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If you need cash to cover an emergency expense, such as a car repair or medical bill, a payday loan or an installment loan are two options you may consider. However, these two loans are different in key ways that are important to understand before making a choice between them. Namely, a payday loan tends to have a short turnaround before you need to pay it off and typically offers extremely high interest rates.

We’ll explain more about the features of each loan type and why people choose payday loans vs. installment loans.

Understanding Payday Loans

There’s no set definition of a payday loan. Generally speaking, they’re short-term loans that are due to be paid back on your next payday. Payday loans don’t charge interest per se, but they do charge high fees.

Payday loans are typically for relatively small amounts. In fact, many states limit the amount of a payday loan to $500. Borrowers usually repay the loan in a lump sum on their next payday. The specific due date is often between two and four weeks from when the loan was made.

To repay the loan, borrowers must make out a post-dated check to the lender for the full balance of the loan plus any fees. As an alternative, borrowers can give permission for the lender to electronically debit the funds from their bank account on a certain date. If the borrower doesn’t repay the loan by the due date, the lender can cash the check or debit the funds. Either way, the lender gets paid.

In some states, borrowers may be able to roll over the amount of the loan, paying only the fees when it comes due, while the lender pushes out the due date.

To qualify for a payday loan, you generally need to be 18 years or older and have proof of income, a valid ID, and an active bank, credit union, or prepaid card account.

Risks of a Payday Loan

The risks of payday loans include sky-high fees and the potential for falling into a cycle of debt. Many states set a limit on payday loan fees, but they can still run from $10-$30 for every $100 borrowed, which is the equivalent of a very high annual percentage rate (APR). Consider that a $15 fee for $100 is the equivalent of a nearly 400.00% APR.

By comparison, the average personal loan interest rate as of April 2026 is 11.40%, according to the Federal Reserve’s G.19 Consumer Credit Statistical Release.

Pros and Cons of Payday Loans

Before signing on for a payday loan, carefully consider the advantages and disadvantages.

Exploring Installment Loans

When a borrower receives an installment loan, their lender will give them a lump sum upfront, which the borrower has to repay in fixed payments with interest over a set period of time.

Personal loans are a good example of an installment loan.

They can range in size from a few hundred dollars to $100,000, and the money can be used for any reason, from covering unexpected expenses or consolidating debt to remodeling a home. Repayment terms may stretch from a few months to a few years.

How Installment Loans Work

During the loan application process, lenders will consider factors such as a borrower’s credit score and reports, their income, and the amount and length of the loan.

Typically, borrowers with good credit scores will receive the best terms and interest rate options. These loans may have variable interest rates or fixed, meaning they don’t change over the life of the loan.

Installment loans may be secured or unsecured. Unsecured loans, such as unsecured personal loans, don’t use collateral to back the loans. Secured loans do require collateral and may offer borrowers a lower interest rate since they present less risk to the lender.

Pros and Cons of Installment Loans

Personal installment loans tend to offer borrowers the option of borrowing at lower rates than those available through revolving credit or payday loans. However, it’s still important to consider disadvantages in addition to benefits.

Eligibility Requirements for Installment Loans

Eligibility requirements vary by lender, but generally speaking, you’ll need:

•   Proof of identity

•   Proof of income

•   Proof of address

Your credit score is an important factor, as it helps determine the interest rate you’re offered.

Key Differences Between Payday Loans and Installment Loans

By now, you’ve likely got a good sense that installment loans and payday loans differ in some important ways. Here’s a side-by-side comparison.

Choosing the Right Loan for Your Needs

As you can see, there are important differences between payday and installment loans. Not sure which sort of loan is right for you? A good place to start is to determine what your short- and long-term financial goals are and which type of loan best aligns with them. Interest rates, terms, fees, and repayment options are all factors to consider.

You’ll also want to assess your repayment capabilities. Can your income cover your normal expenses plus the loan debt? Finally, check your credit score and the eligibility requirements of potential lenders to see where your application is more likely to be approved.

The Takeaway

Payday loans and installment loans both provide quick cash to cover emergency expenses. However, because of their astronomical fees — equivalent to a 400.00% APR — payday loans fall under the heading of “predatory lending.” On the other hand, installment loans vary in their terms but generally are a much better deal, provided that you meet eligibility requirements.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Are payday loans installment loans?

No, payday loans usually require you to pay off the loan amount in full on your next payday. Loans are usually fully repaid within 2-4 weeks from when the loan was taken out.

What is an installment loan?

When you take out an installment loan, you immediately receive the money you’re borrowing. You then pay it back to your lender in a series of regular fixed payments known as installments.

