What Is a Debt Validation Letter?

A debt validation letter is a document — typically from a collections company — that shares the recorded details of an outstanding debt. This letter contains the amount you owe, the name of the original creditor, the date by which you’re required to pay the collections company, and the instructions for how to dispute it. It should also advise you that, if you plan to dispute the debt, the dispute must be filed within 30 days.

Obtaining a debt validation letter is an important step toward disputing a fraudulent debt or repaying a legitimate one. Read on to learn more about how a debt validation letter works and what to do if you receive one.

Defining a Debt Validation Letter

If a debt collector contacts you by phone, you should ask them to contact you in writing instead. That way, you will have an easy-to-reference document in hand, and you may be able to protect yourself from too frequent debt collection calls as well as from scammers.

Once you make your request, the collections agency is required to send you a debt validation letter, which lists the following information:

•   Debt collections agency’s information

•   Original creditor’s information (for example, a credit card company)

•   Account number associated with the debt

•   Amount owed

•   Information about how to file a dispute, including a tear-off form to make taking the next step easier

Once you have a debt validation letter, you can take a closer look to ensure you recognize the original debt. Then you can make a plan to repay it if it’s legitimate — or begin the dispute process if you have any doubts.

Purpose and Legal Basis

No matter what type of debt they’re seeking repayment for, collections agencies are legally required to offer debt validation letters. These ensure they’re seeking remuneration for legitimate debts only.

There are laws governing how often a debt collections agency can contact you. According to the Debt Collection Rule, which is part of the Fair Debt Collection Practices Act, it’s a violation of the law for debt collectors to call you more than seven times within a seven-day period or within seven days after getting you on the phone about a specific debt.

However, these restrictions do not apply to text messages, emails, or even contact via social media. Fortunately, though, such messages are required to offer a simple opt-out option.

When to Request Debt Validation

If you receive a validation of debt letter and you’d like to file a dispute, you can send a letter requesting proof that you owe the debt in the first place. The collections agency must be able to provide this proof, which is called debt verification, in order to continue to pursue your payment or report the debt to credit bureaus. You can also use this moment to formally ask the creditor not to contact you in any way other than written letters.

However, again, it’s critical that you ask for debt verification in a timely manner — as soon as possible after receiving the original debt validation letter. Debts that are not disputed within 30 days are presumed to be valid by the collector, so be sure to take care of the matter as quickly as possible.

Recommended: How to Pay Off Debt in 9 Steps

Debt Validation Process

Once you request debt verification, the collector must provide proof that you owe the original debt. This may include documentation from the original creditor. Some key next steps to know:

•   If the debt collections agency cannot provide this proof, they are legally required to stop pursuing your payment.

•   If they continue to do so, or report an invalid, fraudulent debt to the credit bureaus, damaging your credit history and score, you can sue them.

Benefits of Debt Validation Letters

If funds you legitimately owe have gone to collections, paying the debt off as quickly as possible is usually the best policy. Having a debt in collections can be very bad for your credit score, and collections agencies may be able to charge additional interest or even take you to court.

If you do need to pay off the debt, you can explore your options, such as finding a budgeting method that suits your needs or taking out a personal loan.

However, if the debt is not legitimate or the collections agency can’t definitively prove you owe the debt, requesting validation and verification can help you successfully file a dispute. This can also help you avoid paying money you don’t owe (as well as ongoing negative impacts to your credit history).

Recommended: Becoming Debt-Free

Drafting an Effective Debt Dispute Letter

A properly executed debt dispute letter should make it clear that you do not recognize the debt and believe it is not yours in the first place. You should also request documentation that proves you incurred the debt. The Consumer Financial Protection Bureau offers a letter template that you can use in this scenario, which makes the process as simple as personalizing the letter, printing it out, and sending it to the agency.

The Takeaway

A debt validation letter is a document that lists how much you owe, to whom you owe it, and who is trying to collect it. It also informs you about your right to dispute the debt. Once you receive a validation of debt letter, you can begin the dispute process by requesting debt verification. In addition, a debt validation letter can help you move forward if you are dealing with too frequent contact from a creditor or believe a scam may be involved.

Becoming debt free can be challenging — but it’s possible. One helpful tool could be a personal loan.

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SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Do I have to pay a debt if validation is not provided?

If a collections agency contacts you, you should request a debt validation letter — because the agency is required by law to produce validation and verification if they are to continue to pursue your repayment. Additionally, having a debt validation letter in hand is the first step toward filing a dispute if it turns out the debt is illegitimate.

