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A History of the Federal Reserve & Its Effect on the Economy

If you’re a borrower, a saver, a consumer, and/or an investor—and let’s face it, that’s just about everybody—your life is affected by the Federal Reserve.

And yet many people may not understand what the Fed does or how it uses the federal funds rate—the central interest rate in the United States—to control economic growth.

According to its website, the Fed has several jobs, including using the nation’s monetary policy to “promote maximum employment, stable prices, and moderate long-term interest rates.” In other words, it tries to keep inflation in check by raising and lowering the cost of borrowing money.

Banks base their prime rate on the Federal funds rate, and the prime rate is generally 3% higher than the Federal funds rate. Which means it really does have a lot to do with your day-to-day finances—from how much you might pay if you carry a credit card balance, to how much the mortgage on your new house may cost, to the amount you could earn on a certificate of deposit or what you might pay for a bond.

The Federal Open Market Committee (FOMC), the monetary policy-making body of the Federal Reserve System, meets eight times a year (and more often if necessary) to determine the federal funds target rate.

And it is constantly gathering the data that informs those decisions—monitoring trends in prices and wages, employment, consumer spending and income, business investments, and foreign exchange markets. Then it votes on where the rate should be set.

By raising interest rates, the Fed makes it more expensive to borrow money, which keeps spending low and prices down. When the Fed raises rates consumers may also earn more interest on their savings investments. When interest rates are lowered, borrowing gets easier, but interest earned on savings could diminish.

When the Fed lowers rates, consumers may be more likely to take out loans for cars, home improvements, or other purchases, and businesses also are more apt to borrow funds to expand or make improvements.

The sweet spot is a “neutral” rate that keeps a delicate balance; it neither stimulates growth nor curtails inflation. But that balance is hard to find.

Currently, the Fed’s target rate is 2.0 to 2.25. But there have been times in its history (such as in the 70s and 80s) when the federal funds rate leapt to double digits in an attempt to control inflation. And for nearly a decade (from 2008 to 2017) it sat close to zero in an effort to stimulate economic growth.

How Has the Federal Reserve Impacted U.S. History?

In 1913, President Woodrow Wilson signed the Federal Reserve Act into law, creating a “decentralized central bank” meant to look out for the interests of both bankers and the public.

Before the Fed was born, bank runs and financial panics—caused by speculation and rumors—led to the call for a central banking authority that would support a healthier banking system.

It isn’t a perfect system. Since then, the country has experienced depressions and recessions, market crashes and financial crises. Here’s a brief history of how the Fed dealt with some of those events:

World War I, 1914 to 1918

The Federal Reserve Board and the 12 Reserve Banks were just getting organized as war broke out in Europe. But once the nation entered World War I, the Fed quickly became a major player by supporting the U.S. Treasury’s war bond effort and offering lower interest rates to member banks when the proceeds were used to buy bonds.

The Fed also gave better interest rates to banks purchasing Treasury certificates. Lower interest rates led to increased borrowing by businesses and households during this period, which stimulated economic growth. But the increased money supply eventually led to rising prices, and when the war ended, the Fed again took action to control that inflation.

Stock Market Crash of 1929

On Oct. 28, 1929, now known as “Black Monday,” the “Roaring 20s” ended with a thud when the Dow Jones Industrial Average dropped nearly 12%. The market collapsed the next day.
Many economists and historians blame government policies , and particularly the Fed, for the crash, because of its efforts to control over-speculation (what today might be called “irrational exuberance”) in the stock market.

Those moves included decreasing the money supply starting in 1928, and in 1929, putting pressure on member banks to pull back on their loans to brokers and charging a higher interest rate on broker loans.

The Great Depression, 1929 to 1941

The banking panics in 1930 and early 1931 were regional in nature. The nature of the financial crisis changed in the fall of 1931, when the commercial banking crisis spread throughout the entire nation. The Fed’s efforts to contain the collapse were not enough, and the situation reached rock bottom by March 1933.

On March 6, 1933, President Franklin Roosevelt—who’d been inaugurated just two days before—announced a four-day bank holiday that closed all banks and the stock market. Legislative intervention soon followed.