Are personal loans installment loans?

Personal loans are one type of installment loan. Money from the loan can be used for any purpose, such as debt consolidation or a home remodel.

Photo credit: iStock/Prostock-Studio

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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.

SOPL-Q226-019

If you’re looking for a safe place to invest and grow your money, you might be considering both certificates of deposit (CDs) and U.S. Treasury bills (T-bills). Both investment options offer steady and predictable returns while protecting your principal. However, there are some key differences between them, including how long you need to lock up your money, initial investment requirements, and how your earnings will be taxed. Read on for a closer look at T-bills vs. CDs.

What Is a Certificate of Deposit?

A certificate of deposit, commonly referred to as a CD, is a type of savings account offered by banks and credit unions. You can also get CDs through brokerages, called brokered CDs, though these are still issued by banks. When you open a CD, you deposit a set amount of money into the account and agree to leave it there for a specific period of time, which generally ranges from one month to five years.

CDs pay a fixed interest rate that is typically higher than the average annual percentage yield (APY) for savings accounts. If you withdraw your money early, however, you will likely have to pay a penalty, often in the form of interest earned over a certain time period.

Like other types of savings accounts, CDs are insured, which means you get your money back in the unlikely event your bank goes bankrupt. CDs at banks insured by the Federal Deposit Insurance Corporation (FDIC) are typically covered up to $250,000 per depositor, per ownership category, for each insured bank. Co-owners of joint accounts at the same bank are typically each insured up to $250,000. Credit unions offer similar insurance through the National Credit Union Administration (NCUA).

Pros and Cons of CDs

CDs come with a number of benefits but also have some drawbacks. Here’s a look at some of the top reasons you might or might not want to invest in a CD.

Pros

•   Guaranteed returns: CDs offer a fixed interest rate, so you know exactly how much you will earn by the end of the term. Even if market interest rates go down, your CD rate will stay the same.

•   Safety: As FDIC- or NCUA-insured products, CDs provide a high level of security, protecting your principal up to $250,000.

•   Higher interest rates: CDs typically offer higher interest rates than traditional savings accounts, which can help your money grow faster.

Cons

•   Limited liquidity: Funds invested in a CD are locked in for the entire term of the CD. If you need to access your money before the CD matures, you will typically incur a penalty, which can eat into your earnings.

•   Could potentially earn more: While guaranteed, the returns on a CD can be lower than what you might earn with more aggressive (aka higher-risk) investments, such as stocks or bonds.

•   Inflation risk: If the interest rate on your CD doesn’t exceed, or even keep up with, the rate of inflation, the actual purchasing power of your money can erode over the term of the CD.

What Are U.S. Treasury Bills?

Another safe way to invest your money is to buy U.S. Treasury bills. Also called T-bills or Treasuries, Treasury bills are short-term government securities issued by the U.S. Department of the Treasury. Treasuries are backed by the full faith and credit of the U.S. government and considered one of the safest investments available.

When you buy a T-bill, you pay less than the bill’s face value, which is the amount you will receive at maturity. The difference between the purchase price and the face value at maturity is your interest earned. You’ll owe federal taxes on any income earned, but no state or local tax. T-bills are considered short-term securities because they mature in four weeks to one year.

Pros and Cons of Treasury Bills

Like CDs, Treasuries come with both benefits and drawbacks. Here are some to keep in mind.

Pros

•   Safety: T-bills are backed by the U.S. government, making them virtually risk-free if held until maturity.

•   Predictable returns: Returns are guaranteed, based on the agreed-upon rate of the Treasury bill that you purchase.

•   Tax benefits: The interest earned on a U.S. Treasury bill is exempt from state taxes, which can be a significant advantage for investors in high-tax states.

Cons

•   Lower returns: While safe, the returns on T-bills are generally lower than what you can potentially earn by investing in the market over the long term.

•   Inflation risk: Like all fixed-rate investments, if the rate you earn on your T-bill doesn’t exceed the inflation rate, the actual purchasing power of your money will diminish over the term of the Treasury.

•   Market risk: While Treasuries are stable, their value can fluctuate over time. If you sell before the T-bill reaches maturity, you may not get as much interest as you expected.

Recommended: 7 Places to Put Your Cash

Comparing CDs vs Treasury Bills

While CDs and Treasury bills have a number of similarities, there are also some key differences that you’ll want to understand before investing in either one. Here’s a closer look.

Tax Implications

One key difference between CDs and Treasuries is that interest on CDs is taxable at the federal and state level. Treasuries, on the other hand, are exempt from state income tax. If you are investing in a taxable account and live in a state with a high income tax, this can make investing in Treasuries attractive.