What happens if the creditor doesn’t respond to the validation letter?

If a collections agency does not respond to your request for a debt validation letter, it may be a scam — as all legitimate collections agencies are legally required to validate debts. If the organization continues to harass you, you may want to seek legal counsel in order to ask them to cease and desist.

How long does a creditor have to respond to a debt validation request?

First things first: As the consumer receiving a debt validation letter or notice of collections attempts, you must request debt verification or dispute the debt within 30 days. While there’s not a specific set timeline in which a collector must respond to your debt validation request, if they can prove the debt, their motivation for repayment means you’ll probably hear from them sooner than later.


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What Are Money Affirmations? Do They Actually Work?

Guide to Money Affirmations

Money affirmations are phrases you repeat aloud or write down to help promote positive thinking and good financial habits. Some people find these mantras to be a helpful tool in reducing money stress. That can be a good thing: In one 2024 survey, 88% of respondents said they were experiencing financial stress, with 65% noting that money was their single biggest source of worry.

Here, learn about what money affirmations are and how you might find them useful.

Key Points

•   Money affirmations are phrases repeated aloud or written down to promote positive thinking and good financial habits.

•   Money affirmations are based on the premise that by envisioning what you want, you can guide your thoughts and behaviors to achieve it.

•   Affirmations may help reduce money stress and encourage a positive attitude.

•   Repeating affirmations may help avoid impulsive or unwise money decisions.

•   The effectiveness of money affirmations is subjective and varies from person to person.

What Are Money Affirmations?

Affirmations about money are positive statements about personal finances, from the dollars that pass through your hands (or are growing in your savings account) daily to long-term goals. Some people value these as being a step towards visualizing and achieving financial success. Some points to know:

•   An affirmation can be as simple as “My finances will get better.” That can be a motivating and calming message if, say, you are a recent graduate who is struggling to find a job. Looking on the bright side in this way can encourage a positive attitude as you learn how to become financially independent.

•   Fans of finance affirmations say that repeating them can help you believe in and actualize (or manifest) them. By keeping such thoughts top of mind, you might avoid impulsive or unwise money decisions, such as splurging on a vacation when it isn’t in your budget. 

That said, others may not believe in money affirmations and question if there’s proof that this kind of positive thinking works. It’s a very personal decision whether to implement these affirmations or not.

Recommended: Personal Finance Basics for Beginners

What Is the Law of Attraction?

When exploring money affirmations (or any kind of affirmation, for that matter), you may hear the phrase “law of attraction” used. This principle says that by focusing on what you want to attract into your life, you can help yourself actually attain those goals. To put it another way, by envisioning what you want, you can guide your thoughts and behaviors to achieve that vs. dwelling on what you don’t have. 

For instance, if you want to retire by age 50, you would push away negative thoughts of “I’ll never have enough money to do that.” Instead, you might regularly conjure up the image of leaving your job to pursue your passions at age 50 and say, “I am on a path to save enough money to retire early.” That could perhaps help you pass up impulse buys and instead save money to help you realize your dream. That can be a valuable step on the path to financial freedom.

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25 Money Affirmations

If you want to give affirmations about money a try, here are 25 examples you can try out (whether you say them aloud, internally, or write them down) to hopefully build a more positive approach to your finances.

1.      I control money; money doesn’t control me.

2.      I can become financially free.

3.      I have the power to be financially successful.

4.      My income will exceed my expenses.

5.      My hard work will bring in more money.

6.      I am worthy of making more money.

7.      I am a magnet for prosperity, and it flows toward me effortlessly.

8.      I deserve the money coming to me.

9.      I have more than enough money.

10.      My finances will get better.

11.      I accept financial success.

12.      I will achieve my financial goals.

13.      I deserve financial success and happiness.

14.      I will use the money I earn for good.

15.      I am wise with my money.

16.      I can make smart financial decisions.

17.      I have the ability to overcome reckless spending.

18.      I can make my dreams a reality.

19.      My future self will thank me for being wise with money.

20.      Having wealth is integral for life.

21.      I can achieve my financial goals and more.

22.      Debt will not stop me from reaching my financial goals.

23.      Saving money is a challenge I can accomplish.

24.      My investments will pay off.

Do Money Affirmations Actually Work?

There’s no guarantee that if you repeat money affirmations, your financial well-being will improve. No matter what you see online, read in books, or watch on YouTube, no one knows 100% whether money affirmations, even if repeated 100 times, will truly improve finances and build wealth. 

