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Closing a credit card with a balance remaining is possible. However, keep in mind that even if your credit card account is closed, you’ll still have to pay off the remaining balance. Additionally, you’ll need to cover interest that’s accrued as well as any fees, and you could face other consequences, including losing out on rewards and seeing potential impacts to your credit score.

Still, there are instances when closing a credit card can be the right move. If you’re thinking about closing a credit card account with an outstanding balance, you’ll want to weigh these considerations and ensure you have a plan for paying off your remaining balance.

What Happens if You Close a Credit Card Account With a Balance?

Once you’ve closed a credit card account with a balance, you’ll no longer be able to use that card to make purchases. Beyond that, here’s what else you can expect after your account closure.

Payment of Balance and Interest

Perhaps the most important thing to keep in mind when a credit card is closed with a balance is that you’re still liable for the credit card balance you’ve racked up. You’ll also owe any interest charges that have accrued on your outstanding balance.

As such, you may continue to receive monthly statements from your credit card issuer detailing your balance, accrued interest, and minimum payment due. And until you’re absolutely positive your debt is paid off, keep on checking your credit card balance regularly.

💡 Quick Tip: Credit card interest caps have become a hot topic, as the total U.S. credit card balance continues to rise. Balances on high-interest credit cards can be carried for years with no principal reduction. A SoFi personal loan for credit card debt may significantly reduce your timeline, however, and could save you money in interest payments.

Loss of Promotional APR

If the card you closed offered a promotional interest rate, this offer will likely come to an end. If you’ve been carrying a balance on a credit card, your balance could start to accrue interest. Plus, you may have to pay the standard APR on the remaining balance rather than the lower promotional rate.

Loss of Rewards

Before you move forward with canceling a credit card that offers rewards such as points or airline miles, make sure you’ve redeemed any rewards you’ve earned. That’s because you may forfeit those rewards if you close your account.

Policies on this can vary from issuer to issuer, so make sure to check with your credit card company to be safe rather than sorry.

How Closing Credit Cards With Balances Can Impact Your Credit

There are a number of ways that closing credit card accounts with a balance can adversely affect your credit score, given how credit cards work. Closed accounts in good standing will remain on your credit report for 10 years, whereas those with derogatory marks may fall off after 7 years.

•   For starters, closing your account could drive up your credit utilization ratio, one of the factors that goes into calculating your score. This ratio is determined by dividing your total credit balances by the total of all of your credit limits. Financial experts recommend keeping your ratio below 30% and preferably closer to 10%. Losing the available credit on your closed account can drive up this ratio.

•   Closing your account can impact your credit mix, as you’ll have fewer lines of credit in the mix.

•   Closing a credit card could decrease your length of credit history if the card you closed was an old one. This could also potentially decrease your credit score.

That being said, the impacts can vary depending on your credit profile and the credit scoring model that’s being used. If, after closing your account, you pay off your balance in a timely manner and uphold good credit behavior across other accounts, your score could potentially bounce back.

Recommended: What Is the Average Credit Card Limit?

Is Keeping the Credit Card Account Open a Better Option?

In some scenarios, it may make sense to keep your credit card active, even if you don’t plan on spending on the card. Here’s when opting against closing your credit card account might be the right move:

•   When you can switch credit cards: If your card carrier allows it, you might be able to switch to a different credit card it offers rather than closing out your account entirely. This might make sense if you’re worried about your card’s annual fee, for instance. You’ll still owe any outstanding debt on the old credit card, which will get moved over to the new card (the same goes if you happen to have a negative balance on a credit card).

•   When you have unused credit card rewards: With a rewards credit card, closing the account may jeopardize the use of earned rewards. Avoid that scenario by keeping the credit card active until you’ve used up all the rewards earned on your current credit card or at least until you’ve transferred them to a new credit card, if that’s an option.

•   When you don’t use the credit card: Even if you don’t use your credit card or use it sparingly, keeping the card open could help support your credit profile. This is because creditors and lenders usually look more favorably on credit card users who don’t rack up significant credit card debt, which is why maintaining a low credit utilization ratio is one of the key credit card rules to follow.

Nevertheless, there are certainly some scenarios when it may make sense to say goodbye to your credit card account. Here’s when to cancel your credit card, or at least consider it:

•   You want to avoid the temptation to spend.

•   You want to stop paying your card’s annual fee.

•   You’d like to have fewer credit card accounts to manage.

•   The card’s interest rate is rising.

A high interest rate can be an issue if you carry a balance on your card, particularly if a promotional interest rate has ended. The average credit card interest rate in the U.S. in early 2026 was 21.00%, and with balances typically compounding daily, debt can expand rapidly. Credit card interest rate caps of 10.00% have recently been proposed to help mitigate debt, though the benefits and risks of these are being debated.

If you’re planning to pay off a balance over a certain period of time rather than in full, securing a lower interest rate may be a good idea, depending on your circumstances.

