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Many people sign up for app free trials, whether for an exercise program or a streaming platform, and think they’ll remember to cancel in a week…but don’t. Then, a charge appears on a statement, and they realize it’s time to take action and cancel that unwanted subscription.

Or perhaps you’re the type who signed up for a meditation app but haven’t used it in a while and think it’s time to exit.

In these situations, you may need a little help figuring out the most direct way to cancel a subscription on your iPhone, iPad, or Mac. Here’s help: a guide to canceling those money-draining sign-ups.

One silver lining: When you cancel a paid subscription, you get to use it until the arrival of the next billing date.

How to Cancel App Subscriptions on an iPhone or iPad

Here are the steps for canceling a subscription on your mobile iOS device.

Step 1. Open the Settings app.

Step 2. Tap your name at the top of the page.

Step 3. Tap Subscriptions.

Step 4: Tap the subscription that you want to cancel.

Step 5. Tap Cancel Subscription. If you don’t see Cancel as an option, the subscription has already been cancelled and won’t renew. You should be free of this charge and on track to be saving money daily.

There’s another option you might use:

Step 1. Go to the App Store.

Step 2. Tap your profile image.

Step 3. Scroll down to Subscriptions and tap. You will then see any active subscriptions.

Step 4. Tap the subscription you want to cancel.

Step 5. Confirm by tapping Cancel Subscription.

How to Cancel Subscriptions on a Mac

Follow these instructions to cancel app subscriptions on a Mac laptop or desktop computer.

Step 1. Open the App Store (you can locate this in Finder under Applications, or at the bottom of your home screen).

Step 2. Click the sign-in button or your name at the bottom of the sidebar.

Step 3. Click View Information at the top right of the window. You may be prompted to sign in.

Step 4. On the page that appears, scroll until you see Subscriptions, then click Manage.

Step 5. Click Cancel Subscription. If you don’t see Cancel Subscription, then the subscription is already cancelled and will not renew.

Accidentally Cancelled a Subscription? Here’s How to Restart

If you got a little trigger-happy and canceled the wrong subscription. Or perhaps you have a change of heart after canceling an app and want to get it back, realizing that you were just momentarily feeling guilty about spending money.

Step 1. Open the Settings app.

Step 2. Tap your name at the top of the page.

Step 3. Tap Subscriptions.

Step 4. Look for the list of expired subscriptions at the bottom of the screen. Tap the one you would like to reactivate.

Step 5. On the subscription page, tap the subscription option you want and then confirm your choice. You’ll now be resubscribed.

Recommended: Budgeting for Basic Living Expenses

How-to Tip: Setting Reminders to Avoid Unwanted Subscriptions

The next time you sign up for a new app that has a trial period promotion going on, you may want to set a reminder on your mobile device to cancel your app subscription. Say, you want to cut back and save on streaming services after having signed up for half a dozen different channels on a boring rainy weekend.

This could help you avoid unexpected monthly expenses and manage your money better to reach your short-term financial goals.

You could use your phone to ask Siri to set a Reminder to cancel a subscription a few days before fees will kick in. Or, you could use the Reminders app on your phone or iPad.

Another option is to use Calendar to create a New Event for the date and time you want to cancel an app. To get a notification on that day, you’ll want to make sure the Alert section is set to “at time of event.” This move can help you reduce your spending.

Recommended: How to Make a Budget in 5 Steps

The Takeaway

Most subscriptions automatically renew unless you cancel them. If you sign up for a free trial and don’t cancel in time, you will end up paying a monthly fee that you likely won’t be able to get refunded.

A good way to make sure you aren’t paying for subscriptions you don’t want is to track your monthly spending and then set up a basic budget. Having a budget can help ensure that your spending is in line with your priorities and short-term financial goals. Your bank may offer tools to help you with expense tracking and overall budgeting.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

Photo credit: iStock/Suwaree Tangbovornpichet

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% 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 Bank shall, in its sole discretion, assess each account holder’s 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 a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% 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 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 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 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 Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% 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 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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

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A budget can be a great and necessary way to take control of your finances. It helps you track money coming in and going out, which could mean your spending on necessities, fun experiences, and saving for the future.

While many people prefer a monthly budget, a weekly budget can be a better option for others. It gives added control and flexibility in wrangling your finances. For instance, if you get hit with a bigger than expected bill in the first week of a month, you can take steps to accommodate that. Or, if you wind up getting a rebate, you might decide to allocate that towards debt ASAP.

