Exploring Student Loan Forgiveness for Nonprofit Employees

Public Service Loan Forgiveness. The unicorn of student debt.

Its very existence is debated. Thousands of federal student loan borrowers pursue it. And for those who could prove they’d decided their lives to doing (the public) good—and followed all the eligibility rules—it was supposed to be attainable.

So far, however, the approval process has been grindingly slow—and difficult—which hasn’t helped borrower skepticism. The Department of Education’s Office of Federal Student Aid reported that of the 110,729 applications processed as of June 30, 2019, 100,835 had been denied—a whopping 91%.

And of the over 90,962 unique borrowers applying, only 1,216 have been accepted—about 1.3%. Although the numbers are improving, it seems that only the most tenacious and patient seekers will survive. The specifics are daunting, follow-through is a must, and a number of applicants don’t qualify from the start.

So is it even worth it to apply? Misinformation abounds. Here are some helpful things to know as you explore your options.

What Is the Public Service Loan Forgiveness Program?

The Public Service Loan Forgiveness Program, often referred to as PSLF, was introduced in October 2007 as a way for those working for a qualifying not-for-profit or the government to obtain forgiveness for their federal student debt after making a decade’s worth of payments. The program took effect in October 2007.

Under the plan, those who have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer may have their remaining balance on a federal direct student loan zeroed out.

That’s a lot of qualifying to be done, so let’s break it down.

What’s Considered Full Time, Qualifying Employment?

For starters, it’s not about the specific job you have, it’s about your employer. The following types should pass muster:

•   Government organizations at any level (federal, state, local or tribal)
•   Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
•   Other types of not-for-profit organizations that are not tax-exempt under Section 501(c)(3), if their primary purpose is to provide certain types of qualifying public services
•   AmeriCorps or the Peace Corps (if you’re a full-time volunteer)

Student loan forgiveness is for eligible not-for-profit and government employees, so if you’re a freelancer or employed by an organization that is working under contract, that won’t count.

To be considered “full time,” you must work at least 30 hours per week. Or, if you work more than one qualifying part-time job at the same time for an average of at least 30 hours, you might meet this standard.

But any time spent on religious-type work (instruction, worship services, or any form of proselytizing) will not be included towards the 30 hours.

What Kinds of Loans Qualify?

Here’s where it starts getting complicated. OK, more complicated.

Only non-defaulted loans received under the William D. Ford Federal Direct Loan Program are eligible for PSLF. If you received a loan under the Federal Family Education Loan (FFEL) program or the Federal Perkins Loan program, you may be able to combine them into a Direct Consolidation Loan, which does qualify, but there’s a catch: Only the payments you make on your new consolidation loan will be applied toward the 120 payment requirement. The FFEL and Perkins payments you made before that won’t count.

And if you combine Direct loans and other federal loans when you consolidate, you’ll lose credit for the payments you already made on the Direct loans.

What Qualifies as a Monthly Payment?

Any payment made after Oct. 1, 2007 may qualify, as long as it’s for the full amount on the bill, is under a qualifying repayment plan, and was made on time (no later than 15 days after the due date) while you were employed full time by a qualifying employer.

Payments made while you were in “in-school status,” under a grace period, or in deferment or forbearance won’t qualify.

But here’s a bit of good news: Your 120 qualifying monthly payments don’t have to be consecutive. If you were out of work or worked for a for-profit company for a while, you won’t lose credit for the qualifying payments you made.

And there are special rules for lump-sum payments made by AmeriCorps or Peace Corps volunteers.

What’s a Qualifying Repayment Plan?

It’s important to know this: Even though the 10-year Standard Repayment Plan qualifies for PSLF, you aren’t actually eligible to receive forgiveness unless you enter into one of the income-driven repayment plans.

That’s because if you’re on a 10-year repayment plan, and you make all the payments, you won’t have a balance left to forgive at the end of that period. So if you plan to pursue PSLF, it may be in your best interest to switch to an income-driven plan ASAP.

What Does it Take to Apply?

First thing’s first. You won’t submit your PSLF application until after you’ve made your 120 qualifying payments. What you will need to complete first is the Employment Certification for Public Service Loan Forgiveness form annually or whenever you change employers.

In the ideal case, the government will use that information to let you know for sure that you’re making qualifying payments. (If you don’t stay on top of this, you can submit an Employer Certification form when you apply for forgiveness.)

After you submit an Employment Certification form and your loans have been transferred to FedLoan Servicing (if it wasn’t already your servicer), your form is reviewed and you’ll receive notification of the number of qualifying payments you’ve made. You can track that number by logging into your FedLoan account or by looking at your most recent billing statement.

When you have made enough qualifying payments, you can file your PSLF application . But you aren’t through yet: You must be working for a qualifying employer at the time you apply for forgiveness and when the remaining balance on your loan is actually forgiven. (We know—it’s complicated. Definitely review the Department of Education’s website to get all the details.)