In 1933, the Glass-Steagall Act separated commercial from investment banking and gave the federal government and Federal Reserve enhanced powers to deal with the economic crisis—which led to the creation of the Federal Deposit Insurance Corporation (FDIC) and regulation of deposit interest rates. The Banking Act of 1935 led to the creation of the Federal Open Market Committee.

World War II, 1941 to 1945

The Fed’s role during the World War II was similar to its role in World War I. Its main mission became financing the war, and it helped the Treasury market war bonds in cooperation with commercial banks and businesses.

The Reserve Banks also reduced their discount rate to 1% and set a rate of a half percent for loans secured by short-term government obligations. During the war years, the Fed kept its eye on inflation, as well, by regulating consumer credit. It required large down payments and shorter terms on loans used to buy a variety of consumer goods.

Korean War, 1950 to 1953

At the start of the Korean War, inflation was a growing concern. But the Fed was once again under pressure—this time from the Truman administration—to help with financing the war effort.

In Feb. 1951, the Fed declared its independence in fiscal matters, and in March, the Treasury and the Fed announced that they had reached an accord on how they would handle “debt management and monetary policies” going forward.

The Great Inflation,1970s and 80s

Keeping inflation under control has always been an important role for the Fed, but in the 1970s, when the stock market slumped and the country found itself in an inflation crisis so deep it was known as the “Great Inflation,” it became a special challenge.

Check the history books, and you’ll find plenty of finger-pointing. It was President Nixon’s fault for disengaging from the gold standard. Or maybe it was the Fed’s fault for employing a confusing stop-go monetary policy that had interest rates going up, then down, then back up.

Then new Fed Chair Paul Volcker took over in 1979, and switched the Fed’s goal from targeting interest rates to targeting the money supply. And it was painful. The prime lending rate skyrocketed—to over 21% at one point.

Unemployment reached double digits in some months. The country went through two recessions. But eventually prices stabilized. And the federal funds rate hasn’t been in the double digits since the mid-80s.

The Great Recession, 2007 to 2009

Are you starting to notice a trend here? When a period in U.S. history is labeled “great,” it’s often anything but. During the Great Recession, home prices fell. Unemployment rose. The gross domestic product (GDP) fell. And, of course, in 2008, the market crashed.

It was, for many Americans, the worst of times; they lost their jobs, their homes, and their confidence in the economy. Enter the Fed, which started by tackling the slump with a traditional response: From Sept. 2007 to Dec. 2008, the Fed lowered the federal funds rate from 5.25% to zero to 0.25%, and FOMC policy statements noted that it would be keeping the rate at exceptionally low levels for a while. But it didn’t stop there.

In 2008, it also began its first round of “quantitative easing ,” buying $600 million in mortgage-backed securities, and it continued that effort in 2009. Also in 2008, President George W. Bush signed the $700 million Troubled Asset Relief Program (TARP) into law. Two more rounds of quantitative easing (QE2 and QE3) started in 2010 and 2012, under President Barack Obama.

Will the Fed’s Decisions Affect Your Finances?

Which brings us to today, when you’re just as likely to get the latest Fed news from a Facebook friend or presidential tweet as you are to hear it from more traditional media.

The central bank usually announces rate decisions after it concludes its policy meeting. And the Fed chair (currently Jerome Powell ) typically holds a press conference around that time.

You might not notice big changes right away if there’s a rate decision, although you may decide to hurry up a home loan or dump some debt faster than you planned if there’s a substantial enough increase.

The stock market often reacts to new or expected changes, so your investments may be affected. But those impacts—whether from a bump or a cut—can be hard to predict.

And the Fed funds rate isn’t the only one that could affect your wallet. The London InterBank Offered Rate (LIBOR) is one of the most common interest rate indexes used to make adjustments to adjustable rate mortgages and business loans.

Historically, the LIBOR runs pretty close to the Fed funds rate, but the two occasionally diverge—and they are calculated in different ways. The Libor is set in the UK and the Fed Funds Rate is set in the U.S.

Which is why, whether you’re borrowing money or saving it, it may be helpful to comparison shop. It may be wise to be aware of what’s affecting the big financial picture, but when it comes to making decisions about your own financial life, it’s also about finding the best rate and terms for your goals.