Here, you’ll learn more about this process, including:

•   What is a weekly budget?

•   How do you budget weekly?

•   What are the pros and cons of a weekly budget?

What Is a Weekly Budget

A weekly budget is a way to organize your finances and manage your money on a weekly cycle. It can help show you the money you have coming in, how much you’ll need for the necessities of life (housing, food, utilities, healthcare, etc.), how much you can spend on the wants in your world (dining out, entertainment, travel, cool gear), and how much should be set aside for savings.

For many people, a weekly guardrail like this helps them ensure their cash is tracking properly.

How Weekly Budgets Work

Here’s how a weekly budget works:

•   Figure out your take-home pay per week. This likely requires a bit of basic division since many people are paid bi-weekly or at another cadence.

•   Next, look at your spending on necessities, such as housing, utilities, basic food (but not dining out or those vanilla lattes), minimum debt payments, healthcare, and insurance.

•   Subtract those expenses from your income. See how much is left.

•   From this remaining amount, allocate how much you can spend on “fun” items, such as dining out or takeout, clothing that isn’t vital, entertainment, travel, and the like.

•   Also remember to allocate funds for savings. Many experts recommend a figure of 20% but that may vary depending on your cost of living, debt, and other factors.

•   Now that you see how much money is coming in and how much remains for spending after the needs of life are paid for, you can track and manage your spending and saving weekly to make sure you are hitting your marks.

Benefits of a Weekly Budget

If you think tracking your money with a monthly household budget is a pain, the idea of putting even more effort into the process — and breaking it down by the week — may feel like overkill. But there could be some benefits to be had from the effort.

Here are a few pros and cons to consider:

Pro: More Flexibility

Life doesn’t always follow a schedule. A monthly budget can be a good fit for fixed expenses that are paid once a month (rent and car payments, student loan payments, etc.), or even quarterly or annual bills (insurance payments, subscriptions, and memberships). But other costs can be less predictable, such as dining out with friends, unexpected car repairs, clothing purchases; gifts; or an occasional massage or pedicure splurge.

Especially when it comes to discretionary expenses, using a weekly budget could help you spot when, where, and why you overspent in a certain category. And you can react more quickly to make changes to get back on track. In these ways, living on a budget can be a real advantage.

If you sit down to review your spending every week, instead of just once a month, you may be able to run through your transactions more quickly. And the less time-consuming and tedious your budget routine is, the less annoying it may be — which might make it easier to stay with it.

Pro: Planning Around Paychecks

If, like most Americans, you’re paid every week or every other week — or your spouse is — a weekly or biweekly budget could offer more flexibility for saving and spending.

People who are paid weekly have some months with four paychecks and some months with five. Those who are paid every other week have some months with two paychecks and some months with three.

A weekly budget could help pinpoint those extra paydays so you can take advantage of the opportunity to work on a short- or long-term goal. You might stockpile a few grocery-store staples that could help tide you over during leaner months, for example. Or you may want to set aside the money to start an emergency fund. Or you could use it to save for a wedding, honeymoon, or vacation.

Pro: Simplifying Savings

Switching to a budget that aligns with weekly or biweekly paydays also could make saving more manageable.

If you’re enrolled in a 401(k) or similar investment savings plan at work, you may already be making contributions each payday. You could do the same thing with your savings account by using a direct deposit from your paycheck. Or you could set up automatic transfers and move money from your checking account to your savings account each week.

Keep in mind that the more interest you earn, the faster you can get to your goals. So you may want to spend some time shopping for an account that offers both a competitive interest rate and innovative ways to manage your finances.

Downsides of a Weekly Budget

As you might expect, there are also some cons of a weekly budget. Consider the following:

Con: Too Much Temptation

The added flexibility that can make a weekly budget appealing also could make it easier for some individuals and households to be tempted off course — especially when it comes to discretionary spending. Telling yourself that you’ll spend less “next week” to justify getting what you want right now could become a habit. An important part of successful budgeting is sticking to the budget.

With that in mind, you might want to tuck each week’s discretionary money into an envelope …and when it’s gone, it’s gone. Using a tracking app to keep track of your expenses on your phone or tablet also could help.