That said, proponents believe in them, so whether to use money affirmations is your call. One note in favor of money affirmations: They might help you focus on the positive and alleviate some money stress, which can be a good thing. 

One recent survey found that almost half of respondents (47%) said money negatively impacted their mental health, and that included causing stress. Reinforcing positive self-talk with money mantras might relieve worry and result in a calmer, steadier, more productive financial mindset

Money Affirmations vs Money Mantras

The phrases “money affirmations” and “money mantras” are typically used interchangeably. They are also sometimes called “abundance affirmations” or “wealth affirmations.” Occasionally, a money affirmation may be distinguished as being a sentence vs. a money mantra being just a phrase (like “less spending, more success”). 

Whatever you call them, money affirmations for financial abundance may be a way to boost your positivity when it comes to managing your cash. The words are meant to help you stay the course in reaching your financial goals.

Recommended: Tips for Overcoming Bad Financial Decisions

How to Choose and Write Your Money Affirmations

To choose and write your money affirmations, first identify negative beliefs about money that may be holding you back. Perhaps you see yourself as an impulse shopper, incapable of resisting sales or making frugal decisions. Maybe you’ll decide that “I am wise with my money” would be a good affirmation to try because it could counteract negative money self-talk.

You can also write a money mantra based on your personal challenges to state your goals as if it is already true. For example:

•   If your checking account is often lower than you’d like and you’re tightening your budget, the negative statement, “I will not order food delivery ever this year” may be discouraging and hard to live up to. 

•   A better affirmation might be a positive phrase, like, “I will budget well and spend my grocery money mindfully.” That way, when you do order the occasional pizza, you will likely have planned for it and can feel good. 

Your money mantra can help you focus on the positive.

How Do You Use Money Affirmations?

Those who believe in affirmations suggest using them in whichever way feels comfortable and meaningful. 

•   You might say them aloud or to yourself. 

•   You could jot them on a sticky note to post on your computer, mirror, fridge, and/or car dashboard. 

•   Some people like to put the words on their phone lock screen.

•   Others may prefer to write their phases (whether that’s “I am working to increase my bank account” or “Abundance is flowing my way”) in a notebook or journal.

Saying or writing your money affirmation daily can be a good practice, but it’s up to you to set the cadence that works best for you. The goal is to repeat the affirmations often enough to impact your outlook, enabling you to visualize financial security and move towards it.

Recommended: 7 Tips for Improving Your Financial Health

The Takeaway

Money affirmations, aka money mantras or abundance affirmations, are sayings that people can repeat to replace a negative money mindset with a positive one. They can express a financial goal or good habit. Some believe that saying or writing these words can help banish negative self-talk and instead create an optimistic outlook that can encourage good money management and financial wellness.

Another aspect of financial health is choosing the right banking partner. 

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FAQ

How do I choose the best money affirmation for me?

Choosing the right money affirmation is a very personal decision. You may want to opt for (or write) a money affirmation that counteracts negative thoughts. So if you often tell yourself, “I will always be in debt,” a good money affirmation might be, “Every day, I am moving towards eliminating debt.” 

What is the affirmation number for money?

Each person can decide if they believe in affirmation numbers (or “lucky numbers”) for money and, if so, what it might be. Some think the number eight is associated with building wealth (say, in numerology), though it’s unlikely to find scientific proof of such a connection.

How often do I need to say my money affirmations?

Money (or wealth) affirmation fans say you should repeat the phrases as often as you need to so that you believe in them and they can help guide your financial habits. That could mean saying your money mantra daily perhaps. If you choose to write down your money mantras, the general advice is to post your affirmations where you will see and read them often. A couple of good spots might be on the refrigerator or mirror. 

When is a good time to repeat money affirmations?

An ideal time to repeat money affirmations can be when you’re feeling overwhelmed or stressed about your finances. For instance, if your credit card payment is late, rather than sinking back into negative self-talk, you could repeat your money mantra. Doing so might help you accept your current burden and refocus on your goals. Other people may find they like to repeat money mantras in the morning, to encourage a positive money mindset all day.


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What Is Loan Stacking?

Loan stacking is the process of applying for multiple loans within an extremely short timeframe to get a lot of money fast. It typically occurs with borrowers applying online for funding, and both individuals and businesses may pursue this path to secure cash.