What Happens if the Application Is Denied?

Don’t panic. You may still be eligible for forgiveness if you were denied because payments weren’t made under a qualifying repayment plan.

The U.S. Department of Education is currently offering Temporary Expanded Public Service Loan Forgiveness (TEPSLF) opportunity. (The word “temporary” means it won’t be around forever and it may be just as difficult to get a request approved as PSLF.)

You can get more answers at the Office of Federal Student Aid’s Q&A page . Or you can call FedLoan Servicing at 800-699-2908.

Pros and Cons of PSLF

Some of the basic pros and cons of going for PSLF are fairly straightforward.

If you took on tens of thousands of dollars in federal student loans, the prospect of losing at least a portion of that debt is likely huge.

And, as a bonus, the IRS isn’t going to ask you to pay federal income taxes on the loan amount forgiven under the PSLF program. (That isn’t the case with all student loan forgiveness programs.)
The big drawback, of course, is the time and effort required for the chance to get a PSLF application approved.

And if, after all that, you don’t receive forgiveness—because the government changes the rules, because you decided to go another direction with your career, et cetera—you may have missed out on other opportunities to pay down your debt.

Federal student loans come with lots of benefits and protections, but with an income-driven repayment plan, you’ll be looking at a 20- to 25-year loan term (depending on the federal student loans you have).

With income-driven repayment, your payments are lower, it’s usually because the loan term is longer, not because your interest rate has improved. Your interest rate will stay the same under this plan.

Applying for Public Service Loan Forgiveness could be worth the challenge, if you’re pretty sure you’ve got what it takes—both in mental fortitude and when it comes to fulfilling the requirements.
But it isn’t the only option for getting student debt under control.

Refinancing Your Student Loans

If you work through a private lender like SoFi to consolidate and refinance your student loans, you may be able to get a competitive interest rate and a better fit of loan term.

But it is important to remember that if you refinance with a private lender you will lose federal benefits such as Public Service Loan Forgiveness, income-driven repayment plans, and deferment.

With SoFi, there’s no prepayment penalty, and SoFi offers unemployment protection for qualifying borrowers who might run into a rough patch.

And with SoFi, you can combine all your federal and personal student loans into one manageable payment, so you can keep track of your debt.

Interested in refinancing with SoFi? Applying online is easy and takes just minutes.

SoFi Student Loan Refinance
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.


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Can I Pay off a Personal Loan Early?

Perhaps you’ve gotten a raise or a bonus, and you want to pay off the remaining balance on a personal loan. Is that possible? The short answer is “yes” and, in many cases, it can be a wise decision.

After all, when you get extra cash, it can often be beneficial to pay off debt. But, if there’s a prepayment penalty, then this loan payoff may be more costly than what you’d expect.

A prepayment penalty is a provision in a loan agreement that states a penalty will be charged if the loan is paid off within a predetermined time frame, say two years.

This post will review ways to find out if your loan has a prepayment penalty, and how the presence of this penalty could affect your decision about whether or not to pay off the personal loan early.

Also included, is information on avoiding a prepayment penalty in the first place, and suggestions for steps you can consider if you want to pay off a loan that has one.

Overview of Prepayment Penalties

It may sound strange that a lender would include this kind of penalty in a loan agreement in the first place.

The reason why it sometimes happens, though, is because the lender may want to ensure you’ll pay a certain amount of interest before the loan is paid off. It is an extra fee that, when charged, helps lenders recoup more money from borrowers.

You can find out if you’d be charged with a prepayment penalty by looking at the loan agreement you signed with the lender.

If you have one, the penalty could be in effect for the entire loan term or for a portion of it, depending upon how it’s defined in the loan agreement.

Types of Prepayment Penalties

Figuring out what your prepayment penalty assessment is can help you weigh the pros and cons of paying off your loan early. First, you can always call the number on your monthly billing statement and ask the servicer what the prepayment penalty assessment is. To confirm this information or to calculate the penalty, here are some suggestions:

•   Interest costs: In this case, the lender would base the fee on the interest you would have paid if you made payments over the total term. So, if you paid your loan off one year early, the penalty might be 12 months’ worth of interest.
•   Percentage of your remaining balance: This is a common way for prepayment penalties to work on mortgages, for example, and you’d be charged a percentage of what you still owe on your loan.
•   Flat fee: Under this scenario, you’d have to pay a predetermined flat fee for your penalty. So, whether you still owed $9,000 on your personal loan or $900, you’d have to pay the same penalty.

Avoiding Prepayment Penalties

If you don’t want to be saddled with this penalty—and you haven’t yet taken out your loan—then you should look at whether the lender you’re considering charges one or not.

If you’ve already taken out a loan and it does have a prepayment penalty, there are some options. First, you could simply decide not to pay the loan off early.

