing them with one new loan, usually at a weighted average of the interest rates on your old loans (rounded up to the nearest one-eighth of 1%).

If you qualify to consolidate your student loans, you have the ability to choose a different payment plan, including income-driven repayment plans. These plans let you choose a lower monthly payment based on your income and household situation. However, one caveat to accepting a lower payment is that the loan term is extended up to 20 or 30 years, and that means that you’ll pay more in interest over the life of the loan.

You can also consolidate and refinance your federal and private student loans with a private lender, reaping some of the same benefits as consolidating your federal student loans: paying off several loans with one new loan and potentially lowering your payments.

But unlike federal student loan consolidation, a private loan consolidation doesn’t limit you to a weighted average of your previous loan rates, so you may be able to get a better rate depending on your personal financial history and current financial situation. When you consolidate student loans with a private lender, you are essentially refinancing them.

3. Refinancing Your Loans

If you have a solid personal financial picture (which includes things like your income and credit score), you may be able to refinance your loans with a private lender instead of consolidating them with the government. You may get a lower interest rate, which can allow you to trim the amount of interest you’ll pay over time, unless you extend the loan to lower your monthly payments instead.

However, if you’re wondering ‘how to get my student loans out of default,’ your credit has likely already suffered. An option for those who want to refinance, but have a less-than-great credit score, is finding a cosigner for the loan. With a cosigner, you may be better able to qualify for refinancing . However, your cosigner would be equally responsible for the loan.

If you qualify to refinance your student loans you may be able to also adjust the loan term, extending it to get a more manageable monthly payment or shortening the term to pay off your loan sooner. If you lengthen the loan term you may pay more in interest over the life of the loan, and a shorter-term usually means higher monthly payments.

But when you refinance a federal student loan with a private lender, you’ll no longer be eligible for federal protections, such as income-driven repayment plans or Public Service Loan Forgiveness.

How Refinancing Can Help Keep You From Defaulting

If you are at risk of defaulting on your student loans, there’s no better time than now to take action. It’s scary to not be able to pay your student loans. But there are ways to lower your monthly payments before you go into default.

First, if you have federal loans, you may want to look into income-based repayment plans (that we touched on above), which can lower your payments in accordance with your discretionary income.

If you’d like to consider refinancing your student loans, this could also potentially lower your payments. If you qualify for refinancing, you can opt to extend your loan term, and potentially secure a more manageable monthly payment.

While an income-based repayment plan or a refinanced loan with a longer term could both mean paying more in interest over the life of your loan, it could also help you get your payments under control.

Again, keep in mind that if you refinance with a private lender, you will lose access to federal loan benefits like income-based repayment plans, forbearance, and deferment.

SoFi has several options available for student loan refinancing—if you qualify, you can choose between a fixed or variable rate loan and customize your term length. Plus, there are no prepayment penalties or origination fees.

And SoFi offers Unemployment Protection, meaning if you unexpectedly lose your job, you could qualify to temporarily pause your payments. SoFi can even help you find a new job.

If you’re interested in refinancing your student loans with SoFi, you can get a rate quote in less than two minutes.


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.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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.
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What Is the Average Credit Card Debt for a 30 Year-old?

In the era of “treat yourself,” it’s easy to splurge on dinner, concert tickets, a new outfit, or a trip—just put it all on the credit card. With a credit card, spending is easy. But, if you let those charges stack up, you could be facing considerable debt. And you wouldn’t be the only one.

Consumers in the U.S. owed roughly $420.22 billion in credit card debt in late 2018 . Individually, Americans of all ages owe approximately $5,700 per person in credit card debt.

This means that many Americans are spending thousands of dollars paying interest. From August 2017 to August 2018, Americans spent $104 billion in credit card interest and fees alone.

According to a FICO® study individuals age 18 to 24 held around $2,000 in credit card debt. By the time consumers reach their late 20s, this number nearly doubles. Generally, studies have shown that the desire for credit cards increases with age.

As Americans age, their credit card debt increases too, leading to the depletion of savings, and a possible struggle to live off of retirement funds alone. Why are Americans facing more credit card debt than ever before? How can you avoid building credit card debt as you age?

Breaking down data on credit card debt by age group can help provide insight into American spending habits. How is the average credit card debt for a 30-year old different from someone in their 40s or 50s?

We’ve put this guide together to help you learn about the challenges credit card owners are facing in their 30s, 40s, and 50s—including tips for how you can pay off your credit card debt.