Want to see what the numbers look like when you refinance your existing mortgage? Check out what SoFi Mortgage Refinancing has to offer.

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What Do All These Fed Terms Mean? Here’s A Handy Cheat Sheet

The Fed. Maybe you’ve heard of it? Maybe you’ve heard they’re doing some stuff with interest rates that will have an effect on the economy at large. Maybe you’ve heard they’re doing some stuff that will affect you directly. Maybe you have heard of the Fed, but don’t know what it is and what all the terms that are often bandied about actually mean.

And maybe you’ve even seen a tweet or two directed at Fed Chair Jay Powell and have wondered what’s going on and why there are so many terms and acronyms when it comes to the Fed.
You’re not alone.

The Fed can seem hard to wrap your head around. It works on complicated financial matters and often makes complicated policy decisions that might seem tough to understand if you’re not a CPA or have a deep background in macroeconomics.

Like a lot of government institutions, it can seem like they’re talking a different language with acronyms and terms that can be hard to decipher if you haven’t spent a lifetime in the Fed or some other government agency. Don’t worry—this cheat sheet will break it down for you.

What the Fed is, Where it Came From, and What it Does

The Fed is actually itself a shorthand term for the Federal Reserve System . The Fed is the central bank of the United States and it performs five basic functions , according to their web site:

•  Conducts national monetary policy. The Fed is charged with promoting maximum employment and stable prices. They also influence long-term interest rates when the economy might seem to be stalling or growing.

•  Promotes economic stability. One of the main reasons the Fed was established was to help stabilize the economy. They do this by trying to minimize risks and monitoring the economy at home and overseas.

•  The Fed also monitors financial institutions like banks to help promote their safety and soundness and the way they affect the financial system at large.

•  The Fed helps make sure payments between banks settle efficiently and safely. They provide services to banks and the government to accomplish this goal.

•  Consumer protection and community development also fall under the Fed’s responsibilities. The fed examines consumer trends and issues and administers consumer laws and regulations.

Even though it’s called a central bank, the Federal Reserve System is actually made up of 12 decentralized reserve districts that operate independently with supervision. Confusing, right? These districts were drawn in 1913 (the year the Fed was created) based on trade regions at the time.

On December 23, 1913, President Woodrow Wilson signed the Federal Reserve Act to create the central bank we now know as the Fed. The need for a central bank was driven by episodes of bank failures, panics, and credit concerns. The hope was that the Fed would help build a more stable financial system.

The Fed tries to do this through their five basic functions, but there’s one thing they do that seems to get a lot of press: influencing the direction of interest rates. Which is a good place to start when it comes to terms related to the Fed.

Fed Terms and Acronyms


FOMC – The Federal Open Market Committee is the monetary policymaking body of the Fed. It’s made up of 12 members—the seven members of the board of governors and five of the 12 reserve bank presidents.

The FOMC meets eight times a year and conducts monetary policy to work toward the goals of reaching the highest level of employment and stable prices.

Board of Governors

The Board of Governors guides the Fed. It is made up of seven members who each serve a 14-year term. The members are nominated by the president and confirmed by the Senate.

The terms of members are staggered, with a new appointment every two years, in an attempt to give the board more independence. This means that no president or congressional party can appoint every member to the board.

Chairman of the Fed

The chairman of the Fed acts as the public face of the entire Federal Reserve Bank. This person is responsible for carrying out any mandates of the Fed, as well as provide leadership for the system, and act as chair of the Federal Open Market Committee (FOMC).

Some duties of the chairman include testifying before congress twice a year in regards to monetary policy and meeting regularly with the Secretary of the Treasury. The chairman is picked from the seven members of the Board of Governors and are appointed to four-year terms. The current Chairman of the Federal Reserve is Jerome Powell.


The Federal Advisory Council is made up of 12 representatives from the banking industry. The council acts as an advisor to the Board of Governors on matters within the Board’s jurisdiction.


The Community Advisory Council was formed by the Federal Reserve Board in 2015 to offer perspectives on the needs of consumers and communities, with a focus on the concerns of lower income populations.

The CAC meets semi-annually with the Board of Governors, and the selection process is done through public nomination. The 15 CAC members serve staggered three-year terms.