Another tax difference: With CDs, you pay taxes on interest earned the year it is added to the account, whether you cash out the CD or not. With Treasuries, the interest you earn is only taxable when you sell the T-bill, which may be a different tax year than the year in which you bought it.

In both cases, the interest you earn will be reported on Form 1099-INT.

Expected Earnings

With both a CD and a Treasury bill, you’ll know beforehand how much interest you’ll earn if you hold it until its maturity. If you sell a CD early, you may forfeit some or all of your expected interest and also possibly pay a penalty. Selling Treasury bills before they reach their maturity may be possible (since there is a secondary market for them) but if you do, you may not earn all the interest you would earn if you held it to its maturity.

Other Key Details to Consider

When deciding whether to put your money in T-bills or CDs, here are some other factors to keep in mind.

•   When you’ll need the money: T-bills are more liquid than CDs since they typically have shorter maturities and can be sold on the secondary market. If you need access to your funds quickly, T-bills may be the better option. While you can sell a CD before maturity, doing so typically incurs a penalty that can reduce your returns.

•   Initial investment amount: The minimum investment for opening a CD varies by bank but is typically at least $500. The minimum purchase amount for Treasury bills is $100. A higher initial investment requirement could make opening a CD difficult if you are just starting out and don’t have a lot of extra cash to invest.

•   Interest rate environment: While T-bills and CDs generally offer comparable rates, you may want to consider time to maturity and where interest rates could be headed. If interest rates are expected to fall, for example, locking in a good rate on a multiyear CD could be a smart move.

How to Purchase CDs and Treasury Bills

You can buy CDs directly from banks and credit unions, either online or in person. Rates and terms vary by institution, so it’s generally a good idea to shop around to find the best CD for your needs. You typically don’t have to have an existing account at a bank or credit union to open a CD.

You can purchase Treasuries either through a brokerage firm or directly from the U.S. Department of the Treasury at TreasuryDirect.gov. The most commonly offered maturity dates are four weeks, eight weeks, 13 weeks, 17 weeks, 26 weeks, and 52 weeks. T-bills are sold in increments of $100, and the minimum purchase is $100.

Similar Investments to Keep in Mind

If you’re looking for a relatively safe place to park your savings and earn a decent return, there are other options besides T-bills and CDs. Here are some to consider:

•   Series I savings bonds: I bonds are a type of U.S. savings bond with an overall rate that is based on both a fixed rate that never changes and a variable interest rate, designed to keep up with inflation, that resets every six months. You need to hold the bond for at least one year and will pay a penalty if you cash out before five years. Like T-bills, interest payments are exempt from state taxes.

•   Money market fund: A money market fund is a type of mutual fund that invests in CDs, short-term bonds, and other low-risk investments. The money you invest is liquid, and yields are typically higher than regular savings accounts. However, the funds are not protected by the FDIC or NCUA.

•   High-yield savings account: While not technically an investment, high-yield savings accounts pay more than the average APY for savings accounts, while offering more liquidity than CDs or T-bills. Your money is insured, but the APY on a high-yield savings account isn’t fixed, meaning it can rise or fall depending on market rates.

The Takeaway

CDs and Treasury bills are both considered safe investments, allowing you to earn a guaranteed return without putting your initial investment at risk. However, there are some key differences that can make one a better fit than the other.

T-bills often have shorter terms than CDs, making them a good option for a savings goal that is a year or less down the road, such as buying a car. With some terms as long as five years (or more), a CD may work better for a longer-term savings goal, such as making a downpayment on a home. If you’re looking for safety and competitive returns along with liquidity, you might also consider putting your money in a high-yield savings account.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Are CDs and Treasury bills considered safe investments?

Yes, both certificates of deposit (CDs) and Treasury bills (T-bills) are considered safe investments. CDs offer a fixed interest rate over a specified term and are typically insured up to $250,000, making them low risk. Treasury bills are short-term government securities backed by the U.S. government, making them one of the safest investments available. They are sold at a discount and mature at face value, with the difference representing the investor’s interest. Both options can be ideal if you’re a conservative investor seeking minimal risk.

Should I keep my emergency fund in a CD or Treasury bill?

To keep your emergency fund highly liquid and easily accessible, a regular savings account can work better than a certificate of deposit (CD) or Treasury bill.

A Treasury bill might work for an emergency fund if you have other funds you can tap in a pinch before the maturity date. Otherwise, consider keeping your emergency cash in a high-yield savings account or a money market account.