This means you’ll need to continue to make regular payments on the loan, rather than paying off the balance sooner, but this will allow you to avoid the penalty fee. You could also talk to the lender and ask if the penalty could be waived, but there is no guarantee that this strategy will succeed.

If your prepayment penalty may not be applicable throughout the entire term of the loan, you can determine when the penalty expires. If you’re certain that it already has expired, then you may be able to pay off your remaining balance without this fee.

Or, if the penalty will no longer be applicable in the near future, you could pay off the personal loan once there is no longer a prepayment penalty.

Here’s one more strategy—calculate how much you have remaining in interest payments on your personal loan and compare that to the prepayment penalty. You may find that you’ll still save more by paying the loan off early, even if you do have to pay the prepayment penalty.

If you’re in the market for a personal loan, or will be in the future, and you don’t want a loan with a prepayment penalty, ask your potential lender whether one will be included in the agreement. Thanks to the Truth in Lending Act , lenders must provide you with a document that lists all loan fees, and this includes any prepayment penalties.

Types of Personal Loans

In general, there are two types of personal loans—secured and unsecured. Secured loans are backed by “collateral,” which could be a car, a house, or an investment account, for example. Unsecured personal loans, on the other hand, are backed only by the borrower’s creditworthiness, with no asset attached to the loan.

You might hear unsecured personal loans referred to as “signature loans,” “good faith loans,” or “character loans.” In general, these are installment loans where you pay back the amount you borrowed at a certain interest rate over a predetermined period of time, called the term.

Personal Loan Uses

Personal loans can typically be used for a wide range of personal reasons, including:

•   consolidation of credit card balances into a lower-interest loan
•   debt consolidation, which can include credit card balances
•   medical expenses
•   home renovation or repair projects

Let’s say that you’re thinking about consolidating credit card debt into one personal loan. Typically, you’d first total up what you owe on credit cards, and borrow enough money on an unsecured personal loan to pay off all of those credit card balances.

This means you would now make payments on one single personal loan, ideally at a rate that would be lower than the combined rates on your credit cards.

To find out roughly how much you could save, you could use a Personal Loan Calculator. In general, the better credit history you have, the more likely that you’ll be able to get a competitive rate on a personal loan.

Possible benefits of consolidating your credit card debt may include:

•   It’s more convenient to make just one monthly payment, versus several of them, and this can make it less likely that you’ll miss making a payment.
•   Personal loans can have lower interest rates than credit cards, which can save you money in interest.

It can also make good sense to use a personal loan for home improvements, as just one more example. Benefits of doing so include that you can typically expect to pay less in fees and interest when compared to a credit card.
Another plus: if the personal loan is unsecured, your home is not on the line as collateral for the loan.

While there are benefits to borrowing a personal loan, it might not always be the right financial move for everyone. Personal loans offer a lot of flexibility, but if not borrowed wisely, it can tempt borrowers into a cycle of debt.

For example, when using a personal loan to consolidate credit card debt, it could be appealing to begin charging on the now open credit card limit. But doing so can lead to even more debt, as you’d be paying off the credit card and the personal loan.

The interest rates on personal loans may not be as competitive as other, secured loans. While personal loans can have lower interest rates than credit cards, those rates may still be higher than other secured installment loans like a home equity loan or home equity line of credit (HELOC).

Interest rates will likely vary from lender to lender, as well as based on a borrower’s personal financial history, so it’s important to shop around to find the best interest rate and terms for you.

There may also be fees in addition to prepayment penalties. Some personal loans also charge origination fees. This is the fee charged by the lender to compensate for the cost of processing the loan.

Depending on the lender, the fee is usually a percentage of the loan, either taken out of the amount borrowed, or charged on top of the borrowed amount. Policies will likely vary by lender, so be sure to thoroughly read the details of the loan.

Additionally, personal loans can be an entryway to scams . Be sure to fully vet the lenders to avoid any financial malice. Look for lenders who are registered in your state and have a secure website. Other signs of a scam can be a lender asking for upfront payment or guaranteeing approval without reviewing your credit history.

Personal Loans at SoFi

If you’re looking for an unsecured personal loan with no prepayment penalties, consider SoFi. There are no application fees, no origination fees, and no hidden fees.

You can use them to consolidate credit card debt, make home improvements, relocate, repair your vehicle, make a major personal purchase and more.

Ready to explore SoFi personal loans? Here’s how to get started!

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s

SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.


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The Bottom Up Investing Approach

The types of strategies or philosophies investors use to grow their portfolios might be as varied as the types of investments they have to pick from—growth vs. value stocks, conscience-based investing or industry trends, to name a few.

More or less, however, stocks are commonly analyzed two different ways: top-down vs. bottom-up investing.
The top-down strategy starts with researching the big investing picture, including world economic news, market trends and other macroeconomic indicators.

Stocks are chosen based on how investors believe the market as a whole will perform. Individual stocks might play a role, but they aren’t the central focus. Mutual funds and exchange-traded funds (ETFs), that choose a group of stocks based on common factors, are more popular with top-down investors.