Recommended: How to Avoid Interest On a Credit Card

Guide to Paying Off a Credit Card Balance

No matter what you do with your credit card account, you’re going to have to pay down your credit card debt. Here are some options you can explore to pay off your closed credit account with a balance as soon as possible.

Debt Consolidation Loans

A personal loan at a decent interest rate may make it easier to curb and eliminate your card debt. Once the funds from the loan hit your bank account, you could use the cash to pay off all your credit card debt. Then, you’ll only have to keep track of paying off that one loan with fixed monthly payments, making it easier to manage.

Keep in mind that you generally need good credit to secure a personal loan with competitive terms.

Balance Transfer Credit Cards

A balance transfer card with a 0.00% introductory interest rate can buy you some time when paying down debt. You can transfer your existing debt to the new card, allowing you to pay down credit card debt at a lower interest rate, without racking up any additional interest payments during the promotional period.

Just make sure to pay off the entire balance before the card’s introductory interest rate period ends and the interest rate rises significantly. Otherwise, you may be right back where you started, with high credit card debt and a high interest rate. That’s not likely to be a good way to use credit responsibly. Also note that a balance transfer fee may apply.

Debt Avalanche or Snowball

For credit card debt repayment, consider the debt avalanche or snowball approach.

•   With the avalanche debt repayment method, you prioritize paying off your credit card with the highest interest rate first. Meanwhile, you’ll maintain minimum payments on all of your other debts. Once your highest-rate debt is paid off, you’ll roll those funds over to tackle your balance with the next highest interest rate.

•   The snowball method, on the other hand, is all about building up momentum toward debt payoff. Here, you pay as much as possible each month toward your credit card with the lowest outstanding balance, while making minimum payments on all of your other outstanding debts. When the smallest debt is paid off completely, repeat the process with the next smallest balance.

Debt Management Plan

If you’re still having trouble paying down your credit card either before or after you close the account, that could be a red flag signaling that you need help. In this case, consider reaching out to an accredited debt management counselor who could set you on the right path to credit debt insolvency.

In addition to helping you create a debt management plan, a credit counselor may help by negotiating a better deal on interest rates and lower monthly payments. That could result in paying down your credit card debt more quickly, which not only saves you money but also helps protect your credit score.

Recommended: Does Applying for a Credit Card Hurt Your Credit Score?

The Takeaway

If you decide to close your credit card account with a balance, it’s critical to do so in a way that covers your debt obligations and protects your credit score. The key to doing the job right is to work with your card company, keep a close eye on outstanding balances and payment deadlines, and work aggressively to pay your card debt down as quickly as possible.

Since closing a credit card can have consequences, it’s especially important to consider a credit card’s pros and cons carefully before you apply.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

Can you close a credit card with a balance?

Closing a credit card with a balance is possible. However, you’ll still be responsible for the outstanding balance on the card, as well as any interest charges and fees.

Does it hurt your credit to close a credit card with a balance?

Closing your credit card with a balance remaining has the potential to impact your credit score. However, the exact implications for your score can vary depending on your overall credit profile and which credit scoring model is being used.

Is it better to close a credit card or leave it open with a zero balance?

That depends on your personal situation. Closing a card for good may impact your credit score, but you also won’t be able to use the card again and may risk racking up unwanted debt in the process.

What happens if you close a credit card with a negative balance?

If you close a credit card with a negative balance, that means the card issuer owes you money instead of vice versa. In this situation, the card issuer will typically refund you that money before closing out the account.

How do I close a credit card without hurting my credit score?

You can mitigate the impacts of closing your account by paying off the balance on that account and all other credit card accounts you have. If you have $0 balances, then closing your account and losing that available credit won’t affect your credit utilization ratio.

Photo credit: iStock/staticnak1983

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A certificate of deposit (CD) can be a good option to consider as a savings vehicle for a child. With a CD, you can deposit money for a specific term, such as a few months to a few years, and earn a fixed rate of interest.

CDs are generally considered a low-risk savings option. If held at a bank insured by the Federal Deposit Insurance Corporation (FDIC), they’re federally insured for up to $250,000 per depositor, per bank, per ownership category and can offer minimal but steady growth over the term.

An adult can open a custodial account for a child who will assume management of the CD account when they reach the age of majority, which is set by state law.

However, there are some pros and cons you should know before opening a CD, including how CDs compare to other investment vehicles for your child.

Understanding Certificates of Deposits

A CD is considered a type of savings account. The account holder deposits the funds and agrees not to withdraw the money for a specific period of time, effectively loaning the money to the bank. The bank pays the CD holder interest based on the total amount deposited and the maturity date of the CD (the term).

You can open a CD at a bank or a credit union. You can typically do this in person or online, depending on the institution. Most CDs are federally insured up to $250,000.

If the account holder decides to withdraw the funds before the end of the term, they are typically charged an early withdrawal penalty, often forfeiting a portion of the interest. For example, if you deposit $1,000 into a two-year CD and you want to withdraw the funds after one year, you would only be entitled to the amount of interest earned up until that point, minus any fees or penalties.