How do CDs and Treasury bills differ from savings bonds?

•   Certificates of deposit offer fixed interest over a specific term and are typically used for short- to medium-term savings goals.

•   Treasury bills are short-term government securities that mature in a year or less and are sold at a discount.

•   Savings bonds, such as Series I and EE Bonds, are long-term government bonds with interest that compound semi-annually. They are generally intended for long-term savings goals, such as education or retirement.

Photo credit: iStock/Liudmila Chernetska

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

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SOBNK-Q226-005

Homeowners with a mortgage typically make monthly payments toward the loan principal and interest. But borrowers can choose to make biweekly mortgage payments instead, resulting in 13 full payments over a one-year period.

Opting for this mortgage payment strategy may come with advantages and drawbacks, including impacts on your savings and reducing the interest you pay over the life of the loan. Here’s what to know about the potential pros and cons of making mortgage payments biweekly.

Understanding Biweekly Mortgage Payments

So how do biweekly mortgage payments work in practice? A biweekly mortgage payment involves a borrower paying half of their monthly payment every two weeks rather than in full each month.

With 52 weeks in a year, these 26 biweekly payments amount to an extra month’s payment every year. Over the course of a 30-year mortgage term, this can help whittle down your mortgage principal — the amount you borrowed to buy your home — and speed up your mortgage repayment by several years.

Before you start making extra or biweekly payments, it’s a good idea to check to make sure you won’t encounter a prepayment penalty for paying off the mortgage before the end of the loan term.

Recommended: Mortgage Repayment Calculator

Pros of Biweekly Mortgage Payments

If you’re looking to pay off your mortgage early, paying the mortgage biweekly could be beneficial. Below are some advantages of paying your mortgage biweekly.

•   Save thousands in interest payments over the life of the loan by reducing the accumulation of interest on your mortgage.

•   Build home equity faster by making additional payments toward the loan principal.

•   Reach 20% equity in your home sooner to cancel private mortgage insurance (PMI), if you have it, and lower your mortgage payment.

•   Pay off your mortgage several years in advance, freeing up finances for other financial goals, such as retirement.

Cons of Biweekly Mortgage Payments

Paying off your mortgage early has a lot of appeal, but it’s important to consider the potential disadvantages of biweekly mortgage payments.

Here are some drawbacks of this mortgage repayment strategy to keep in mind.

•   You may face the risk of prepayment penalties if you pay your mortgage off early, depending on the terms of the loan agreement.

•   Lenders may charge a fee for setting up biweekly mortgage payments to recoup lost interest from paying off the mortgage early.

•   Committing to a biweekly payment plan consumes more of your budget, which can impact your ability to manage the other costs of owning a home and your financial goals.

Recommended: Home Equity Line of Credit

How to Calculate Potential Savings

How much could you save by making mortgage payments biweekly? Here’s an example of how to crunch the numbers and determine how much you could save.

Let’s say you make a 20% down payment on a home and have a $240,000 mortgage principal with a 6.50% interest rate and a 30-year loan term. This amounts to a monthly payment of around $1,516, not accounting for property taxes and home insurance. As a biweekly mortgage payment, you’d pay around $758.

Every year, this means putting an extra $1,516 toward the mortgage principal on top of your monthly mortgage payments. Here’s how a biweekly vs. monthly mortgage payment breaks down in terms of loan term and potential savings, assuming you begin making biweekly payments from the outset of the loan.

With monthly mortgage payments:

•   Monthly payment: $1,516

•   Total annual payment: $18,912

•   Loan term: 30 years

•   Total interest paid: $306,106

With biweekly mortgage payments:

•   Biweekly payment: $758

•   Total annual payment: $19,708

•   Loan term: 24 years

•   Total interest paid: $235,609

By setting up biweekly payments from the start, you’d pay off the mortgage six years early and save $70,497 in interest. Even if you have fewer years left on your mortgage, there’s still potential for significant savings on the mortgage interest. (You can use a mortgage calculator to see how much interest you pay over the life of your mortgage.)

Who Benefits Most from Biweekly Payments?

Getting out of debt and paying off a mortgage sooner could be advantageous for any homeowner, but there are some scenarios when it might make more financial sense.

Borrowers with high interest rates on their mortgages could benefit from making biweekly mortgage payments. Putting an extra monthly payment toward the loan principal each year helps diminish how much interest accrues on the mortgage, adding up to considerable savings.

However, it’s important to take a comprehensive look at your finances to determine where extra payments on debt could be the most effective. If you have a personal loan or credit card debt with a higher interest rate than your mortgage rate, you could save more by tackling these high-interest debts first before setting up biweekly mortgage payments.