The bottom-up strategy focuses on microeconomic factors that influence individual businesses.

Investors research individual companies they believe to be good investments by digging deep into their financial reports, historical trends, profit margins and customer base.

Although industry trends and market factors do play some role, bottom-up investing is about picking companies that an investor believes will perform well no matter what the market does.

Theoretically, bottom-up investing is the notion that a handful of solid, handpicked companies will bring better returns over the long run than jumping on bandwagons or trying to time the market.

Strategically, it’s a long-term, buy-and-hold proposition. And philosophically, it’s making a well-educated bet on a company’s future profits based on thorough research of its inner workings and history.

How Bottom-Up Investing Works

A bottom-up investment strategy starts with research into individual companies, but that’s a lot easier than it sounds when there are around 630,000 publicly traded companies around the world.

To narrow down that field, some investors begin with public companies that either have long and successful track records or that they already know and love. From there—and thanks to the web—the amount of information they can gather is virtually limitless.

Useful Documents for Investment Research

In the United States, companies who trade on the stock exchanges must file a number of documents with the U.S. Securities and Exchange Commission (and the public) that outline a number of financial benchmarks, such as profit margin, cash flow, and income. All public documents held by the SEC are searchable via its EDGAR database .

Here are some of the most common:

•   Registration Statements: These documents are the first to be filed when a company wants to undergo an initial public offering (IPO), or “go public.” They include a prospectus, which summarizes the organization’s planned share quantity, size and price, and details on the company’s history, management, operations, current financial state and any insight into future risk.
•   10K Report: This is a company’s official (and lengthy) annual report , and it’s due to the SEC within 90 days of the end of its fiscal year. It lays out the company’s financial growth and change over the previous 12 months, as well as information about products or services, operations reviews, major markets or headlines. Often they’re accompanied by an earnings call, where the business’ top financial executive gives more details about the reports and takes questions from business reporters.
•   10Q Report: This truncated version of the 10K is filed quarterly, so it fills in the gaps between annual reports. They’re a bit less formal than the 10K reports and often review not only what’s happened in a company during the past three months.
•   Forms 3, 4 and 5: Company executives who become “insiders”—directors, officers, or anyone who holds more than 10% of any class of a company’s securities, for example—are required to report any transactions they make regarding their company’s own stock. Form 3 is for new insiders and must be filed within 10 days of the appointment, Form 4 documents actual securities transactions, and Form 5 catches any transactions that didn’t meet the threshold for Form 4. For some investors, these forms give good insight into how the company’s executives feel about their own position in the market.
•   Proxy Statements: This form is how investors get an inside look at a company’s executive and management salaries, potential conflicts of interest, and other perks of life in the C-suite. Shareholders aren’t allowed to vote on members of the board or approve other company actions until it’s filed with the SEC.
•   Schedule 13D: If any individual or entity acquires more than 5% of a company’s shares, this form introduces them to investors and includes information like the major shareholder’s contact information, background (including criminal), the type of securities they purchased, how they purchased them, and their relationship to the company. Sometimes a 13G, an abbreviated version of the 13D form, can be filed instead, but this depends on specific circumstances.

Crunching the Numbers

An annual report is pages and pages (and pages) of pie charts, graphs, equations, and numbers, all in small font. It can be dizzying just to look at, much less to decipher.

To separate the most important information, investors employ a number of investment ratios and key indicators when evaluating a stock.

Some key ratios and values include:

•   Price-to-Earnings (P/E) Ratio: The company’s market price divided by its earnings per share. It can predict how many years it will take for a company to have enough value to buy back its stock.
•   Price-to-Sales (P/S) Ratio: A company’s market capitalization (the dollar value of all the company’s outstanding stock) divided by its revenue. Ideally, the P/S ratio should be one, or as close to one as possible. If the value is lower than one, that indicates an even stronger P/S ratio.
•   Earnings per Share (EPS): Net income, minus any preferred stock dividends, divided by the total number of outstanding shares of common stock. An EPS on the rise over time means the company might have more money to either distribute to its shareholders or re-invest into the business.
•   Return on Equity (ROE): Find this number by dividing the company’s net income by shareholder equity, times 100. For many analysts, ROE is a major indicator of a company’s growth in profit over time.
•   Profit Margins: These come in three varieties: gross, operating, and net. Each measure the company’s profitability based on whether certain figures, such as operating costs and overhead expenses, are considered. These numbers give insight into a company’s efficiency and how it uses its resources.
•   Future Expected Earnings: This formula which considers annual dividends and their growth rates, can’t predict the future, but it can create an educated guess on where a company’s stock might go, especially one that has historical data to draw from.
•   Financial Statements: Analyzing financial statements can provide important insight into how a company operates. Common documents included in a company’s financial statements are; a balance sheet, which provides a snapshot of assets, liabilities and shareholder equity as they currently stand; a profit-and-loss statement (P&L), which looks at money coming in vs. money going out; and a cash-flow statement, which is a key indicator of whether the company is over or undervalued (a high valuation with little cash flow is a red flag.)