CDs are generally considered a safe investment, but the interest they earn tends to be lower than some other options because they’re lower-risk investments. When opening a CD account for a child, it’s important to consider whether a low-risk investment is what you’re after or whether you’d prefer an investment that offers higher growth potential but also possibly more risk.

Can a Child Have a Certificate of Deposit?

A CD for kids can be a solid start to an investment plan for your child. It’s also a way to help explain the dynamics of saving to them and what it means to earn interest on a principal deposit.

That said, minors cannot legally open CDs on their own. An adult must open a CD for the child in their name. The child then gains control over the account when they reach the age of majority.

One thing to keep in mind about a CD for kids is that funds held in CDs and other savings accounts can affect a child’s eligibility for future financial aid. This is an important consideration, as it could affect how much a family might have to pay for college tuition.

Who Would Own the CD?

A minor cannot apply for a CD, but they can own it. That means that the account cannot be given to anyone else.

An adult, usually a parent or legal guardian, can open a custodial account for a minor under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act, which is an extension of the UGMA. A custodial account allows one person to deposit funds into an account for another. The child assumes control over the account once they reach adulthood. The age of adulthood is not federally mandated. However, in most states, it’s 18.

How to Give a Certificate of Deposit to a Minor

Here’s how to set up a CD for a minor and transfer the account to them when they reach adulthood.

Select the Bank Where You Want to Purchase the CD With

Explore bank account options and decide which bank or credit union you want to open the CD with for your child. Compare interest rates based on the amount you intend to deposit and the term for the CD. Also, look at any penalties and fees the bank might charge.

List Yourself as the Custodian and the Child as the Owner

Fill out the form online or in person, stating that you will be the custodian and the minor will be the owner of the CD. You will be asked to provide identifying information such as your Social Security number and the child’s Social Security number.

Deposit the Money in the CD

Deposit the desired amount into the CD account, considering how different amounts and terms might affect the interest rate paid.

Discuss What to Do With the Funds

Opening a CD account for a child presents a “teachable moment” in that they, as the owner of the CD, need to think through what the money can be used for once the CD reaches maturity. When the CD matures, you can cash it out, or renew it. If the child is of legal age at that point, the account is transferred to the child. You may have to contact the bank to remove your name from the account.

Recommended: What Are No Penalty CDs?

Are CDs a Good Choice to Help My Child Save?

CDs are among the lower-risk investment options, and they’re a good way to help a child save. That said, CDs also tend to be low-yield investments. If you’re saving for your child’s education, funding a 529 college savings plan might offer more growth potential over time, if that’s your goal.

For longer-term savings, opening a Roth IRA may also be a good choice for parents hoping to provide a more secure future for their child.

Tax Implications of CDs for Kids

There are also tax considerations when opening a CD for kids. CD interest is generally taxable in the year it’s paid or credited to the account (when it becomes available).

The IRS taxes kids’ unearned income, such as interest, dividends, and capital gains, in tiers. As of 2026, for a child with no earned income, up to $1,350 of unearned income is generally not taxed. The next $1,350 is taxed at the child’s tax rate, and amounts over $2,700 are subject to tax using the parent’s rate. So that’s something to keep in mind.

The custodian of a CD should also be aware that they can give up to $19,000 per child in 2026 without owing gift taxes.

Financial Aid Implications of CD Earnings

There are some implications of CD earnings regarding financial aid. If a child is applying to college and has savings in a UGMA, those assets must be disclosed on the Free Application for Federal Student Aid^®. The student may have to pay more of their college costs than if their money had been put in a 529 college savings account.

Is a CD a good investment for a child? That depends on the length of time between the opening of the CD account and the child reaching the age of majority. If the child is a teenager, a CD will provide a guaranteed amount of money, and there’s no risk of loss if the market drops. However, CDs don’t earn a lot of interest, and a growth-oriented investment might earn more and grow faster if the child is younger.

Finally, as noted above, if you’re saving for your child’s education, you may want to explore a 529 college savings account instead of, or in addition to, a CD.

Where Can I Find a CD for a Child?

Most banks and credit unions offer CDs, and they allow custodians to open accounts for a child. Online banks can also be convenient. Many offer competitive interest rates and lower fees. Be sure to compare the interest rates and annual percentage rates of each bank and make sure to understand the penalties that will apply if you withdraw the funds early.

The Takeaway

There are many ways to help your child save. Which one is the best depends on the ultimate use of the funds. CDs are lower-risk, federally insured up to $250,000, and may offer higher interest rates than regular savings accounts. However, other options to consider are a 529 college savings account and a Roth IRA.

CDs are easy to open, and most banks and credit unions offer them. They earn interest on the amount invested as long as the funds are not withdrawn before the CD’s term. If the custodian does withdraw funds before the maturity date, the bank will charge a penalty.

Most online banks also offer CDs, and an adult can open a custodial account online for a child. The child is named as the owner of the account, and they’ll assume control over the account when they reach adulthood, according to state laws.

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

What is the best way to save money for a child?

The best way to save money for a child depends on your goals. Some options include a savings account or a custodial certificate of deposit (CD), a 529 college savings account, or a Roth IRA. Explore the options to determine which is best for your situation.