Recommended: Tips for Using a Credit Card Responsibly

Credit Card Debt Ages 35 and Under

Welcome to your 20s and early 30s, full of freedom, exploration, and for many Americans, student debt. Millennials, growing up during the Great Recession are saddled with historically high student loan debt and have the smallest average credit card debt of their fellow Americans.

Related: What is the Average Debt by Age?

The average credit card debt for those 35 and under is $5,808 . This makes sense when you consider that the age people are getting married and the age people are purchasing their first homes is increasing.

Millennials tend to be more suspicious of credit card debt—just one in three millennials carry a credit card . Millennials are also more likely than older generations to have student debt—about 41% are repaying student loans. The already heavy student loan burden could explain the hesitance to rely on credit cards.

Credit Card Debt Ages 35 to 44

Americans between 35 and 44 have on average, $8,235 in credit card debt . Many Generation X-ers have bought houses, cars, and started families. They are increasingly consuming and, as life gets busier, growing financial demands can encourage the growth of credit card debt.

As consumers are more and more stabilized in their lifestyle and careers, they tend to grow more comfortable spending money they can’t immediately repay. Additionally, those between the ages of 35 to 44 are more likely to incur medical debt and pay for those medical bills with credit cards.

According to a 2017 survey conducted by NerdWallet, 27 million adults are paying for medical expenses using credit cards, costing an average of $471 in interest per year.

Ready to tackle your debt?
Apply for a SoFi Personal Loan.


Credit Card Debt Ages 45 to 54

As of 2017, American credit card debt is peaking at the age of 45 to 54. This age group owes an average of $9,096 , as mortgages, auto loans, and children’s educational expenses typically take up an increasingly large proportion of total income.

Saving for retirement is likely to be a primary focus at this age, but with worrying about paying off debt and financing children’s educations, saving for retirement can be put on the back burner.

Credit Card Debt Ages 55+

Nearly seven in 10 Americans over the age of 55 are carrying some form of debt.

And half don’t ever expect to be debt free. The most common type of debt for individuals 55 and older is credit card debt. Getting ahead of credit card debt now becomes even more important as you near retirement. Debt can have serious consequences on a budget in retirement, especially considering retirees bring in less income.

Recommended: When Are Credit Card Payments Due

Ways to Pay Off Your Credit Card Debt

As you plan to pay off your credit cards, it’s important not to underestimate the challenges of your mid-to-late 30s. With growing responsibilities and increasingly complicated finances, it can be easy to fall into debt.

It’s important to organize your budget in a way that allows you to make monthly payments to reduce, and eventually eliminate debt, while still accumulating savings.

One strategy that may be worth trying is the debt snowball method, where you prioritize repayment on your debts from the debt with the smallest amount to the debt with the largest amount, regardless of their interest rates. (While still making minimum payments on all other debts, of course.)

When you pay off the debt with the smallest amount, focus the money you were spending on those payments into the debt with the next lowest balance. This method builds in small rewards, helping to give you momentum to continue making payments. This method is all about giving yourself a mental boost in order to pay off your debt faster. The idea is that the feeling of knocking out a debt balance—however small—will propel you toward paying down the next smallest balance. The con, however, is that you could end up paying more interest with the snowball method, because you’re tackling your smallest loan balance as opposed to your highest interest debt.

The other popular debt method, the avalanche method, encourages the borrower to pay off the loan with their highest interest rate first. While you don’t get that psychological boost that comes with knocking out small debts quickly, paying off your highest interest loans first is the more cost-effective solution of the two.

Another option to consider is to apply for a personal loan. Personal loans are loans that can be used for almost any purpose, whether that’s home improvement, covering unexpected medical expenses, or paying off credit card debt.

Personal loans can be a way to get ahead of debt, since interest rates are typically competitive, especially when compared to high interest credit cards. A personal loan allows you to consolidate debt—simplifying multiple monthly payments with different credit card companies into one monthly payment.

Another strategy to pay off credit card debt is, of course, to cut down on expenses and tighten your budget. When it comes to paying off debt, organization is key.

Make sure you are tracking both your income and your expenses. Take a look at your monthly purchases and try categorizing them into different areas. With some strategic planning, small changes can add up to make a big difference.

Ready to tackle your credit card debt? You can apply to consolidate your debt with a SoFi personal loan.


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.
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5 Ways to Improve Your Borrowing Power

Life has a knack for throwing expensive surprises our way.

Some are good. (An opportunity to go to France? Mais oui!) Some are not. (Two thousand dollars for an emergency root canal and crown? Downright painful.)