Interest Rates

You might be familiar with the interest rate of your credit card, student loans, or car loan. When connecting the Fed and interest rates, you might want to think a little bigger. The fed tries to influence interest rates nationwide as part of its mission to help the country maintain full employment (estimated to be about 4% to 5% unemployment).

Lower interest rates can make capital easier to secure, spurring growth. Higher interest rates can work as a check against inflation. The Fed tries to influence interest rates through affecting the discount rate and indirectly affecting the federal funds rate.

The Discount Rate

The Fed requires its member banks to keep a certain amount of cash on hand. The Fed lets these banks borrow money and offers them a discount. The Fed raises the discount rate in order for all interest rates to rise.

This process is known as contractionary monetary policy, and it’s used by central banks in order to fight inflation. The money supply is reduced and instances of lending decrease, therefore slowing economic growth.

Federal Funds Rate

The federal funds rate is the interest rate that banks use when charging other banks for lending them money from their reserve balances. This process happens on an overnight basis, and can get pretty complicated. But the fed can influence how much money banks have on hand to lend, which should help move interest rates toward a target rate.


The interest rate on excess reserves (IOER rate) acts as a tool for the Fed to conduct monetary policy. The Federal Reserve adjusts the IOER rate during monetary policy normalization, in order to bring the federal funds rate into the target range that the FOMC sets.

Prime Rate

The prime rate is the rate commercial banks would charge creditworthy customers. It usually correlates with the federal funds rate. This rate might have an effect on lenders as it can influence the interest rates that banks charge on mortgages, car loans, and personal loans.

FOIA Request

An FOIA request is a request from the public for information from the government. FOIA stands for the Freedom of Information Act that was passed in 1967 as a way to help citizens stay informed.

Federal agencies are required to disclose information requested in an FOIA request as long as it doesn’t fall under one of nine exemptions . The Fed maintains public and private records. Public records are available at the FOMC reading room, while private records are secured through an FOIA request.

The Fed and You

The Fed can seem like a nebulous government body making decisions that seem complicated and opaque. But the Fed works every day on policy and monetary approaches that might affect your daily life, especially if you’ve got loans or are thinking about big purchases like a house or a car.

Hopefully having a grip on some of the common Fed terms will give you a better understanding of how this vital piece of the country’s financial system operates.

Ready to start exploring some investment vehicles for your personal finance goals? Check out SoFi Invest today.

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

When you hear the word bonds, you may think of the savings bonds your family members gave you on your birthday as a child. And you may not have given them much thought since.

But, as a generally lower-risk investment than stocks that offer a reliable source of interest payments, bonds can (and should) be a part of your grown-up investing strategy, too. Read on for an explanation of how they work—and how they can work for you.

What Are Bonds?

In short, bonds are loans you make to either a company or a government entity for a fixed period of time. The specific terms of the deal vary, but basically: You give someone money, they promise to pay it back in the future, and they pay you interest until they do.

For example, you might buy a GE bond that lends the company money for 20 years at 4% interest. For each $1,000 you invested, you would get $40 per year for 20 years; then you’d get your $1,000 back.

Why Invest in Bonds?

There are two good reasons to buy bonds—income and safety. Bonds pay interest at a fixed rate, usually twice a year. People in retirement who need a reliable source of income often invest in bonds.

High quality, investment grade bonds (more on this later) are typically safer, because the borrower is less likely to default on their promise to repay your investment. This doesn’t mean you can’t lose money if you need to sell the bond before it matures, but the issuer is unlikely to go broke. The price of bonds can fluctuate, but usually much less than the price of stocks. They are used in a portfolio to smooth out the volatility of stocks and reduce the risk of your overall investment strategy.

Who Issues Bonds?

There are four broad categories of bonds available to most investors:

• Treasury Bonds: Bond issued by the U.S. government.

• Corporate Bonds: Bonds issued by a corporation.

• Municipal Bonds: Bonds issued by a state or local government or agency (for example airports, school districts, and sewer or water authorities).

• Mortgage and Asset Backed Bonds: Bonds that pass through the interest on a bundle of mortgages or other financial assets such as student loans, car loans, or the accounts receivable of companies.