Can you buy a CD as a gift?

Yes. Under the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA), an adult can gift a CD to a child.

Can I open a CD for my child?

Opening a CD account for a child is easy using a custodial account. The child will be named as the owner, with you as the custodian, and they will assume full control of the CD when they reach the state’s age of majority. The account cannot be given to anyone else but the named holder.

Photo credit: iStock/Hispanolistic

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Reducing water usage at home is a great way to lower your monthly expenses and be a better steward to the environment at the same time. But you may not be sure what methods to use or how much of an impact they’ll actually make. How can you save on water and reduce your monthly bill?

Read on to learn about how to reduce your water bill and discover water conservation strategies that really work.

What Is the Average Monthly Water Bill in 2026?

The average monthly water bill in the U.S. ranges between $40 and $70 in 2026. While that may not seem to be too big a strain on the typical checking account, keep in mind that water bills can vary significantly depending on where you live, how much water your family uses, and the time of year.

Showers and toilets make up more than 70% of indoor water consumption, according to one 2025 study of indoor water use. Toilets accounted for 40% of the water used, while showers made up 30%; the remaining indoor water usage was from faucets and humidifiers, among other things. The study found that homes built before 1985 tend to use less water than those built later.

Outdoor water usage (for gardens, lawns, and pools) accounts for about 30% of the average American’s water bill — up to 60% in the summer.

How Much Money can You Actually Save By Reducing Water Usage?

You can save money by using less water. You may save anywhere from 10% to 30% on your total costs. That’s because your monthly water bill reflects water usage: The more water you use, the more money you’ll drain out of your savings account, so one of the best ways to save money on your water bill is to reduce the amount of water you use.

Beyond financial savings, conserving water is great for the environment and can help to provide reliable water for families today and in the future.

12 Effective Ways to Reduce Your Water Bill and Save Money

If you’re looking to economize on your water costs, here are 12 helpful ways to save money on your water bill every month:

1. Only Run the Washing Machine for Full Loads

Washing machines require a lot of water to operate. Waiting until you have enough dirty clothes for a full load — or using the machine’s “small load” option in a pinch — can go a long way in reducing water usage and may even help lower your energy bill.

Bonus Tip: Because washing machines and laundry detergents have improved significantly over the years, you rarely need to use the hot water option. Using cold water only can keep gas or electric bills down as well, providing another way to make your budget.

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2. Maximize Efficiency With Full Dishwasher Loads

Dishwashers are more efficient at washing dishes than handwashing is. The trick? Only run the dishwasher if it’s fully loaded. That’s how to save money on water usage and your water bill.

Bonus Tip: Save even more water by scraping food off your plate before loading it in the dishwasher. No need to rinse it, which wastes water!

3. Invest in Water-Efficient and Energy Star Appliances

Today’s washing machines and dishwashers are far more efficient than appliances from even 15 years ago. In fact, an ENERGY STAR-certified dishwasher saves nearly 5,800 gallons of water in its lifetime, and an ENERGY STAR washing machine uses 30% less water per cycle. It requires 20% less electricity to run, too, so you’ll save money on utility bills.

While replacing home appliances has an upfront cost, you’ll save money on water and energy bills in the long run. Some energy-efficient appliances may even come with rebates.

Bonus Tip: Look for front-load washers; these can use up to half as much water per cycle as top-load units.

4. Install Low-Flow Plumbing Fixtures and Showerheads

Major appliances aren’t all you can upgrade. Plumbing fixtures like toilets and showerheads offer another opportunity to cut back on water usage. If it’s bathroom remodeling time, search for low-flow (and dual-flush) toilets that use less water per flush.

Low-flow showerheads better conserve water (saving up to 2,700 gallons per year) and may offer superior performance. In both cases, look for the WaterSense label, created by the EPA or Environmental Protection Agency.

5. Cut Back on Shower Time to Lower Daily Water Costs

This tip is pretty simple but bears repeating: The less time you spend in the shower, the less water you’ll use. And as long as you keep your showers short, you’ll save water — and money — by showering instead of taking a bath. How’s that for a creative way to save money?

It’s better for your skin, too. Most dermatologists recommend no more than 10 minutes in the shower to avoid drying out your skin.

6. Find and Fix Hidden Household Water Leaks

Leaky faucets and toilets that won’t stop running are noticeable, but your home may have other, less obvious plumbing leaks to watch out for, like your hot water tank or supply line. Because many drain pipes exist behind your walls, you may only catch a leak by hearing it, so keep your ears sharp throughout the year. Also, watch out for any spots in walls, ceilings and floors that suggest you may have a leak.

The cost to repair a leaking pipe can be high, but doing so will lower your water bill in the long run — and leaks left alone can develop into larger, more expensive problems down the road.

7. Turn Off the Tap While Brushing Your Teeth or Shaving

Letting the water run the entire time you brush your teeth — especially if you brush them for the American Dental Association’s recommended two minutes — has become the poster child for wasting water. Turning off the water while you brush can be such an easy way to cut back on water usage and avoid the consequences of not saving money.