While loan stacking is not technically illegal, it can lead borrowers to take on more debt than they can comfortably repay — potentially wreaking havoc on their credit scores. Meanwhile, lenders stand to lose a lot of money via loan stacking as borrowers may default on these loans at a higher rate than with single loans. For this reason, some have policies against it written into their loan terms.

In short: Loan stacking is probably not a smart move, even if you’re trying to shore up your finances quickly. Here’s a closer look at this practice.

Defining Loan Stacking

Loan stacking is defined as taking out multiple loans in a short period of time in order to access large amounts of money. It typically happens via securing loans online.

While many consumers have multiple personal loans or credit cards, loan stacking is different because of the speed with which the loan applications are submitted and processed.

Some people and businesses may be legitimately trying to secure multiple loans (say, they’ve discovered they can’t increase the amount of a personal loan they already have and urgently need to fund major home repairs).

However, others who engage in loan stacking may have no intention of ever repaying the loans; they just want access to large amounts of cash fast. This can constitute loan stacking fraud.

How Loan Stacking Works

Given the speed with which many online lenders approve applications — faster, sometimes, than hard inquiries can show up on a credit report — borrowers may be able to secure multiple loans from different lenders in quick succession. When that happens, the borrower may be approved for large amounts of credit they might not otherwise have qualified for. (A lender might have declined to offer a loan if the applicant’s credit report had reflected the other loans being sought.) With a significant amount of debt secured, these borrowers could default on one or all of their loans.

That said, many financial institutions are wise to the ways of loan stacking and may include language against it in the fine print of the contract you sign to apply for the loan.

That means that if you’re engaging in loan stacking, you’re breaking the contract — which could nullify it or, in extreme cases, constitute fraud.

Recommended: What Are Personal Loans Used For?

Risks and Consequences of Loan Stacking

If you feel you need a lot of money in a short amount of time, loan stacking can be tempting. However, there are some serious risks and consequences to consider.

•   Increased debt burden. Obviously, if you borrow a lot of money, you’re going to owe a lot of money — more than you may be reasonably able to pay off. This can add to your financial stress and keep you from other goals, such as saving for the down payment on a house.

•   High interest costs. Most loans aren’t free. Even if you qualify for interest rates on the lower end of the spectrum, when you have multiple loans at the same time, interest can quickly add up.

•   Potential default. If you fail to repay your loans on time, they may go into default and be sent to collections. This can negatively impact both your credit score and your peace of mind. Collections agencies are within their rights to call you daily and may do so until they’re instructed otherwise in writing.

•   Negative credit impact. Aspects of loan stacking can negatively affect your credit score over time. (The amount you owe, for instance, accounts for 30% of the calculation. Getting a stack of loans will send debt higher and likely lower your score.) High interest charges and surging debt levels can cause you to make late payments or miss them altogether, further harming your three-digit number.

In these ways, loan stacking can have significant negative implications for your financial and overall wellbeing.

Recommended: Understanding Personal Loan Interest Rates

Legal and Ethical Considerations

Along with the negative ramifications on your financial standing and credit report, there are also legal and ethical reasons to think twice before loan stacking.

•   As mentioned above, some lenders have explicit policies against taking out multiple loans at the same time. While loan stacking may not technically be illegal, this means that you’d be breaking the lender’s rules.

•   If you carefully read the fine print on the application, you may see that you’re required to disclose any other loans (such as a personal loan or a HELOC) that you’ve recently applied for or taken out. These disclosure requirements mean if you fail to share this information, you may be committing application fraud. At the very least, the contract may be rendered null and void if the lending company discovers what you’re doing.

•   In more serious cases (say, in which other crimes occur), fines, legal fees, and even jail time could be involved.

Alternatives to Loan Stacking

If you’re making the wise decision to avoid loan stacking, there are alternatives that could help you get the financial relief you need without the risks that this tactic carries.

•   Debt consolidation loans. If the reason you’re looking to borrow money is to pay off other money you’ve borrowed, debt consolidation might be the right answer. This involves taking out a new personal loan to consolidate your debt (or balance transfer credit card) to pay off your existing debt and simplify your life by making just a single payment each month.

This financial move, if it involves personal loans, may offer the added bonus of lowering your overall interest rate.

•   Credit counseling. Bad credit habits are unlikely to resolve themselves without intervention. This means that even if you successfully pay down your debt, you might find yourself right back in the same “I owe too much” place in a few months or years. Credit counseling can help you get out of debt and ensure you avoid it going forward.

This service is often offered for free or for a low fee by nonprofit organizations. A certified counselor can help you assess your situation and take steps to better manage your money.