In a perfect world, you’d have your rainy-day fund at the ready, no matter what crazy costs might pop up. But if you don’t, and you need a chunk of money to book that trip or fix that tooth — or repair your car, or renovate your bathroom – an unsecured personal loan could be your best solution.

After all, you’ll probably need to get your hands on that money as quickly, easily and affordably as possible, with a payment plan that fits into your budget. And the right personal loan can offer all that.

That’s why it’s important to increase your borrowing power — your ability to qualify for the amount of money you need with the best interest rate you can get and a loan term and payments you can manage.

Five Ways to Help Improve Your Borrowing Power

1. Cleaning up Your Credit Record

If you want lenders to love you, you have to prove you can pay back your debts. Companies that offer personal loans want to know you’re capable of paying back their money, so they’ll be looking at things like your credit score and your credit reports .

These things tell them about your financial obligations vs. what you earn every month, and it gives them a picture of your credit history. Your credit score isn’t all they may look into. For example, if you have a high debt-to-income ratio, you may be turned down for a loan—or, if you are approved, the terms may not be as user-friendly as you’d hoped.

You have a right to access your credit report once a year for free from each of the three major credit reporting bureaus: Experian, Equifax, and TransUnion. If you pull your report and see something that’s correct but might be off-putting to potential lenders—maybe an old bill from a cell phone you had in college and forgot all about—you can get to work on repairing the situation.

2. Evaluating Your Employment History and Earnings

Lenders also typically look at your gross income, and they could even consider your potential earnings and/or work history. Stability is usually important: Employees with a full-time job may seem less risky than a part-time or freelance worker whose hours and income might change from month to month.

On the other hand, if you are new to a job—fresh out of college or back to work after having kids, for example—and your current or potential earnings are substantial, you may look great despite the fact that your earnings are relatively new. If you’re due for a promotion or raise, you may want to ask about that income boost before applying for your new loan.

3. Considering a Co-Borrower

If you aren’t the ideal candidate for a personal loan, don’t abandon all hope. You may be able to use a co-borrower on your loan. This person could be a creditworthy family member or friend who is willing to apply for the loan with you. And remember, a co-borrower is different from a cosigner.

While a cosigner promises to pay the loan back in the event that you cannot, a co-borrower is more involved, as they are an equal borrower and jointly share the responsibility of paying back the loan with you.

The idea is to supplement your limited or less-than-optimal credit history with one that is better or longer-established. Having a joint borrower can make the difference between being approved or rejected, and also may result in more favorable terms.

Keep in mind that some lenders have stricter criteria for co-borrowers than individuals, so be aware of the loan requirements and your co-borrower’s financial state before applying for a personal loan. And not every lender accepts applications from co-borrowers, so if you think it’s a must for you, you’ll be limited to lenders who welcome co-borrowers.

If you’re the one who wants the loan, the idea of having someone bolster your chances probably sounds pretty terrific. If you manage the loan payments responsibly, you could also improve your credit status for future endeavors.

But keep in mind your co-borrower is now just as responsible for paying back the loan as you are. If you fail to make payments on your loan, the burden falls to him or her. If it’s a spouse, parent or partner, you may be able to work something out, but you might want to proceed with caution if, for example, your co-borrower is a friend or sibling. (With a SoFi personal loan, the co-borrower must live at the same address as the primary applicant.)

4. Being a Smart Borrower

Another way to improve your borrowing power is to know your way around a loan agreement. As with any financial product, understanding the fine print before you sign your contract is key. Hidden costs can sneak up on you. For example, some lenders charge a loan origination fee or a prepayment penalty, unlike SoFi, where personal loans are 100% fee-free. There are no origination fees or prepayment penalties either with SoFi.

5. Keeping your Options Open

If you need money now, the temptation may be to run to the nearest bank for a loan. But that’s not necessarily going to get you your loan any faster, and you may be missing out on competitive terms, innovative benefits, and solid customer service some online lenders have to offer.

For instance, besides the advantages listed above (accepting a co-borrower, no fees, unemployment protection), SoFi provides access to career services, networking events, additional-loan discounts, an autopay interest rate reduction, and more. And SoFi has built a reputation for great customer service; you can get answers to your questions at any time on any day of the week.

See How a Personal Loan Can Help

If your rainy-day fund is looking a little leaky these days, you can still take care of unexpected expenses. A low-interest SoFi personal loan could be the solution you need to keep your finances on track no matter what life throws your way.

Check out a SoFi personal loan when you need a little help dealing with life’s surprises. It only takes two minutes to apply!


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 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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