Since this approach essentially adds an additional monthly payment each year, it’s worth reevaluating your household budget to ensure you can cover the cost without impacting other financial goals. From a budgeting standpoint, making biweekly mortgage payments could be easier for those who have a steady income and receive a paycheck every two weeks.

Implementing Biweekly Payments

There are some steps to follow and key considerations when setting up biweekly mortgage payments.

First, reach out to your lender to see if it allows biweekly payments and if you’ll be liable for prepayment penalties. Fortunately, prepayment penalties are typically limited to instances where a borrower pays off the mortgage within 3-5 years.

It’s also worth asking how the lender will apply extra payments if you set up biweekly payments. Specifically, confirm that the extra funds are applied to the mortgage principal rather than interest or your escrow. Note that having the half-monthly payment applied right away can lead to more savings than if the lender waits until the second half is received.

Alternatives to Biweekly Mortgage Payments

Biweekly mortgage payments might not work for everyone. If you’re not ready to commit to paying your mortgage biweekly, there are some alternative options that could help save money on mortgage loans.

•   Increase your monthly payment: Round up monthly payments to the nearest hundred-dollar amount (e.g., paying $1,600 instead of $1,516) to put more money toward the mortgage principal.

•   Make a lump-sum payment: Apply a tax refund, extra savings, or bonus as a one-off payment toward the principal when it makes sense for your budget.

•   Refinance your mortgage: Reduce your mortgage term from 30 years to 15 years to save on interest, though this will result in a larger monthly payment.

The Takeaway

Paying off your mortgage early with biweekly payments could save you thousands in interest and shorten your mortgage term by several years. But first, it’s worth paying off other high-interest debt and checking how your lender applies extra payments before committing to this payoff strategy.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

Can I switch to biweekly payments on an existing mortgage?

You may be able to switch an existing mortgage to biweekly payments, but you’ll need to check with your lender first. Otherwise, making payments every two weeks may not get applied to the mortgage principal as intended.

Will biweekly payments affect my taxes or escrow?

Biweekly payments don’t affect your taxes. However, it’s a good idea to verify that the appropriate amount from each mortgage payment is going to escrow.

What if I can’t make a biweekly payment occasionally?

Missing a biweekly payment or any mortgage payment could involve late fees and harm your credit score. To avoid these risks, reach out to your lender as soon as possible to discuss options.

Photo credit: iStock/anchiy

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

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q226-013

A credit card statement balance reflects your transactions (and the amount owed) during a billing cycle, while your current balance reveals your real-time activity and how much you may owe at a given moment.

When you buy with credit, it’s like taking out a short-term loan to make a purchase. If you’re putting charges on your credit card throughout the month, the value of that loan, your “current balance,” fluctuates. When your billing cycle ends, and the amount due is tallied, that equals your statement balance.

Learn more about how these two numbers can differ, along with a few tips for paying down your credit cards.

Statement Balance vs Current Balance

Each credit card issuer may have a slightly different method of presenting and even calculating the numbers on your monthly statement, whether you get a hard copy or check it online or via your card’s app. Still, you’ll likely see one number called the statement balance and another called the current balance.

•   The statement balance means all transactions during a designated period, called a billing cycle. If a billing cycle covers one month and starts on the 15th of each month, this statement balance will include all of the activity on an account between, say, January 15 and February 15, in addition to any previously unpaid balances. Until the close of the next billing cycle, the statement balance will remain unchanged.

•   Your current balance means the running total of all transactions on your account. It changes every time you swipe your card to pick up Chinese takeout or return a T-shirt that didn’t fit right.

To understand the interplay between the statement balance vs. the current balance, consider this example:

•   On February 15, the statement balance is $1,000, meaning that the total charges between January 15 and February 15 add up to $1,000.

•   Two days later, you make a $50 charge to the card. Your current balance will reflect $1,050 while the statement balance remains the same.

In this case, the current balance is higher than the statement balance. The reverse can also be true, and the current balance can potentially reflect a smaller number than the statement balance.

Recommended: Personal Loan vs Credit Cards

What to Know About Paying Off Your Credit Card

As each billing cycle closes, you’ll be provided with a statement balance. You’ll also likely be provided with a due date. At the time you make a payment, you may decide to pay off the statement balance, the current balance, the minimum payment, or some other amount of your choosing.

Paying the Statement Balance

If you regularly pay your statement balance in full by its due date, you likely won’t be subject to any interest charges. Most credit card companies charge interest only on any amount of the statement balance that isn’t paid off in full.