Yep—that’s a lot of math. But taken together, the numbers can paint a solid picture of not only a company’s past and current performance, but also it’s potential for the future as well. All of these factors can help investors as they decide which stocks to invest in.

Business News

Especially in today’s online-first world, all the good valuation in the world can’t help a company if its CEO is the star of a scandalous viral video.

For this reason, it’s just as important to keep an eye on the outside factors involving companies of interest, including personnel changes, headlines, new products or services, or marketing campaigns.

The financial world has its go-to publications, including the Wall Street Journal, Bloomberg and Investor’s Business Daily, along with a host of industry-specific publications.

Online tools employ tech to help investors play around with different scenarios, and even setting up a simple Google search on a business name can help interested investors stay in the loop.

Bottom-Up Investing: An IRL Example

Here’s a hypothetical example of how bottom-up investing works in action.

Jane is a loyal follower of The Widget Co. She’s used its products for years, is brand loyal and thinks the CEO is a visionary leader. She’s interested in purchasing Widget stock, but knows that being a shareholder is a lot different than being a consumer.

Although she likes what she has seen so far, she wants a peek behind the curtain—who holds leadership positions, its operational philosophy and how it manufactures those products she loves so much.

Her first step is Widget’s financial documents, where she looks for things like consistent upward trends in stock prices and a favorable P/E ratio. She compares Widget’s trends over time to the overall market to see its individual performance against market ups and downs.

Next, she takes to the web and discovers that The Widget Co. has a YouTube channel with behind-the-scenes tours of its manufacturing processes.

She checks LinkedIn profiles and Googles the names of the CEO and senior leadership to see their resumes, and whether they’ve ever made the news—for better or worse—and sets up news alerts with the company’s name so she doesn’t miss anything new.

Finally, to get a feel for the overall industry and the public’s feelings toward the company, she checks social media. Do other people love these products as much as she does? What are the ratings and reviews? She understands that just because one sector is popular at the moment doesn’t necessarily mean that The Widget Co. is a part of that trend.

Jane likes what she sees, but after running some numbers to determine the stock’s real value, she decides that it’s a bit too expensive to buy, for now. But if it hits her target number, she’s in.

Strategies for Success

Think of top-down investing vs. bottom-up investing as the tortoise vs. the hare (with the bottom-up approach, you’re the tortoise.) Finding success with the bottom-up investing approach is a long (long) game, so it can be important to come to the table with a double dose of patience.

It’s one reason long-term stock picks are often referred to as value stocks vs. growth stocks. Growth-stock investors go for the big risks and the big wins, while value investors (also called income investors) take a more calculated approach in hopes of steady growth over the long term.

One thing bottom-up investing is not, however, is set-it-and-forget-it. Things do change over time, and even the most seasoned companies can endure hardships—especially in the face of a changing economy and changing tech (brick-and-mortar shopping, for example.)

For that reason, it’s important for a bottom-up investor to periodically check in on their stock picks to ensure they’re still a good decision.

Things to Consider

No matter which type of investing approach is taken, it’s important to consider risk tolerance. How much would it be okay to lose if the market crashed?

Are you more fight or flight? For some investors, any dip in the stock market scares them into pulling out, and potentially missing out on even bigger returns in the future.

It’s also important to keep in mind that even the most solid companies now might see trouble in the future. What are the signs that a company is no longer a good investment?

Changes like a slowdown (or full stop) in profits, the accumulation of debt or cutting dividends are all potential watch-out for trouble, as well as any type of investigation.

Get Started With Stock Bits

Imagine finding the perfect stock, and then experiencing sticker shock at the price of one share.

That used to be the minimum buy-in for a stock purchase, but just like ETFs have made it possible to invest into little bits of business at a time, fractional shares allow investors to buy just a portion of even the most expensive stocks out there.

Fractional Share Investing allows investors to claim a sliver of their favorite stocks, for as little as $1 with no fees. Investing with SoFi Stock Bits, is as easy as opening and funding an online investing account with SoFi and selecting from stocks like Amazon, Apple, Facebook, Netflix, and Tesla.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

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.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.


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4 Tips for Paying Off a Large Credit Card Bill

You know which three little words no one wants to hear? Credit card debt. It can go from zero to thousands with one quick swipe or build at a slow creep—a nice dinner here, a trip to the mall there, a gas fill-up to get you through until payday—and before you know it you could be staring at a credit card balance that’s a lot higher than you thought it was.

For Alicia Hintz, a member of the SoFi community, the debt creep started in 2016 with a large and unexpected loss of income—the day before she and her husband were to leave on their honeymoon. (Thanks, universe.)