•   Negotiating with current lenders. Even if they don’t advertise it, many lenders will negotiate with you to help lower your monthly payments or extend the time you have to repay your loan. Extending a loan can involve paying more interest over the life of the loan, but it may be a wise move if money is tight and you are struggling with debt.

•   Exploring other funding sources. Taking out a single, large personal loan might be a better idea than loan stacking. In addition, you could also look into borrowing funds from friends and family or peer-to-peer (P2P) lending, a method of borrowing in which people borrow and lend money to one another without a bank being involved.

If you are considering loan stacking, it may be a smart step to consider these alternatives and find one that best fits your current situation.

Recommended: How to Apply for a Personal Loan

The Takeaway

Loan stacking — taking out multiple loans online from different lenders in a short timeframe — can be a dangerous move that can worsen a bad financial situation. It can lead to considerable debt and hefty interest charges, harming your credit score and your financial and emotional status.

If you need cash quickly, other options, such as securing a single personal loan, may be a better path forward.

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


SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Is loan stacking legal?

While loan stacking is technically not illegal, some lenders may have explicit policies against it. This means you may not be qualified for additional credit or borrowed funds if the lender sees that you’ve recently successfully applied for another loan. Additionally, using someone else’s name or personal information to apply for a loan is identity theft or identity fraud, which is a crime.

Can you stack personal loans?

While it’s certainly possible to have more than one personal loan, loan stacking on purpose can backfire. If you borrow more than you can afford to pay back on time, you can tank your credit score. Furthermore, these days, many lenders are wise to loan stacking, and they may not approve your application if they see another recent hard credit check on your file.

What are the risks of loan stacking?

Loan stacking can quickly put the borrower deeply in debt, potentially making it impossible to repay the loans in a timely fashion. This, in turn, can be devastating for their credit score and financial wellbeing. Additionally, since many lenders see loan stacking as a risk to their business, some have beefed up their underwriting process to prevent loan stacking, so you may simply be denied. Finally, if you falsify any information on your loan application or apply for multiple loans with no intention of repaying them, you may be guilty of application fraud, which can lead to fines and other consequences.


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


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 .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.


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.

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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Are Personal Loans Considered Taxable Income?

Personal loans are usually not considered income and are therefore not taxable. Rather, they are viewed as a kind of debt. There are, however, some exceptions to this rule which create situations in which a personal loan could be taxable.

Read on to learn the details about personal loans and their tax implications.

What Constitutes Taxable Income?

Taxable income is money that’s been earned and is subject to tax, such as your salary, investment income, and even lottery winnings. To figure out your taxable income, you take your gross income and subtract your exemptions and itemized or standardized tax deductions.

Definition and Examples

Taxable income falls under two main camps. Taxable income can include earned income, such as:

•   Wages

•   Salaries

•   Bonuses

•   Tips

•   Investment income

It also includes “unearned” income, such as:

•   Taxable interest earned

•   Ordinary dividends

•   Capital gains distributions

•   Alimony payments

•   Social Security benefits

•   Inheritances

•   Property income

As you can see, income can come in many different forms, such as money, goods, services, and property. Generally speaking, most income is taxable. It’s only non-taxable if it’s specifically exempted by law.

Personal Loans and Taxation

The Internal Revenue Service, or IRS, does not and cannot tax personal loans. That’s because a personal loan represents a kind of debt. The proceeds from this loan need to be repaid, and therefore personal loans aren’t considered taxable income.

That means they aren’t taxed — for the most part — and it doesn’t matter how small or large a loan may be or what you use the proceeds for. Neither the principal nor the interest paid can usually be taxed.

What’s more, there’s also zero impact on taxation whether you’ve taken out an unsecured personal loan or a secured one.

Worth noting: While personal loans aren’t usually taxable, they’re not tax-deductible either. (This differs from the situation with mortgages and student loans, in which cases the interest is typically tax-deductible.)

To sum it up, your personal loan usually won’t impact your tax situation in any way. In turn, you probably don’t need to note the loan on your tax returns. No additional forms need to be filled out and added to your return.

Recommended: Using a Personal Loan to Pay Off Credit Card Debt

Exceptions and Special Cases

While personal loans aren’t generally taxable, there is an exception. If the lender cancels the debt or gives you loan forgiveness, the proceeds of the loan then fall under cancellation of debt (COD) income. Once proceeds from the loan are forgiven, it then can be taxed.

While loan forgiveness isn’t too common (except for student loans), a portion of your personal loans can be nixed if you reach an agreement with the lender where you’re no longer responsible for paying back the remaining balance.