The period between your statement date and the due date is called the grace period. During this period, you may not accumulate interest on any balances. It’s worth mentioning that not every credit card has a grace period. It’s also possible to lose a grace period by missing payments or making them late. If you have any questions about whether your card has a grace period, contact your credit card company.

Paying the Current Balance

If you’re using your credit card regularly, it’s possible that you’ll use your card during the grace period. This will increase your current balance. At the time you make your payment, you’ll likely have the option to pay the full current balance.

If you have a grace period, paying the current balance isn’t necessary in order to avoid interest payments. But paying your current balance in full by the due date can have other benefits. For example, this move could improve your credit utilization ratio, which is factored into credit scores.

Paying the Minimum Monthly Payment

Next, you can pay just the minimum monthly payment. Generally, this is the lowest possible amount that you can pay each month while remaining in good standing with your credit card company — it’s also the most expensive. Typically, the minimum payment will be an amount that covers the interest accrued during the billing cycle and some of the principal balance.

Making only the minimum payments is a slow and expensive way to pay down credit card debt. To understand how much you’re paying in interest, you can use a credit card interest calculator. Although minimum monthly payments aren’t a fast way to get rid of credit card debt, making them is important. Otherwise, you risk being dinged with late fees.

Missing or making a payment late can also have a negative impact on your credit score. So, if the minimum payment is all you can swing right now, it’s okay. Just try to avoid additional charges on your card.

Making a Payment of Your Choice

Your last option is to make payments that are larger than the minimum monthly payment but aren’t equal to the statement balance or the current balance. That’s okay, too. You’ll potentially be charged interest on remaining balances, but you’re likely getting closer to paying them off. Keep working on getting those balances lowered.

Recommended: Credit Card Closing Date vs Due Date

Your Credit Utilization Ratio

The balance you currently carry on your credit card can impact your credit utilization ratio. Credit utilization measures how much of your available credit you’re using at any given time.

This figure is one of a handful of measures that are used to determine your credit score — and it has a big impact. Credit utilization can make up 30% of your overall score, according to FICO® Score.

Not every credit card reports account balances to the consumer credit bureaus in the same way or on the same day. Also, the reported number isn’t necessarily the statement balance. It could be the current balance on your card, pulled at any time throughout the billing cycle. Again, it may be worth checking with your credit card issuer to find out more. If your issuer reports current balances instead of statement balances, asking them which day of the month they report on could be helpful.

Sometimes, the lower your credit card utilization is, the better your credit score. While you may feel more in control to know which day of the month your credit balance is reported to the credit bureaus, it may be an even better move for your general financial health to practice maintaining low credit utilization all or most of the time.

If you’re worried about your credit utilization rate being too high at any point throughout the month, you can make an additional payment. You don’t have to wait until your billing cycle due date to reduce the current balance on your card.

According to Experian®, one of the credit reporting agencies, keeping your current balance below 30% of your total credit limit is ideal. For example, if you have two credit cards, each with a $5,000 limit, you have a total credit limit of $10,000. To keep your utilization below 30%, you’ll want to maintain a combined balance of less than $3,000.

Some financial experts recommend that keeping one’s credit utilization closer to 10% or less is an even better move.

Recommended: Personal Loan Calculator

3 Tips for Managing Your Credit Card Balance

If you’re struggling to juggle multiple credit cards and make all of your payments, here are some tips that may help.

1. Organizing Your Debt

A great first step to getting a handle on your debt is to organize it. Try listing each source of debt, along with the monthly payments, interest rates, and due dates. It may be helpful to keep this list readily available and updated.

Another option is to use software that aggregates all of your finances, such as your credit card balances and payments, bank balances, and other monthly bills. Your bank may offer financial insights tools as well, which can be a great place to start with this endeavor.

When it comes to managing your credit card debt, keep in mind that staying on top of your due dates and making all of your minimum payments on time is one of the best ways to stay on track.

You can also ask your credit card providers to change your due dates so that they’re all due on the same day. Pick something easy to remember, such as the first or 15th of the month.

2. Making All Minimum Payments, But Picking One Card to Focus On

While you’re making at least the minimum payments on all your cards, pick one to focus on first. There are two versions of this debt repayment plan:

•   With the debt avalanche method, you attack the card with the highest interest rate first.

•   With the debt snowball method, you go after the card with the lowest balance.

The former strategy makes the most sense from a mathematical standpoint, but the latter may give you a better psychological boost.