This also applies while shaving; only run the water when you need it — not the entire time you’re shaving.

8. Start Composting Instead of Using the Garbage Disposal

Have food scraps? Don’t throw them all in the garbage disposal, which uses water; try composting instead. You can compost foods like fruits, vegetables, eggshells, meat, and coffee (filters included!); doing so can be great for your garden and save money on water.

9. Keep a Cold Pitcher of Water in the Fridge

If you let the tap run until the water gets cold enough to fill your drinking glass, you’re wasting water. Consider putting a pitcher of water in the fridge instead so that it’s cold when you want it. As a bonus, you can invest in a pitcher with a water filter for cleaner drinking water.

10. Optimize Your Lawn Care and Watering Schedule

Before watering your lawn, check the weather forecast. If rain is predicted in the next few days, don’t bother watering the lawn at all. Even if it’s hot out and hasn’t rained lately, your grass may not need water. Try stepping on it; if it springs back up, you don’t need to water it yet.

If you must water your lawn, check your sprinkler system or hose to ensure there are no leaks, and don’t overwater. That’s another way to avoid common budgeting mistakes when it comes to water usage.

Mowing your lawn less regularly is actually a good thing. Longer grass allows for deeper root growth — and thus a drought-resistant lawn that doesn’t need to be watered as often.

11. Use a Commercial Car Wash Instead of Your Driveway

Car aficionados may insist upon washing their car every other week (or every week, if they’re dedicated). While washing and waxing your car is good for protecting its paint and maintaining its value, you can get away with fewer car washes. To keep water usage down, try once a month at most.

You can also cut your own water costs entirely by paying for a commercial wash. Commercial car washes use 60% to 65% less water and are designed to prevent water pollution from runoff. Many locations also recycle their wash water multiple times.

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12. Use a Pool Cover to Prevent Costly Water Evaporation

Here’s the last way to stay motivated to save money on water costs: Have a pool outside? Make sure you cover it when not in use. Not only does this keep unwanted debris out of the swimming area, but it also helps reduce the amount of water that evaporates from the pool each day.

How to Conduct a Quick Home Water Audit

Doing a quick and easy home water audit can help you find any leaks that may be wasting water and costing you money. To do it, locate your main water meter, find the leak indicator on it (it typically looks like a small triangle or dial), and write down the number. Wait about 30 minutes without using any water and check the leak indicator again. If the numbers have changed or the dial has moved, you likely have a leak.

Next, check under the lid of your toilets or inside the tanks to see what the gallons-per-flush rating is. If a toilet uses three to five gallons per flush, consider buying a new one to save money.

Finally, check facets and showerheads for drips or moisture at connections. Look under sinks as well for any drips or water damage.

This type of house maintenance checklist can identify problems and reduce water bills.

The Takeaway

Saving money on water isn’t just great for your bank account; it’s also great for the environment. From composting to upgrading appliances to cutting back on car washes, you can dramatically reduce your family’s water consumption — and see great savings on your water bill as a result.

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

Why is my water bill suddenly so high?

A water bill that is suddenly high may indicate that you have a hidden leak or that one of your appliances isn’t functioning properly. Check to see if toilets are running (this is typically the number-one cause of high water bills), and examine pipes and under sinks for moisture or drips. If you can’t find the source of the problem, contact your water company to see if they can help.

Do water-saving showerheads actually make a difference?

Yes, water-saving showerheads can make a big difference when it comes to saving water — and money. Low-flow showerheads typically cut a shower’s water and energy use in half and may save the average family 2,700 gallons of water a year.

How much of my water bill comes from flushing the toilet?

Flushing the toilet accounts for about 40% of a family’s indoor water usage. That makes it the biggest user of water in the average home.

Can fixing a running toilet lower my water bill?

Yes. A running toilet is the number-one cause of high water bills. A running toilet can waste multiple gallons of water a day and cost you hundreds of dollars a year or more. Check your toilets regularly to make sure they aren’t running.

Are there financial assistance programs for high utility bills?

Yes, there are typically federal and state financial assistance programs to help manage high utility bills. While the specific programs depend on where you live, common programs include monthly bill credits for income-eligible households, and emergency grants for those facing water service disruption because of high bills. Contact your water company to find out what programs they offer.

Photo credit: iStock/vorDa

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The average credit card annual percentage rate (APR) as of early 2026 is around 21%, according to the Federal Reserve. It’s no wonder that savvy cardholders are looking for ways to reduce the cost of using a card. Some ways consumers achieve this are through a cash-back rewards credit card or a low-interest credit card.

The distinction between a cash-back vs. low-interest credit card is that cash-back cards help you earn a small percentage of your spending back. Conversely, a low-interest credit card tends to charge less interest each month than a high-interest card, which is helpful for cardholders who roll their balance into the next month.

What Are Cash-Back Credit Cards?