Prior to that, they’d been toying with the idea of selling their Minneapolis home and moving closer to family in Wisconsin. The income reduction sealed the deal. But their house needed some work to be market-ready. The total bill was more than their savings, and their income wasn’t enough to pay in cash, so to the plastic they went.

For them the improvements were worth the investment—in that they sold their house for more than they paid for it, but almost every penny of it went toward fees, commissions, closing costs, and other expenses.

Alicia’s financial journey is likely to resonate with the 41.2% of American households that carry an average of about $9,300 in credit card debt, according to data reported by the Federal Reserve for Outstanding Revolving Debt. The statistics are sobering to be sure, but here’s a spoiler alert—thanks to some smart planning and a lot of stick-to-it-iveness, Alicia’s story ends on a high note.

4 Debt Payoff Strategies

Fast forward a few months and Alicia and her husband live in Wisconsin but on a much-reduced budget. In fact, it would be six more months before they were able to get their finances back up and running—that’s a lot of time for savings to shrink and debt to grow.

1. Zero Interest Credit Card

To try and combat the loss of income, Alicia opened a 0% interest (also known as a deferred interest) credit card with plans to pay it off within the year. “Before I opened that card, I had always paid off my credit card balance each month in full,” she said in a written interview with SoFi.

But, as is life, things didn’t go as planned. “The first month I didn’t pay off my full balance made me panic,” said Alicia. And on top of day-to-day financial challenges, the couple was invited to a destination wedding in the summer of 2017. In order to get the discounted room rate, they had to pay upfront for the flight and resort—close to $5,000.

“That extra money added to our credit card debt was a steep mountain to climb,” Alicia said. “After we had to pay that, I knew it would be years to get everything paid off.”

A 0% interest promotional period on a new credit card can last as long as 18 billing cycles , which could be a long enough time to make a large dent in the card’s principal balance.

But once the promo period expires, the interest rate can climb to as much as 27% (or higher). A credit card interest calculator can give you an idea of how much that rate will affect your total balance, and it’s important to consider whether you can achieve your payoff goal before the rate rises.

2. Creating a Debt-Focused Budget

Tackling a large credit card bill isn’t likely to be easy, so an important part of the process could be a hard look at what putting extra money toward credit card bills means for the rest of your budget.

One way to approach a solid debt-payoff plan is to begin with an organized budget. You can start by taking a look at the big picture, including all of your monthly expenses as they currently stand, all your income, and all your debt.

One way to make this task easier on yourself is to download an app like SoFi Relay, which pulls all of your financial information into one place.

Your next step might be to focus on your spending. You may see obvious areas where you can cut back, or see if you can get creative to come up with some extra cash flow each month.

“We definitely tried to eat out less and cut back on shopping for clothes,” Alicia said. “But it seemed like every month there were more unexpected expenses that needed to be put on the credit card.”

From there, you can start to focus on a plan that makes credit card payments as equally important as the electric bill. And while you may not be able to pay more than the minimum on all your cards, it’s important to ensure that you pay at least that much if you want to avoid accumulating additional debt.

That’s because, while paying only the minimum can lead to compounded interest rates and larger overall balance over time, skipping payments can also lead to higher, penalty interest rates, late payment fees, and can even affect your credit.

3. The Snowball, The Avalanche and The Snowflake

The snowball and avalanche debt repayment strategies take slightly different approaches to pay down debt, and both involve maintaining the minimum payment on all but one card.

The debt snowball method focuses on the debt with the lowest balance first, regardless of interest rate, putting extra toward that payment each month until it’s paid off.

Then, that entire monthly payment is added to the next payment—on top of the minimum you were already paying. Rinse and repeat with the next card, and it’s easy to see how this method can quickly get the (snow)ball rolling.

The debt avalanche is based on the same philosophy but targets the highest-interest payment first. Getting out from under the highest debt can save a lot of money in the long run, and just like the snowball method, applying that entire payment to the next-highest-interest debt can lead to quick results.

The third snow-related strategy, the debt snowflake, emphasizes putting every extra scrap of cash toward debt repayment. This method played an active role in Alicia’s debt-elimination strategy. “If you have extra money to throw at your loans, even $20, that can still make a difference in your overall amount owed,” she said.

4. Personal Loan

As Alicia’s credit card utilization went up, her credit score went down. She decided to research her options and was ultimately approved for a SoFi credit card consolidation loan at a considerably lower interest rate than her credit cards, which along with making extra payments, helped save her money in the long run.

Now facing one personal loan payment vs. multiple credit card bills, Alicia anticipated being able to pay down the debt sooner than the three-year term she selected. And once again, life happened.

Over the course of those years, her husband took a new job, and they both changed cars, bought a house, and had a baby. They also went to two more destination weddings. This time, though, the extra expenses didn’t derail the plan.