If and when you can, apply extra payments to the card’s balance that you’re hoping to eliminate. Once you’ve paid off one card, you can move to the next. Ultimately, you’re trying to get to a place where you’re paying off your balance in full each month.

3. Cutting Up Your Cards

Whether you do this literally or not, a moratorium on your credit card spending can be a great strategy. If you’re consistently running a balance that you can’t pay off in full, you may want to consider ways to avoid adding on more debt.

A word of warning: Don’t be tempted to cancel all your cards. This can negatively affect your credit score. However, if you feel you really have too many credit cards to manage, say, more than three or four, cancel the newest credit card first. This will ensure your credit history length is unaffected.

In addition to these steps, there are other options for dealing with credit card debt, such as debt consolidation, which can involve taking out a personal loan (typically, at a lower rate than your credit card interest rate), working with a certified credit counselor, and/or negotiating with your creditors to see if you can pay less than your full balance.

The Takeaway

Your credit card statement balance is the sum of all your charges and refunds during a billing cycle (usually a month), plus any previous remaining balance. It changes monthly with each statement. Your current balance is updated almost immediately every time you make a purchase. It is the sum of all charges to date during a billing cycle, any previous remaining balance, and any charges during the grace period. Whenever you can, pay off the full statement balance to avoid interest charges.

Trying to pay off credit card debt? Taking out a personal loan can consolidate all of your credit card balances.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Should I pay my statement balance or current balance?

It can be wise to always aim to pay off your statement balance every month by the due date to avoid pricey interest charges. While not necessary, paying off the current balance can help lower your credit utilization ratio, which can, in turn, help build your credit score.

Why do I have a statement balance when I already paid?

Your statement balance reflects all the charges you have made, any interest and fees, and credits that occurred during a single billing cycle. Once that statement balance has been captured, it likely won’t be updated until the next billing cycle. Your credit card’s balance may well change, however, during this period as you use your card.

What happens if you don’t pay the full statement balance?

If you don’t pay your total statement balance before the end of what’s known as your grace period (the days between the end of your billing cycle and your payment’s due date), your current balance will start to accrue interest right away. Any new purchases that you make will also start to accrue interest immediately.

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A bank draft is a document that looks like a check, but the payer’s bank guarantees the funds, making them very reliable. Since bank drafts have no value limit, their increased security makes them ideal for hefty transactions, such as purchasing a car. They are often used in business transactions as well.

Bank drafts can foster trust in a deal involving large sums of money, since there’s none of the hassle of a bounced check or handing over piles of physical cash. Learn how a bank draft works and what to expect when you use one.

Bank Draft Definition

A bank draft is a financial instrument used to make payments, usually large ones, that have your bank’s financial backing. Bank drafts look like typical checks, but they can’t bounce because the bank ensures the payment will go through, usually within 24 hours. In addition, bank drafts can be for any amount you like, unlike the situation with wrangling ATM withdrawal limits, for example.

You typically obtain a bank draft either by visiting a bank branch in person or making a request in writing. You’ll usually pay a $0-$10 fee to get a bank draft drawn on your checking account. While bank drafts technically don’t expire, financial institutions may refuse to process a bank draft that is more than a few months old.

Money Orders vs Bank Drafts

You can use both money orders and bank drafts to make payments, but these tools differ in several ways.

•   Money orders sent domestically must be less than $1,000, while bank drafts don’t have limits.

•   You must have a bank account to draw upon in order to get a bank draft, but you can get a money order from a bank, a U.S. post office, and select grocery stores and retail locations. Money orders are often bought with cash, a debit card, or a traveler’s check.

•   You can cancel a money order and get a refund if your payee hasn’t cashed it yet, but banks usually won’t cancel a bank draft.

Knowing these differences can help you determine which financial tool is most suitable for your situation.

How Do Bank Drafts Work?

To get a bank draft, you will typically follow these steps.

•   Ask your bank or credit union to issue a bank draft for the desired amount. You can do so in person at a branch or in writing.

•   Next, your financial institution confirms that your account has sufficient funds for the bank draft and moves the money from your account into its reserve account. This way, it can guarantee the bank draft, meaning your payee can be sure of receiving payment.

•   Lastly, your financial institution creates the physical document with the payee’s name on it. Typically, you get a bank draft in person at a branch, though it can also be obtained via mail.

Like ATM fees, your financial institution may charge a nominal fee for bank drafts (as noted above, typically close to $10). However, you might receive the first several bank drafts for free at your bank. In addition, using a specific number of bank drafts per month might eliminate the fee.

Pros and Cons of Bank Drafts

Bank drafts have pros and cons, just as checks, e-checks, money orders, and cash do. Keep the following in mind when using bank drafts.