Credit cards that offer cash-back rewards are designed as an incentive to encourage spending on the card. For every eligible purchase you charge to your card, you’ll receive a small percentage of cash back. Some cards offer 1% cash back, while others offer as much as 6% or more, depending on the program’s rules. You might earn a flat rate across all purchases, or you might earn more in certain spending categories, such as groceries or gas.

You then can redeem your earned cash-back rewards. Redemption options may include a cash payment or a statement credit toward your next bill, or you may be able to redeem the rewards for travel, merchandise, gift cards, and more.

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What Are Low-Interest Credit Cards?

Low-interest credit cards incur a lower borrowing cost compared to high-interest credit cards. A credit card that charges low interest allows you to pay less for using the card if you carry a balance. This card feature is beneficial for cardholders who repay their monthly balance in increments over time instead of in full.

The interest rate you qualify for highly depends on your creditworthiness, including your past borrowing habits and credit score. Consumers with strong credit might qualify for promotional no-interest credit cards that charge 0% APR for a limited period. After this period is over, the card’s interest rate increases, based on the cardholder’s credit and qualifications. As such, there are both advantages and disadvantages of no-interest credit cards.

Recommended: How to Avoid Interest on a Credit Card

Differences Between Cash-Back and Low-Interest Credit Cards

Below are the key differences between low-interest vs. cash-back credit cards to keep in mind when choosing a card:

Factors to Consider When Choosing Between Rates and Rewards

Your unique financial situation, borrowing habits, and the features and benefits of a particular card are what you should consider when comparing your options.

Average Balance You’ll Be Carrying Monthly

How credit cards work is that they give you purchasing power up to a limited amount, even when you don’t have the cash upfront. You can choose to repay the debt in one lump payment by your statement due date, which allows you to avoid paying interest charges. Alternatively, you can make installment payments over multiple months, in which case you’ll accrue interest charges.

Not carrying a monthly balance is one of the common credit card rules to try to stick to, but it’s not always possible. For example, you might have had an unexpected injury that resulted in a medical bill that exceeded your cash savings. In this scenario, putting some of that cost on your credit card and making small, monthly payments to repay it might be necessary.

If you don’t have sufficient cash savings or income to confidently repay your monthly balance in full each month, a low-interest card might offer an advantage over a cash-back card.

Recommended: When Are Credit Card Payments Due?

Your Average Monthly Spending

Look back at your monthly expenses and think about the total amount you’ll likely put on your credit card each month. For example, you might use a credit card to cover everyday expenses, such as dining, groceries, and gas. Cardholders who rack up high monthly balances can benefit from a cash-back credit card that offers money back on purchases they’re already making.

The caveat, however, is if you charge more expenses to your card than you can realistically pay back in full by the statement due date. If you roll over any portion of your outstanding balance into the next month, you’ll get charged interest on that amount, which cancels out any cash-back rewards you may have earned.

Recommended: Tips for Using a Credit Card Responsibly

Annual Fees

Some cards, particularly rewards cards that extend high-value benefits and incentives, might charge an annual fee., For example, a cash-back card might offer an annual $300 travel credit and 5% cash back on flight purchases but charge an annual fee of $550.

If you don’t travel enough to use up the credits and earn more cash back than the annual fee costs, that card might not be the best fit for your lifestyle. You’ll need to assess the total potential dollar value that a card’s benefits, credits, and other incentives offer in comparison to the upfront cost of the card’s annual fee.

Interest Rate Difference Between Cards

Although all credit card issuers check your credit to determine your interest rate, each card company has its own underwriting criteria. You might receive an interest rate offer of 19.99% APR for one card and an offer from another card issuer of 22.99% APR, for example. To gauge interest rates, it can be helpful to look at the current average credit card interest rates for a point of comparison.

Regardless of whether you end up with a cash-back credit card vs. low-interest credit card, it’s always a good idea to shop around for the lowest interest rate you can get. That way, if you ever need to carry a balance, you can minimize the amount of interest you end up paying.

Guide to Lowering Your Credit Card Interest Rate

Whether you are shopping around for a new credit card or have an existing card with a high APR, here are some ways to lower your interest rate:

•   Contact your card issuer. If you have been a loyal customer and kept your account in good standing, or if you’ve built your credit score since opening your account, your credit card issuer may be willing to reduce your rate.

•   Build your credit. Even if you already have good credit, working to build on that success can help you secure the most competitive interest rate in the future. Good borrowing habits, such as making on-time payments and keeping your credit utilization low (below 30% or ideally below 10%), are just some ways you may affect your score.

•   Consider a low-interest balance transfer card. If you have a high-interest card with a balance on it, and you have strong credit, a balance transfer card can allow you to move your original balance onto a low-interest card. Before proceeding, always compare the balance transfer fee against your potential savings to confirm that it’s worth it.

Remember, what’s considered a good APR for a credit card is subjective, based on your creditworthiness and other factors. Securing the lowest APR that you qualify for can help you avoid heavy interest charges if you roll over a monthly balance.