“The loan was paid off within two years,” she said, thanks in part to a conservative budget and using an annual work bonus as a snowflake to make a dent in the balance.

From Someone Who’s Been There

One of the biggest things to remember, Alicia said, is that debt elimination doesn’t happen overnight. “Paying off debt is hard work,” she said. “Take it one month at a time. Some months are easier on your wallet, and others are not—looking at you, December!”

She suggested using the time you’re working to pay off debt to develop good budgeting and spending habits so that your post-debt finances are about saving, not spending.

And another tip from Alicia? Celebrate even the little victories. “When I paid off half my SoFi loan, I celebrated by taking a nice long bath,” she said.

When they reached zero balance, she and her husband went out for ice cream. “You can celebrate by going to the park with your kids, reading an extra chapter in a book, or finding a new series to watch,” she said. “Always celebrate your loan payoffs, no matter how small!”

SoFi personal loans also have no fees and no surprises—just a helpful way to manage your money. Additionally, applying is all online. If you’re looking for ways to consolidate your credit card debt, you can check your rate at SoFi in just two minutes.

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.
Member Testimonials: The savings and experiences of members herein may not be representative of the experiences of all members. Savings are not guaranteed and will vary based on your unique situation and other factors.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.


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What is a Financial Asset?

You’ve probably come across the term “asset” many times in your life—long before you began saving and investing.

What is an asset? Generally, the word may be used to refer to anything of value—from a great smile to a great work ethic to a great group of friends. But when you’re talking about finances, the term asset is typically used to refer to things that have economic value to a person, a company, and/or a government.

For individuals, it can mean pretty much everything they own—from the cash in their wallet to the boat in the backyard to the baubles in a jewelry box. But usually, when people talk about their personal assets, they’re referring to:

•   Cash and cash equivalents, including checking and savings accounts, money market accounts, certificates of deposit (CDs), and U.S. government Treasury bills.
•   Personal property, including cars and boats, art and jewelry, collections, furniture, and things like computers, cameras, phones, and TVs.
•   Real estate, residential or commercial, including land and/or structures on the land.
•   Investments, such as stocks and bonds, annuities, mutual and exchange-traded funds, etc.

Those who freelance or own a company also may have business assets that could include a bank account, an inventory of goods to sell, accounts receivable (money they’re owed by their customers), business vehicles, office furniture and machinery, and, the building and land where they conduct their business.

Liquid vs. Non-Liquid Assets

When you’re building your portfolio and assessing your overall financial situation, you’ll quickly realize that all assets are not created equal.

Some assets are liquid: Liquid assets can be accessed quickly and converted to cash without losing much of their value. Cash is the ultimate liquid asset, but there are plenty of other examples.

If you can expect to find a number of interested buyers who will pay a fair price, and you can make the sale with some speed, your asset is probably liquid. Stock from a blue-chip company is an asset with liquidity. So is a high-quality mutual fund.

Some assets are non-liquid or illiquid: These assets have value, but they may not be as easy to convert into cash when it’s needed. Your car or home might be your biggest asset, for example, depending on how much of it you actually own. But It might take a while to get a fair price if you sold it—and you’ll likely need to replace it eventually.

The same goes for a business. And even if you’re willing to part with a prized collection—your “Star Wars” action figures, perhaps—you’d have to find a buyer who’s willing to pay the amount you want without delay. And if something happens to affect the market for a particular collectible—think Beanie Babies—your asset may sell at a loss or not at all.

While some investments have long-term objectives—including saving for a secure retirement—liquidity can be an important factor to consider when evaluating which assets belong in a portfolio.

Many unexpected events come with big price tags, so it can help to have some cash or cash equivalents on hand in case an urgent need comes up. General recommendations suggest having three to six months’ worth of living expenses stashed away in an emergency fund—using an account that’s available whenever you need it.

Some might also consider keeping a portion of money in investments that are reasonably liquid, such as stocks, bonds, mutual funds and exchange-traded funds (ETFs). This way, ideally, the assets can be liquidated in a relatively quick timeframe if they are needed. (Although, of course, there’s never any guarantee.)

Finding the Right Asset Allocation

As an investor, you’re also likely to hear about the importance of “asset allocation” in your portfolio.
Asset allocation is simply putting money to work in the best possible places to reach financial goals.

The idea is that by spreading money over different types of investments—stocks, bonds, cash, real estate, commodities, etc.—an investor can limit volatility and attempt to maximize the benefits of each asset class.

For example, stocks offer the best opportunity for long-term growth, but can expose an investor to more risk. Bonds tend to have less risk and can provide an income stream, but their value can be affected by rising interest rates. Cash can be useful for emergencies and short-term goals, but it isn’t going to offer much growth, and it won’t necessarily keep up with inflation over the long term.

When it comes to volatility, each asset class may react differently to a piece of economic news or a national or global event, so by combining multiple assets in one portfolio, an investor can mitigate the risk overall.