The main difference between them? Risk. The U.S. government (probably) won’t go broke, but a company might. Because the expected return is tied to risk, you are likely to see higher returns with a corporate bond than with a treasury bond. Municipal and mortgage and asset backed bonds vary widely in risk.

Just How Risky Are Bonds?

Depends on the issuer. To help investors understand the risk, corporate bonds are rated for risk by agencies such as S&P and Moody’s. The precise scale varies with the rating agency, but bonds rated AAA to BBB by S&P are considered “Investment Grade,” those rated BB+ to C are high-yield, or “junk bonds“. Bonds with a D rating are in default and not paying interest.

Muni and asset backed bonds are also rated by agencies on a similar scale. Muni ratings depend on the credit quality of the issuing city or state, while asset backed bonds depend on the quality of the assets backing the bonds. As a rule, investors demand higher interest on lower quality bonds. High-yield bonds yield more because the risk of default is higher. Note that ratings can (and do) change over time.

Bonds can also go up or down in value if interest rates change. You can buy a 20-year bond that only has 8 years left on it in the bond market. The price you’d pay for the bond depends on whether interest rates on similar bonds went up or down since it was issued. If this kind of bond pays 4% today, you would pay more than $1,000 for one issued some years ago that pays 5%. An old bond that pays only 3% would be worth less, since interest rates today are 4%.

Recommended: Bond Valuation Definition and How to Calculate It

Should I Buy Bonds?

Unless you are a very aggressive investor, you should probably have some bonds in your portfolio. Some people can’t stomach the wild swings of stock values. Adding even a small percentage of bonds to your investment mix can smooth out the volatility and might help you from panic selling when the market drops.

With that said, buying individual bonds isn’t always the best approach. Since most bonds have a face value of $1,000, it can be difficult and expensive to build up a diversified bond portfolio. Unless the bond portion of your portfolio is several hundred thousand dollars, it usually makes more sense to invest in bond mutual funds or exchange traded funds (ETFs). A typical bond fund will generally hold between dozens and hundreds of individual bond issues.

Bond ETFs generally contain bonds of similar types of issuer, maturity range, and quality.
(Again, the issuer is the entity that borrowed the money. Maturity is how long the bond holders have to wait for their money. The longer it is, higher the interest rate they usually get, but also the greater the risk that something will go wrong. Quality is the financial strength of the issuer. How likely is the borrower to not be able to pay back your investment?)

If you invest in SoFi Invest®, all but our most aggressive portfolios contain at least some bonds. We currently use nine different bond ETFs to build our portfolios. Each ETF contains different kind of bonds, which lets us use the right combination of bonds for each portfolio.

Not sure what the right investment strategy is for you? An investment account with SoFi makes it easy: Our technology helps you determine the right asset allocation mix for you, while advisors are available to offer you complimentary, personalized advice. Consider working with a SoFi Invest advisor today.

SoFi Wealth, LLC does not render tax or legal advice. Individual circumstances are unique and we recommend that you consult with a qualified tax advisor for your specific needs.
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The World of Credit Card Churning

Credit card companies are competing for your business, and they’ve learned that customers’ heads turn when there are free offers on the table. Easy credit feels even easier when you are rewarded for using a particular card.

Charge enough on your card within a certain timeframe, and you could be eligible to earn travel miles, gift cards, points, and other rewards that feel great.

However, remember that every worm on a hook is meant to jerk you out of the water. Hey, chum, welcome to the world of credit card churning.

What is Credit Card Churning?

Credit card churning occurs when you open and close credit cards for the sole purpose of earning a sign-up bonus. The trick is to do it over and over again, with several credit cards. The end goal is to earn as many rewards as you can. In other words, maximizing your eligibility for points and prizes.

Types of Sign-up Bonuses

Of course, there is no such thing as a free lunch or a free reward. Being rewarded usually costs you. In order to earn the credit card rewards, you are typically required to spend a certain amount of money on that credit card, and it has to be done within the first few months (in most cases, three months).

The way you’re lured into a sign-up bonus is by earning a large amount of rewards by spending only a small amount. This usually happens only with a new credit card, as a “welcome” offer. If you play your cards right and are careful about what and where you spend, you may save a lot of money, and get rewarded in the meantime.