The Takeaway

Ultimately, whether you opt for a cash-back credit card or a low-interest card depends on how you plan to use the card and manage debt, as well as what kinds of perks and features matter most to you. If you often carry a balance, for instance, a low-interest card could be valuable. If you tend to follow the important rule of paying off your card balance in full every month, then the interest rate may not matter as much, but cash back could be a benefit you appreciate.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

When is a lower annual interest rate better than a low annual fee?

A lower APR is better if you typically carry a balance from one billing cycle to the next. When you roll over a balance, old and new balances accrue daily interest charges that can cost you more money out of pocket. A low annual fee is something to look for when you’re using a card to earn incentives, such as credit card rewards.

Are there credit cards with low interest and cash back?

Yes, there are credit card options that offer a low interest rate to qualified applicants, as well as cash-back rewards. However, you’ll generally need to have good credit in order to qualify for the most competitive rates offered by low-interest rewards credit cards.

How can I choose between low APR and rewards?

Consider your credit history and score to determine whether you meet the minimum qualifications for a credit card’s lowest APR. Also, examine your general credit card habits, including whether you often roll over a balance and what your monthly spending habits are like. Compare those details against the costs of carrying a card, such as annual fees and the APR you’re offered.

Is it better to find a credit card with low or high interest?

Finding a credit card that offers a low interest rate is usually the better move. The lower your APR, the less you’ll pay for borrowing on credit if you decide to carry a balance month to month.

Photo credit: iStock/AsiaVision

SoFi Credit Cards are issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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

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Despite the saying “cash is king,” there are pros and cons to using cash over credit cards in everyday transactions. Likewise, credit cards have their own share of advantages and disadvantages when it comes to making purchases.

Here’s what you need to consider when choosing cash vs. credit cards, and when you might opt for using one method of payment over the other.

Defining Cash and Credit Cards

Cash — whether coins or banknotes — is legal tender that you can exchange for goods and services. According to the Merriam-Webster dictionary, cash is considered “ready money.” Translation: You actually own the value of the cash and can use it immediately during a transaction.

Credit cards can also be used to purchase goods and services. However, you’re borrowing the funds from a third party (i.e., a bank) to make your purchase today with the promise that you’ll pay the credit card balance back later.

When to Consider Using Cash

Deciding whether to use cash vs. credit depends on your purchasing situation and preferences. Situations when paying with cash is preferred might include:

•   Buying goods or services from merchants who only accept cash

•   Having credit or income that doesn’t let you qualify for a credit card

•   Limiting your spending to a specific amount

•   Keeping your personal information private during a transaction

•   Avoiding credit card-related fees

•   Avoiding credit card debt

You can also use cash to grow your money through an interest-bearing deposit account instead of spending it. If you’d like to build your savings fund, you can only do so using cash.

Recommended: How to Avoid Interest on a Credit Card

Benefits of Using Cash

Here are some benefits of using cash:

•   Since cash represents the monetary value you actually have, it makes budgeting simple. If you have $100 in cash to spend for the weekend, for instance, you’re focused on making careful decisions about how you spend that finite amount. After you’ve depleted your funds, you can’t make additional purchases until you have more cash.

•   Cash provides some convenience despite its additional physical bulkiness in your wallet.

•   For merchants, the benefit of cash vs. credit cards is that they save money on credit card processing fees. Some merchants only accept cash payments, while others offer a small discount as an incentive for customers to pay using cash.

•   Cash can be used widely by any consumer, regardless of their credit score. This makes cash a more accessible payment method for everyday purchases.

•   Cash doesn’t contain any of your personal data, so if a private purchase is important to you, cash is beneficial.

Recommended: When Are Credit Card Payments Due?

Drawbacks of Using Cash

Here are some downsides of using cash:

•   The biggest drawback to using cash vs. credit is that it caps your buying power to only the amount of cash you have. As mentioned above, this can be a benefit, but when you’re on a budget, it can restrict your ability to immediately make larger purchases.

For example, if your car unexpectedly needs a repair that costs $800 but you only have $500 in cash to pay upfront, you’ll have to make a tough decision. You might be forced to shop around for a cheaper car repair shop, spend time negotiating a lower price with the current mechanic, or possibly wait to complete the repair until you have the additional funds necessary. All of this can cost you extra time and can possibly impact your earnings if you rely on your car to drive to work.

•   Physical cash is harder to trace between transactions. Your personal information isn’t tied to cash bills in your pocket. This means that if you lose it or it gets stolen and it’s used by someone else, it’s harder to get back.

When You Might Consider Using a Credit Card

There are many use cases for credit cards, if you qualify for one. Some situations when a credit card might make sense include:

•   Making a larger purchase now and paying it off later

•   Breaking down a large purchase into smaller installment payments

•   Earning points, miles, or cash back on purchases using a rewards credit card

•   Unlocking additional purchase protections

•   Building your credit profile

Recommended: What Is a Credit Card Advance?

Benefits of Using a Credit Card

Using a credit card as a payment method for daily transactions offers various benefits when managed responsibly.

•   If you don’t have enough cash for a purchase, a credit card lets you buy it now and pay it back the following month.