Recommended: Envelope Budgeting Method

Con: Weekly Check-ins Could Become Overwhelming

Taking the time each week to review your purchases and update your budget may not be realistic for some people. If finding time to check in with your budget each week feels too overwhelming you may want to try a bi-weekly or monthly approach.

4 Steps To Create a Weekly Budget

Making a budget — whether it’s set up to be weekly, biweekly, monthly, or a bit of a combo — can be a good way to get control of your finances. Here’s are some steps to setting up a weekly budget template:

1. Pull Together Your Paperwork

If you want your budget to be useful, it should be as accurate as possible. So you’ll probably want to pull together some paperwork to help get it right, including your most recent pay stubs, bank statements, utility bills, insurance bills, credit card bills and loan statements, and any other recurring bills you can think of. You may also find it helps to have tracked your spending (on paper or with an app) for a while before you sit down to create your budget. Or you may want to collect recent grocery store, drug store, and restaurant receipts to help you estimate those costs.

2. Calculate Your Weekly Income

Write down all your income sources for a month. (If you’re married, include your spouse’s income sources. If you’re a freelancer or your income is unpredictable, you may want to calculate the average over the past three or four months.) Find your take-home amount (what you get after taxes and other payroll deductions) and divide it by four.

3. Make a Realistic List of Your Expenses

Using a budgeting program or app, a spreadsheet, or maybe just a notebook, write down all your expenses for the month. It can help to break down those costs by categories, such as:

•   Housing costs. Things like your rent or mortgage, utilities, or other expenses

•   Transportation. Costs like car payments, insurance, gas, and maintenance

•   Food and groceries

•   If you have children, costs like child care, tuition, activities, and more

•   Financial expenses, such as bank fees or taxes

•   Savings and investing. Contributions to 401(k) or IRA, emergency fund

•   Health Care. Prescriptions, dental care, co-pays, and more

•   Personal spending. Clothes, shoes, gym membership

•   Entertainment. Movies, special events, streaming services, books, and more

Keep in mind that the categories you include in your budget will be influenced by your wants, needs, and spending habits.

You may decide you want to use a monthly budget for some expenses (utility bills and other fixed expenses) and a weekly budget for others (such as discretionary expenses, debt payments, and savings). But if you want to go weekly with everything, the math isn’t all that complicated. To convert monthly amounts into weekly spend amounts, multiply the monthly figure by 12 and then divide by 52.

4. Deduct Expenses from Income

Add up your weekly expenses and subtract that number from your weekly income. If you come out ahead, you could add more to your savings and investments, pay down debt even faster, or add more of a cushion to another category on your list. If you come out even, you may want to adjust your discretionary spending a bit, so an unexpected cost doesn’t throw you off track.

If you come out with a negative number, you may have to make some decisions about what costs you can cut or even get rid of.

Especially when you’re starting out, it may help to use a budget framework similar to the 50/30/20 budget rule, which suggests keeping essential costs to 50% or less, discretionary costs to 30% or less, and setting at least 20% aside for savings if you can. If your percentages are where you want them, you have a budget.

Recommended: See how your money is categorized using the 50/30/20 budget calculator.

Test the Budget and Adjust

Once you have a budget you feel comfortable with, it’s time to test your new spending and savings strategy. You might decide to use a tracking app to see how you’re doing, but you also may benefit from actually sitting down to go over the numbers once a week. (This could be particularly helpful for married couples who are sharing a couples budget.)

If you spot any problem areas or realize you forgot something, you can always make adjustments. If something happens to change your income or expenses (a raise, a new job, a job loss, a big purchase, or a baby), you can adjust again.

Don’t be discouraged if the budget you built doesn’t work out the first time you use it. You may have to develop new habits. Or you may need to get some help with ditching your debt or determining your financial goals.

The Takeaway

Setting up a weekly budget could make it easier to stay on top of your spending by streamlining the number of transactions you have to track and helping you spotlight any areas you may be overspending in. However, for some, checking in and tracking your spending and transaction each week could become overwhelming. An app, possibly provided by your bank, could help.

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 4.60% APY on SoFi Checking and Savings.

FAQ

What should a weekly budget include?

A weekly budget should include your income, your necessary expenses (housing, utilities, food, healthcare, and more), your discretionary expenses (eating out, travel, entertainment), and your savings.