Winning at Credit Card Churning

Keep these rules in mind to beat the house at its own game:

Pay Off Your Balance in Full Each Billing Period

This is a good tip even if you’re not gunning for reward points, if we do say so ourselves. If you don’t pay off your balance at the end of the month, the rewards you earn will get drowned out; it’s only going to sink you further down the debt rabbit hole. Take the money and run?

Not so fast. There is no bigger credit card churning buzzkill than taking months or even years to pay off the debt you accumulate racking up charges to earn a sign-up bonus.

While we’re on the subject, remember that paying off your credit card balance in full every month will keep away the interest charges that accrue when you don’t make a full monthly payoff.

Look at it this way: when it comes to credit card churning, it’s you against the credit card companies. Reap their rewards, but don’t open yourself up to suffocating debt and high-interest charges.

Credit card churning can only work if the consumer hits the rewards thresholds, but practice responsible spending. If you’re someone who doesn’t manage credit card debt well, or tends to overspend just to cash in on the rewards, it might be better to steer clear of credit card churning.

Be Timely With Your Credit Card Payments

Don’t be even a day late. Late fees are killer, and they’ll damage the credit rating you’ve worked so hard to keep strong. If other credit providers see a pattern of late payments, and they may not be so fast to offer you their credit card, which means no rewards.

An excellent way to avoid late payments is to schedule automatic payments through your debit card, or checking or savings accounts. This way, you just set it and forget it!

Have a Plan for Your Rewards

Enjoying the rewards you earn may mean so much more to you when you have a goal of how to use them. Perhaps the points are for airline miles or a vacation destination. Maybe you can use them toward a new wardrobe or the latest electronics. Keeping your eyes on the prize will prevent you from squandering your reward points on something silly or regrettable. Stay strong.

Don’t Bite Off More Than You Can Chew

Fight the temptation to get greedy. New credit cards with amazing reward offers are a dime a dozen. They’re like buses: another one will come along soon.

Think about where you may be in a few short months if you take on too many credit cards and too much debt. That won’t be worth any amount of reward points. Only use the number of cards that you can tolerate without sinking yourself.

How Are Those Credit Card Fees Working for You?

Credit card companies tend to be selective about what they promote to you. The reward offer may get you all hog-tied and happy before you find out about a few minor details, like annual fees, transfer fees, and other charges. If your card requires an annual fee, ask yourself if acquiring it is worth the reward points.

You Better Shop Around

Be extremely selective in choosing your rewards-based credit cards. The competition among credit card companies for your business is intensely competitive. Take your time and wait for the best offer. Try those credit card comparison websites .

Remember that credit card companies often change up their offers; they’re not always written in stone. An offer that doesn’t seem so hot may suddenly get amazing only a month later. That can work backward too. An incredible offer can expire in just a month or two. Be proactive about your credit card reward shopping.

Be Wary of No-Interest Credit Cards

It certainly sounds tempting to get a credit card that charges zero interest, and as long as you plan to pay off your balance in full every month, you’re already ahead.

However, this type of offer can bite you on the back end with extremely high-interest rates when the period expires, or a “transfer charge” when transferring your high-interest credit cards.

Charges like that could equal the same amount of money you would be paying in the interest you thought you were passing by. Be sure you’re aware of the cons of no-interest cards, as well as the pros.

Get Your Reading Glasses

Always read the fine print. That amazing offer may have some exclusions and exceptions and other unpleasant surprises. The credit card company may be looking for a certain kind of cardholder too; after all, they’re in business to make money. You may not be the customer the credit card company is looking for; you may have too many credit cards, to begin with, or have a credit rating that may not be acceptable.

Find out which of the reward rules are subject to change, and if there are any expiration dates or winning rewards. If you are not great at reading the fine print, find somebody who is, or call the credit card customer service line and get your answers.

Avoid Grubby Fingers

Don’t think for a minute that nobody is on to your credit card churning plan. The credit card companies can get rather jealous. They don’t want to share with you. Credit card companies don’t like applicants who are opening too many credit cards in a short period of time. This could mean 24 hours or 24 months.