If you’re financially stretched thin and unable to repay the remainder of your loan, you can receive forgiveness in a couple of ways:

•   One, you enter debt settlement, where you negotiate with your lender by paying less than the amount owed.

•   Another way you can be cleared of your debt is if your lender has a hardship program. If you meet the eligibility requirements, the lender might wipe part or all of your remaining debt.

There are a few instances where canceled debt usually isn’t taxable, however:

•   A loan that’s forgiven by a private lender (i.e., family, friend) or an intra-family loan (aka a loan between two family members) is forgiven as a gift. Because these are treated as gifts, they are exempt from the gift and estate tax up to certain limits. In 2024, up to $18,000 in gifts can be excluded from taxation per donee (or recipient).

•   Canceled debt from a Chapter 11 bankruptcy (which is a legal process, when a person or entity declares they cannot pay creditors)

•   Canceled debt from insolvency (defined as a financial state in which a person is unable to pay bills)

Recommended: Guide to Insolvency vs. Bankruptcy

Reporting Loans on Tax Returns

Generally, you won’t need to report money you get from loans on tax returns — that is, unless it gets canceled or forgiven.

Getting into the weeds, the IRS usually requires you to report the canceled amount to the IRS on Form 1099-C, which is used for cancellation of debt (COD). To fill out the form, you’ll need to provide the following information:

•   Creditor’s name

•   Creditor’s address

•   Creditor’s tax ID (TIN)

•   Debtor’s name

•   Debtor’s address

•   Debtor’s tax ID (TIN, which may be an SSN)

•   Date of loan forgiveness

•   Amount cleared

•   Interest paid on the canceled debt

Recommended: Personal Loan Calculator

Avoiding Tax Pitfalls with Personal Loans

As mentioned, usually your personal loans won’t impact your tax situation in any way. Uncle Sam doesn’t need to know when you take out the loan or when you pay off your balance. Neither the lump sum you receive in the form of a personal loan nor the interest you pay is taxable. What’s more, they aren’t typically tax-deductible either, meaning you won’t receive any tax breaks.

To steer clear of potential tax pitfalls, consider following this advice:

•   Don’t report the proceeds of the loan or how much you paid off in a given year. Remember: A personal loan isn’t considered income. It’s money you owe and need to be repaid.

•   Money you pay back on a personal loan isn’t tax-deductible — neither the principal nor the interest.

•   If part or all of the remaining balance of the loan is forgiven or canceled, you’ll likely need to pay taxes on the forgiven amount. A form 1099-C (COD) will need to be completed by the tax deadline for individual tax returns.

•   Know that in some instances, you might not have to pay taxes on the forgiven amount of a personal loan. For instance, if the personal loan was from a friend or family member and forgiven as a gift, taxes won’t likely be due up to gift tax limits. The same can hold true if you filed Chapter 11 bankruptcy or are insolvent; you may not have to pay taxes.

•   If you have any questions, consult with a tax professional for guidance and one-on-one advice.

Speaking of taxes, if you owe a sum, you can use a personal loan to pay off taxes. However, it can be a smart idea to explore other options, such as an IRS payment plan, as well.

When comparing options, you’ll want to look at the personal loan interest rate, fees, monthly payment, and total cost of a personal loan to see if it fits your budget.

The Takeaway

For the most part, a personal loan doesn’t count as taxable income. It’s a debt, so you don’t have to fret over owing the IRS anything on the interest or the principal. There are a few exceptions, such as personal loans that are forgiven by a private lender or canceled due to, say, bankruptcy or insolvency.

Shopping for a personal loan? See if a loan from SoFi could be the right choice for you.

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


SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Do I report a personal loan as income on taxes?

Personal loans don’t count as income, so they don’t need to be reported to the IRS for tax purposes. To be a bit more specific: Because proceeds from personal loans aren’t taxable, the interest paid or the amount paid back don’t need to be reported to the IRS.

What if a personal loan is forgiven or canceled?

If a personal loan is forgiven or canceled, you’ll most likely need to pay taxes on the amount that’s forgiven or canceled. You’ll also need to complete and submit a tax form 1099-C (Cancelation of Debt) form as part of this process. There are some exceptions to this, however, so delve into your specific situation, possibly with a tax professional, to understand it in detail.

Can interest paid on personal loans be tax-deductible?

No part of a personal loan is typically tax-deductible, and that includes the interest paid. With other kinds of loans, such as home mortgages and student loans, the interest may be tax-deductible.