Alternative investments such as real property, precious metals, and private equity ventures are examples of assets some investors also may choose to use to counter the price movements of a traditional investment portfolio.

An investor’s asset allocation typically has some mix of stocks, bonds, and cash—but the percentages of each can vary based on a person’s age, the goals for those investments, and/or a person’s tolerance for risk.

If for example, someone is saving for a wedding or another shorter-term financial goal, they may want to keep a percentage of that money in a safe, easy-to-access account, such as a high-yield online deposit account. An account like this would allow that money to grow with a competitive interest rate while it’s protected from the market’s unpredictable movements.

But for a longer-term goal, like saving for retirement, some might invest a percentage of money in the market and risk some volatility with stocks, mutual funds, and/or ETFs. This way the money can grow over the long-term, and there will likely be time to recover from market fluctuations.

As retirement nears, some people may wish to slowly shift their investments to an allocation that carries less risk.

Getting Some Help with the Mix

If you’re new to investing and feeling a little daunted by the many asset choices available, one option is to look at diversifying your allocation by purchasing ETFs or mutual funds.

These funds give investors who might not have the money or time to research and buy individual securities access to a basket of assets—different stocks and bonds—that are professionally managed.

Though investing in a mutual fund or ETF doesn’t guarantee those investments will increase in value over time, it’s a way to avoid some of the complicated decision-making and constant market-watching that can make investing stressful.

And you can use ETFs and/or mutual funds in your portfolio whether you choose to be a hands-on investor or take a more hands-off approach.

With SoFi Invest®, for example, investors can DIY their asset allocation with active investing, and pick out stocks or ETFs. Or they can or sit back and let SoFi do most of the work with automated investing.

Either way, one-on-one help is available from SoFi advisors, who can help set up a portfolio with asset allocation percentages that work toward individual goals.

The Importance of Rebalancing

Choosing that original asset allocation is important—but maintenance and portfolio rebalancing is also key over time. As people attain some of their short- or mid-range goals—paying for that wedding, for instance, or getting the down payment on a house—they may wish to consider where the money will go next, and what kind of account it should be in.

As life changes, it is possible that the original balance of stocks vs. bonds vs. other investments is no longer appropriate for a person’s current and future needs. As a result, they may want to become more aggressive or more conservative, depending on the situation.

Rebalancing also may become necessary if the success—or failure—of a particular asset group alters a portfolio’s target allocation.

If, for example, after a big market rally or long bull run (both of which we’ve experienced in recent years) a 60% allocation to stocks becomes something closer to 75%, it may be time to sell some stock and get back to that original 60%. This way, an investor can protect some of the profits while buying other assets when they are down in price.

Yes, it may be tempting to stick with a particular asset class that’s performing well—after all, the goal of investing is to make money. But too much of a good thing could become a problem if the market shifts—so there’s a reason to get back to that original percentage.

You can do your rebalancing manually or automatically. Some investors check in on their portfolio regularly (monthly, quarterly or annually) and adjust it if necessary. Others rebalance when a set allocation shifts noticeably.

With automated investing through an account like SoFi Invest®, investors can set a goal (or goals) with SoFi advisors and know that their investment account will automatically correct to the chosen percentages if they get too far out of whack.

The Value of Knowing What You Own

Knowing where your money is invested and having some idea of each asset’s value can provide a better understanding of your overall financial well-being.

Ready to do some math? Your assets are what you own. Liabilities are what you owe (debts such as credit card balances, student loans, car loans, etc.). The difference is your net worth. And tracking your net worth over time can help you make a plan to reach your financial goals.

If you’re only using your checking and savings statements to monitor your money, you may be missing out on some key information that could affect your financial planning.

Putting the big picture down on a balance sheet or tracking it with an app can help you see what you’re doing right and what might be going wrong. With this insight, you can adjust your investments and financial plan as you see fit.

The assets you accumulate will likely change over time, as will your needs and your goals. So, it’s important to know the purpose of each asset you own—as well as which ones are working for you and which ones aren’t. Here are some questions you can ask yourself as you mindfully manage your assets:

1. Are you getting the maximum return on your investment, whether it’s a savings account or an investment in the market?
2. How does the asset make money (dividends, interest, appreciation)? What must happen for the investment to increase in value?
3. How does the asset match up with your personal and financial goals?
4. How liquid is the investment? How hard would it be to sell if you needed money right away?
5. What are the risks associated with the investment? What is the most you could lose? Can you handle the risk financially and emotionally?

If you aren’t sure of the answers to these questions, you may wish to get some help from a financial advisor who, among other things, can work with you to set priorities, suggest strategies for investing, assist you in coming up with the right asset allocation to suit your needs, and draw up a coordinated and comprehensive financial plan.

Ready to start investing? A SoFi advisor can help you look at what you have, what you might need, and how you can maintain the right mix. To get complimentary, personalized advice, check out SoFi Invest® today.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.


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