Be Overly Protective of Your Credit Score

A credit score is an overview of your credit history and payback behavior. Making timely monthly payments and not defaulting on any of your credit cards or loans, and you’ll be on the right path. It also helps to keep your ratio of credit-cards-to-debt rather low.

Always consider your credit score before you consider credit card churning.

Know What You’re Getting Into

When it comes to credit card churning, stay woke. Consistently. Know exactly what the offer is, and what you need to do to get it. Know the deadline for spending the money that will make you eligible for the rewards.

Keep up on your progress toward your rewards goal; how much more do you have to spend and how much more time do you have before the offer expires?

When to Avoid Credit Card Churning

Think of credit card churning as a privilege you have to earn rather than a right that doesn’t require prior deliberation. If you fall into any of these following categories, think twice before opening another credit card.

The biggest takeaway here is if you have credit card debt, it doesn’t make sense to continue to rack up debt in the name of credit card churning—instead, it’s best to make a plan to get out of credit card debt ASAP.

If Your Credit is Bad

Credit card rewards are meant for customers with good-to-excellent credit, not for customers with late payments or delinquent accounts. Think of this as an opportunity to work up your credit score. Once you do, you may be eligible for some offers.

If You’re About to Take on More Debt

Are you about to sign a mortgage, or are on the verge of a car or school loan? Applying for extra credit cards for the sake of their rewards will more than likely affect your credit score, thereby possibly standing in the way of your loan request.

If you’re thinking about credit card churning, wait until after you secure that all-important loan, or at least wait until your loan is approved, your payments are underway and your monthly budget adjusts to the debt increases.

If You Don’t Use a Credit Card That Often

Not over-using a credit card shows reserve, discipline, and smarts. However, your lack of credit card usage may not make sense for a credit card churn. In some cases, credit cards will only grant you rewards if you spend a certain amount of money, which means increasing your spending (and your debt).

That sounds like a slippery slope to us, and no amount of rewards in the world is worth high credit-card usage and suddenly unmanageable debt.

If You’re Already Earning Rewards on Your Credit Cards

Some credit cards offer travel points and other rewards, without you having to get into a spending contest.

If you are pretty disciplined about your monthly spending and careful about avoiding too much debt, you’ll probably already steadily earning points and rewards on the credit cards you have. Call customer service and ask what you are eligible for.

If This is Your First Credit Card

Usually, getting your very first credit card is a chance to prove that you are responsible with credit. You can use that first card to spend wisely and prudently, and pay your balance in full each month. This will build and strengthen your credit score, and keep your finances on the straight and narrow.

If you get involved with credit card churning right off the bat, it could lead to trouble that you don’t need when you’re first establishing credit. Fixing credit once it is broken takes a long time, and can stand in the way of the things you may want and need to buy. Wait until you’re further along in the credit game, and when you’re earning money to handle a bit more debt.

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Don’t Let Credit Card Churning Get the Best of You

Credit card churning can be more harmful than it appears on the surface. It can lead to confusion, missteps, and more unmanageable debt.

It may be helpful to organize your finances. Talking to a financial planner may help you see the big picture and help you organize your different lines of credit.

You may also consider an account like SoFi Checking and Savings®. SoFi Checking and Savings is an online bank account where you can save, spend, and earn, all in one place. Plus, you’ll pay no account fees and earn 1.80% APY on all your cash.

We work hard to give you high interest and charge no account fees. With that in mind, our interest rates and fees charged are subject to change at any time

Ready to get your finances in order? Try SoFi Checking and Savings!

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi Money® is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member
SoFi Securities LLC is an affiliate of SoFi Bank, N.A. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
SoFi members with direct deposit can earn up to 1.80% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 1.80% APY is current as of 07/26/2022. Additional information can be found at

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What Is the Difference Between Good and Bad Debt?

The word “debt” is commonly defined as something—usually money—owed by one party to another. In the U.S., consumer debt is typically made up of mortgages , auto loans, credit cards, and student loans.

The overall balance of consumer debt in America has been on the rise since 2012, according to the New York Federal Reserve . But that’s not necessarily a terrible thing, because not all debt is bad. So what is the difference between good debt and bad debt? And how do you avoid the latter? Here are some tips to navigating the world of debt.