•   You can choose to take out a credit card cash advance (though typically at a higher annual percentage rate (APR) than your standard purchase APR) or even send money with a credit card.

•   With a credit card, you get to choose how you’ll repay your purchases, whether in full when your billing statement is due or incrementally over multiple months. The caveat is that letting a balance roll over to the next month incurs interest charges.

•   Since all credit card activity is reported to the credit bureaus, on-time payments and other factors can be favorable to building your credit history and credit score. A high credit score can help you qualify for competitive interest rates and terms on other consumer credit products, such as other credit cards and loans.

•   Credit cards offer benefits and rewards that cash doesn’t provide. Rewards credit cards let you earn points or miles that you can then redeem for travel, cash back, gift cards, merchandise, special experiences, and more.

Different credit cards can also offer benefits such as travel cancellation protection, warranty insurance, and more. For example, some cards feature purchase protection, which replaces an item that was lost, stolen, or damaged if it was purchased using the card.

•   Using a credit card limits your liability when unauthorized or fraudulent purchases or activity occur on your account. Depending on when you report the unusual activity, you might only be liable for up to $50 of those charges. Some credit cards even have zero-liability policies.

Recommended: What Is a Charge Card?

Drawbacks of Using a Credit Card

Here are some downsides to using a credit card:

•   Interest charges, expressed as an APR, are one of the biggest disadvantages to using credit vs. cash. With how credit card payments work, unless you make full, on-time credit card payments each month, interest charges will likely apply to balances that roll over from one month to the next.

If you roll over a balance, you’ll not only pay more money toward your purchases, but your outstanding debt can snowball quickly. This can prove financially damaging to your everyday finances and to your credit if you fall behind on payments while amassing growing debt.

•   Certain credit cards also incur annual fees for the privilege of using them. This is money that you’ll pay out-of-pocket upfront. You can also incur other fees, such as foreign transaction fees, late payment fees, balance transfer fees, and more.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

Is Using a Debit Card the Same Thing as Using Cash?

Using a debit card is similar to using cash. In fact, one of the biggest differences between a credit card and debit card is that debit cards draw funds from the cash that you already have in your personal checking or savings account. However, like a credit card, a debit card provides the convenience of swiping or tapping a card on a payment processing machine to make a digital transaction between your bank and the merchant’s bank.

It’s important to note that debit cards carry many of the same disadvantages as cash. For one, a debit card limits your purchasing power to the amount that’s in your checking or savings account. Additionally, debit cards don’t offer the same level of protection against unauthorized or fraudulent activity as credit cards do.

Recommended: What Is the Average Credit Card Limit?

Understanding Your Spending Habits Is Key to Picking Which to Use

Taking stock of your buying habits can help you decide whether cash vs. credit is a better option for you. When considering these two payment options, think about the following:

•   How much do you spend each month?

•   How much discretionary income do you have?

•   Where do you typically make purchases — online or in a brick-and-mortar store?

•   Do you tend to overspend or stay within a budget that you can afford?

•   If you’re thinking about a credit card, what’s your goal?

By answering these questions, you’ll likely be able to tell which payment method will be more convenient for you. For instance, if you’re trying to curb your spending, then cash might be the better bet, given how credit cards work. On the other hand, if you’re primarily an online shopper or you’re trying to build your credit history, a credit card could be worth exploring.

The Takeaway

Cash can help you contain your spending to the money you actually have. This can potentially limit the amount of debt you’d take on through credit. It can also offer convenience when it comes to shopping through cash-only merchants. The caveat is the risk you’re taking on if the cash is lost or stolen, since it can be difficult to get back.

Credit cards can offer greater protection against unauthorized activity, and they can enhance your spending power. However, access to borrowed funds could get you deeper into debt if you’re unable to repay your balance on time each month. With responsible borrowing habits, however, credit cards can be a handy way to make purchases and may offer rewards, such as cash back.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

Which is better when traveling, cash or credit?

When traveling, credit cards are typically a safer option to carry than cash. It can be nearly impossible to trace lost or stolen cash and verify whether it belongs to you. If a credit card is lost or stolen, the card issuer can freeze new transactions on the account, and your maximum liability for fraudulent charges can be $50 or nothing at all.

Are credit cards safer than cash?

Yes, credit cards can be safer than cash. Credit cards typically reduce your liability in the event of unauthorized or fraudulent activity.

What is the difference between cash and credit cards?

Cash is a physical currency and liquid asset that provides you with purchasing power. When you use cash toward a purchase, you don’t owe that amount to another entity. Conversely, a credit card is a physical tool that lets you increase your purchasing power using borrowed money, but you’ll need to repay purchases made on your credit card, possibly plus interest charges.

Cash or credit, which is more convenient?

Whether cash or credit is more convenient is subjective. For example, while many merchants accept credit cards, some only accept cash payments. However, as more businesses accept digital payments and transition to cashless transactions, a credit card might be more convenient.

Photo credit: iStock/Ridofranz

SoFi Credit Cards are issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

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