Photo credit: iStock/shurkin_son

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


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 .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.


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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Rebuilding Trust in a Marriage After Financial Infidelity

Rebuilding Trust in a Marriage After Financial Infidelity

Marriage is a wonderful but challenging institution. It is supposed to be built on trust and honesty, but infidelity does occur — and it can be devastating. That holds true for financial infidelity, too: Maybe one partner racks up a major amount of debt without disclosing it, or each spouse is keeping a secret account “just in case.” When this kind of behavior takes root and is then exposed, it can do serious harm to a union.

But if financial infidelity in marriage occurs, it doesn’t necessarily mean the partnership is on the rocks. In fact, with the right approach, a marriage can emerge even stronger. Read on to find out:

•   What is financial infidelity?

•   What are the warning signs of financial infidelity?

•   How can you prevent financial infidelity?

•   How can you recover from financial infidelity?

What Is Financial Infidelity?

Financial infidelity occurs when one person in a relationship hides, manipulates, or falsifies information about their financial position, bank accounts, or transactions. The problem can be unintentional to start with but then grow into a significant problem with severe detriment to the relationship.

For example, one spouse may offer to take care of the bills and the finances, and the other spouse trusts them to be responsible. However, the spouse who pays the bills may begin to spend excessively unbeknownst to their partner. They might spend on clothing, stocks, expensive meals out, or any other expense. The result of these splurges could do harm to both partners’ finances, even though only one is aware of it and responsible for it.

What Are Some Common Examples of Financial Infidelity?

Financial infidelity can occur in a variety of situations; whether both spouses work or one doesn’t, or whether they have joint vs. separate bank accounts. There’s no one main type.

Here’s a closer look at the different forms of financial infidelity that can occur in a marriage.

Spending Money in Secret

As mentioned above, if one partner splurges and keeps that secret, it can be a form of financial infidelity. This can impact a couple’s shared goals, such as saving for a down payment on a house. Some couples may establish how much they can each spend without having to consult the other. This can help keep the finances fair and avoid this kind of secret spending.

Hiding Debt From One Another

Not disclosing debt to a partner is dishonest and can negatively impact both spouses. For joint bank accounts and credit cards, both partners are equally liable for any debt. For this reason, it’s wise if couples discuss their financial situation early in their relationship, before they enter into a financial partnership to avoid any surprises later on.

Hiding Accounts From One Another

Some people may hide bank accounts from their partners, perhaps considering it their secret “mad money” on the side. While spouses don’t need to know everything about each other’s lives, being transparent about finances helps ensure you’re on the same page, working toward the same goals.

Lying About Income

A spouse might disclose that their income is lower than it really is. They may then use the difference for their own purposes, rather than for shared goals.

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Why Do People Commit Financial Infidelity?

There is no one reason why people lie about finances in a marriage, but many do. According to a December 2023 Bankrate survey, 42 percent of adults who are married or living with a partner have kept a financial secret from their mate. Here are three possible explanations.

•   Embarrassment. An individual who has financial difficulties might be ashamed to disclose their financial circumstances when they marry or live with another person. So rather than confess, they hide their debt, say, or a salary that’s lower than they said it was.

•   Revenge. In an unhappy relationship, one partner may tap into shared wealth to exact revenge or punish the other. This behavior, known as “revenge spending,” can increase debt (particularly credit card debt) and put a couple’s finances in a precarious situation.

•   Emotional issues. One spouse may have an addiction or psychological problem that causes them to act irresponsibly with money. For example, they might have compulsive buying behavior (CBB; which some people refer to as a shopping addiction), bipolar disorder, substance abuse, or a gambling addiction.

Recommended: Common Money Fights 

What Are the Effects of Financial Infidelity?

The most immediate effect of discovering financial infidelity is probably loss of trust. The longer-term consequences can be financial difficulties and, ultimately, divorce. Here’s a closer look:

•   Loss of Trust. When one person in a relationship or marriage withholds, hides, or misconstrues information, they abuse the trust that the person places in them.

•   Financial Difficulties. If one partner has hidden their debt or another financial minefield from the other, it can cause problems for their shared finances. They may both experience cash flow issues and have trouble paying bills and saving for the future.

•   Lower Credit Score. Acting irresponsibly with money, failing to pay bills, or falling deeper into debt will likely cause a lower credit score for the parties involved.

•   Divorce. The problems that result from financial infidelity can lead to separation and divorce.