1. Debt can help build your credit score.

A credit score is a number determined by a consumer’s credit history . How many credit cards you have, how many loans you have, and the total amount of money you owe help determine your score, as does whether or not you pay your bills on time. Credit scores range from 300 to 850, and the scores are compiled
by credit bureaus such as Equifax, Experian, and TransUnion.

Companies and lenders use your score to calculate risk and what interest they will charge you on a debt. If your score is higher, you will likely be offered a lower interest rate. If your credit score is low, you will probably be presented with a higher interest rate.

To build your credit score, you must establish a positive credit history, and one way consumers can do that is by borrowing responsibly—i.e., having good debt.

2. Good debt pays for things you need, and/or things that might increase your net worth or future value.

Going into debt to pay for your education or a home are considered examples of good debt. That’s because attaining a college degree or buying a house are ways to invest in yourself. A college degree might lead to a better paying job, so it has future value. And purchasing a home not only gives you something you need—a place to live—it’s also an investment that is likely to increase in worth over time. In the past year (as of April 2019), U.S. home values have gone up 7.6% in value according to Zillow. And historically, American home values appreciate over time, barring an economic downturn or crisis.

3. Bad debt pays for things you don’t need, or things you can’t afford.

Using a credit card to purchase unnecessary or extravagant items can build up bad debt. Using a credit card to buy the latest tech gadget or to book a tropical vacation may satisfy you in the moment, but they are probably not things you need and they do not add to your net worth. If you must make such a purchase, it might be wiser to save money up over time and buy them outright, rather than pay with a credit card and risk struggling to pay the bill down.

4. Using a credit card can help establish good credit, but not if you can’t afford to pay your bill and in a timely matter.

An unpaid credit card balance at the end of the month can be considered bad debt, because chances are you’re paying significant interest on that balance. In early 2019, the average credit card interest rate (or annual percentage rate, APR) was above 17 percent .

That rate can lead to a decent amount of extra money being owed. And if you let a chunk of the balance roll over month after month, you’re paying interest on top of interest. It’s easy to imagine how your bill total can climb, making it more and more challenging to eliminate the debt.

Payday loans are another example of bad debt, as the interest rate for these short-term cash advances can be incredibly high. Each state sets its own regulations for these loans. For example, in California , a consumer borrowing the maximum amount of $300 could be charged a fee of up to 15% for the loan, immediately turning their $300 to $255.

5. If you have bad debt or debt that feels unmanageable, don’t ignore it. Lessen (or reorganize) it as best you can.

Different debt challenges call for different measures.

If you find your student loans too big to pay, for example, you could consider refinancing them. In order to lower monthly payments, you might redetermine the terms of your loan so that you can pay them off over a longer period of time. Refinancing also gives you the opportunity to lower your interest rate and therefore the total paid over the life of the loan.

If credit card debt has built up to great heights—and that can happen quickly, if you’ve missed a few payments—it’s time to prioritize in a way that fits you. That might mean the “snowball method”—paying your lowest-balance debt off first, then moving onto the next lowest, thus building momentum. Conversely, you could use the “avalanche method,” paying your highest interest debt off first, then moving onto the next lowest, thus paying your debt off based on the interest rate.

At SoFi, we used our experience serving people like you to develop a proprietary debt paydown strategy called “debt fireball.” It combines the best of the two methods described above. You would separate your debt into two categories—good debt and bad debt. Then you would attack your bad debt starting with the one with the lowest balance. Then you would continue to the next lowest balance and build momentum to quickly blaze through your bad debt.

For some, consolidating credit card debt into a personal loan is a good way to go—especially if you’re feeling overwhelmed by the number of credit card bills you are keeping track of. Consolidating all of your credit card debt into one loan means you make one payment to one lender.

The additional good news is that a personal loan is likely to come with a lower interest rate than your credit card debt. Though credit card payments you are behind on can hurt your credit score, consolidating them into a personal loan that you manage and pay monthly can help build your score back up.

If you think a personal loan is a good option for you, check out personal loans with SoFi. SoFi offers personal loans with low rates and no fees. With a low-interest rate and a fixed monthly payment, an unsecured personal loan to consolidate credit cards or other high-interest debt could help you start tackling your debt.

Get started today.

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.
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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see Equal Housing Lender.


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