Pros

The advantages of bank drafts are:

•   Your financial institution acts as the intermediary for the transaction, making the payment secure and convenient. It adds a level of trust.

•   A bank draft is safer than carrying around thousands of dollars in cash.

•   Bank drafts can’t bounce since your financial institution guarantees the payment.

•   Bank drafts have no limit on the amount.

•   Therefore, they’re useful for sizable transactions, such as a down payment for a home.

•   The Federal Deposit Insurance Corporation, or FDIC, insures most financial institutions, meaning the government will fulfill the bank draft’s value in the rare instance of a financial institution failing. This insurance covers up to $250,000 per depositor, per account category, per institution.

•   Bank drafts generally clear within 24 hours.

•   Financial institutions can usually convert bank drafts into the payee’s preferred currency, from U.S. dollars to euros and other currencies.

As you can see, bank drafts can be a helpful tool for making a large payment.

Cons

The downsides of bank drafts are:

•   Your financial institution might charge you to issue a bank draft.

•   The bank draft isn’t an electronic transfer but a physical document that you must deliver to your payee.

•   Since it’s a physical document, your bank draft might become lost, stolen, or damaged.

•   You can’t generally cancel a bank draft and receive a refund.

•   It may be challenging (but not impossible) to recover your money if it’s lost.

•   Bank draft fees may be higher than fees for other methods.

Hence, there are some negative aspects to bank drafts that may mean they are not appropriate for every situation.

Canceling a Bank Draft

Generally, a financial institution will only cancel a bank draft in dire situations, such as theft or fraud. However, your financial institution may have a policy stating that it won’t cancel bank drafts under any circumstances.

That said, if you want to cancel a bank draft for a reason other than theft or bank fraud, you could have the payee cash the bank draft and give you the money. This option requires trusting the payee to agree to and provide the refund.

Bank Draft Alternatives

While bank drafts may suit some payment scenarios, they are just one among many ways to send money.

•   One alternative to bank drafts is automatic clearing house (ACH payments. The ACH network allows banks, credit unions, and financial institutions to transfer funds to each other electronically. ACH payments are often free but may have transfer limits.

•   You could use a wire transfer, another electronic payment type that usually completes payment within 24 hours. As with ACH payments, wire transfers have limits, such as $10,000 or $100,000. Wire transfers are also viable for foreign transactions.

•   Checks are another option. Receiving a large sum via a standard check involves the risk of it bouncing, so payees may hesitate to accept this form of payment. You could pay for a cashier’s check from your financial institution. This means the bank uses its funds to guarantee the payment. A certified check, in which the bank verifies that you have the necessary funds in your account, is another possibility.

•   Money transfer apps, including person-to-person platforms such as PayPal and Venmo, are a financial tool that can offer speed and security as you move funds. (Instant accessibility may be available if the recipient pays a fee.) These apps may charge transaction fees and usually have daily transaction limits.

Money transfer apps link to your bank account, enabling their seamless and convenient use. However, depending on the app, your transaction might not have FDIC insurance, meaning a botched transaction could result in the permanent loss of money. In addition, the payer and payee need to have the same app to conduct a transaction.

As you can see, there are many ways to transfer funds if a payment by bank draft doesn’t suit your needs.

The Takeaway

A bank draft is a financial tool typically used for large transactions, such as the payment for a home, vehicle, or office equipment. The bank guarantees payment to the payee by using its own reserves after verifying and transferring the issuer’s funds into a reserve account, which adds a layer of security and trustworthiness. However, because bank drafts are physical documents that you can’t easily cancel and are subject to damage or theft, it’s best to handle them carefully and perhaps consider alternatives, such as electronic payments.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How long does it take for a bank draft to clear?

Bank drafts usually take 24 hours or less to clear because the payer’s financial institution guarantees the funds. However, the receiving bank may have its own policies about when it makes funds available to the account holder, so check with your financial institution about times if you’re receiving a bank draft.

Is a bank draft available immediately?

Bank draft funds generally become available within 24 hours of the payee depositing them. However, the payee’s financial institution might take up to a few business days to make the funds available, depending on its policies.

What do you need for a bank draft?

You need a bank account to issue a bank draft. In addition, you need your account to have funds equal to or greater than the payment amount. You may also need to pay a small fee for the bank draft, which is typically $10 or less.

Does a bank draft require a signature?

Neither the issuer nor the payee needs to provide a signature for a bank draft. The only party that signs a bank draft is an employee of the issuer’s bank or financial institution.

Photo credit: iStock/deepblue4you

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

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