Tips for How to Deal with Financial Infidelity

Can a marriage survive these kinds of money problems? In all likelihood, yes, provided both partners are committed to moving ahead together. Learning how to work together, and spotting early signs of trouble can help.

Watch for Signs

Look out for signs that your spouse’s financial management is suspect. For example, are they unwilling to discuss financial issues? Have you noticed a sudden change in your spouse’s spending? Do you suspect your spouse is hiding information about their finances or lying about money?

If you cannot ask questions and get an honest answer about your marital finances, there is a problem to address.

Keep Tabs on Your Finances

Keeping an eye on your finances will help you recognize problems and tackle them immediately. Do you notice that your spouse isn’t contributing to your retirement account anymore? Are you falling behind on bills and struggling to catch up? These are signals that something has changed.

Get Involved

If one spouse has been holding the purse strings, it’s probably time for that to change. A marriage is an equal partnership, and both partners should play a role in managing the finances. It’s not fair for one partner to bear all the financial responsibility and decision-making. Getting involved is also a good way to stay informed about your shared finances.

If financial infidelity has occurred, you and your partner have options. You might work it out between the two of you, or you might consult a couples counselor, try financial planning, or see a financial therapist (which combines interpersonal and money advice).

Tips for Preventing Financial Infidelity

There are steps you can take to help avoid financial infidelity in a marriage and repair missteps. A good place to start is for both partners to have a clear picture of each other’s financial position and their spending habits from the outset. But it’s never too late to sit down (with or without a financial advisor) and develop a plan for managing finances and building wealth. Here, some tactics to try:

Have Frequent Meetings

Agree to meet with your spouse regularly to discuss finances. It could be weekly at first as you get into a rhythm, sort out bank accounts and bills, develop a plan and commit to money goals, and create a budget. But once you are on sound footing with a system, the meetings could be less frequent, perhaps monthly.

Share Responsibilities of Finances

Use the meetings to hold each other accountable. Discuss how decisions should be made on purchases. How are you going to save toward retirement? Decide who will be responsible for what when it comes to the finances, but ensure that both of you are involved.

Communicate All Financials

Review everything — mortgage or rent payments, joint bank accounts, individual bank accounts, credit card payments, car loans, insurance, savings and investments, liens, and credit scores. If both of you have a clear picture of your financial situation, it’s easier to come up with ideas for cutting costs or making financial decisions.

Create a Joint Budget

Try budgeting as a couple rather than having two separate budgets. Once you have a basic spending and saving plan in place, do your best to stick to it — and be honest when you don’t. A household budget is unlikely to do its job if members of the household overspend or hide information. If spouses can start working together toward a common goal, trust can be established or, after an instance of financial infidelity, rebuilt.

Recommended: Is a Joint Account Right for You?

Address Any Issues

As the two of you go over the finances, issues are bound to arise. And money can be a very charged topic. Do your best to discuss things calmly. If one person gets defensive, consider taking a break and resuming the meeting at a later time. If you are guilty of financial infidelity, admit it, apologize, and use this as an opportunity to get back on track.

Can a marriage survive financial infidelity? Yes, it can. But each spouse must be open to working through the problem, repairing the damage, adopting a forgiving attitude, and moving forward with transparency and trust.

The Takeaway

Financial matters can be a leading cause of divorce. While partners do have the right and the need for some privacy, financial infidelity is a serious issue. If one partner is hiding money, debt, or income information from the other, it can feel like betrayal and can negatively impact both spouse’s financial futures.

Financial infidelity does not, however, have to mark the end of a marriage. It can be the start of a stronger commitment to work together toward achieving your shared financial goals.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with 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.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Can marriages survive financial infidelity?

A marriage can survive financial infidelity if both partners are committed to rebuilding the trust that has been lost. This requires accepting responsibility. Going forward, both partners need to develop a plan to communicate openly and regularly about finances and to work toward mutual goals. Lastly, both should play a part in managing finances.

Is financial infidelity a leading cause of divorce?

Money is often cited as one of the leading causes of stress in a marriage and one that can lead to divorce. Money touches every aspect of our lives and dictates how we live, so it is an extremely sensitive and personal topic, which can trigger major issues in a relationship.

Is financial infidelity the same as cheating?

Financial infidelity can have the same impact as an affair; both destroy trust in a relationship. Whether one or the other is worse depends on your point of view. Both can be overcome, and trust can be rebuilt with commitment and the right approach.


Photo credit: iStock/Stadtratte

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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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