How do you budget weekly money?

To budget money weekly, you will need to divide your take-home pay into weekly amounts and then do the same with your spending on needs and wants, as well as savings. You want to be sure your weekly income can cover those expenditures.

What does having a weekly budget mean?

Having a weekly budget means you are balancing your income, spending, and saving on a weekly basis. This can be a good way to stay in close touch with your money, though for some people it might feel like overkill vs. monthly budgeting.

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Photo credit: iStock/Prostock-Studio

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% 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 Bank shall, in its sole discretion, assess each account holder’s 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 a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% 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 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 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 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 Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% 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 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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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When struggling to pay off debt, especially a high amount, it’s not uncommon to come across companies offering debt consolidation. However, many for-profit companies offering “consolidation” are actually selling a debt settlement service.

Debt settlement is where a third-party company can try to reduce someone’s debt by negotiating with their creditors or debt collectors on their behalf. While some debt settlement companies might be successful in lowering the amount of debt, these programs can be risky because of how they are structured.

Paying off less debt might sound like an easy win, but debt settlement can come with some big financial risks, possibly affecting the debtor’s credit score and ability to access credit in the future, and costing more along the way.

What Is Debt Settlement and How Does It Work?

Debt settlement is an agreement with a creditor to pay less than the total amount owed. It’s sometimes referred to as “debt relief” or “debt adjustment.”

Typically, a debt settlement program focuses on unsecured debts, which aren’t tied to a physical asset like a house or car. Examples of this include credit cards, store cards, personal loans, and medical bills. Other types of debt, such as mortgages, car loans, student loans, and tax debt, usually don’t qualify for these programs.

While debt settlement might provide some relief for debtors who are at the end of their financial rope, it’s by no means a simple solution. The process may take years, could require you to pay high fees, and can damage your credit score. Plus, it won’t wipe out all of your debts.

Though it’s a potential alternative to bankruptcy, it should be considered as a last resort.

💡 Quick Tip: A low-interest personal loan from SoFi can help you consolidate your debts, lower your monthly payments, and get you out of debt sooner.

How Debt Settlement Works

How does debt relief work? Let’s take a look.

You can negotiate a debt settlement on your own. If you decide to go this route, start by contacting each creditor and confirming whether you owe the debt. If you do, determine a realistic payment plan, and propose it to the creditor. During the negotiating process, you’ll continue to make regular payments on what you owe.

However, the debt settlement process can be confusing and could take years to complete. You might decide to enlist the help of a trusted third party, like a debt settlement company, to negotiate on your behalf.

During the negotiation process, you may be required to enter a debt settlement program. These programs typically encourage debtors to stop paying creditors and instead make monthly payments into a savings account. Once a settlement is reached, the company may take its fees out of that account first and use the balance to pay off the debt.

It’s important to note that if you choose to stop paying creditors, your credit score may be negatively impacted and you could face late fees and penalties.

What Do Debt Relief Companies Do?

The goal of debt settlement companies, also known as debt relief companies, is to work with people to get a better payment plan to help reduce debt. They typically charge fees for these services, usually between 15% to 25% of the total enrolled debt. However, you should only be charged once your debts have been settled or resolved.

Debt relief companies often require an initial consultation so they can determine whether you qualify for their debt relief program and which option might fit your situation. You also might be asked to provide basic information regarding your current creditors, debt balances, monthly income, and expenses.

Once you enroll in a debt relief program, you’ll probably be required to make monthly payments into a bank account that you’ll control. Typically, the debt settlement company will negotiate with a creditor once the account contains enough money for them to make a lump-sum offer.

In the meantime, the company may also advise you to stop paying your creditors. Note that doing so may cause your account(s) to flow further into delinquency or even charge-off, which can cause significant harm to your credit health and your ability to access credit in the near and long term.

Why Is Debt Settlement Risky?

Though debt settlement can be a viable alternative to bankruptcy, it has drawbacks. Here are risks to keep in mind:

Debt Settlement Can Be Expensive

By law, a debt relief company can’t charge you any fees until after they settle or reduce at least one of your debts. And you won’t have to pay if a creditor flat-out refuses your settlement. But once a debt is lowered or settled, you’ll likely incur charges that, when added up, could end up being more than what you originally owed.

What’s more, you may have to pay taxes on any debt that’s been forgiven, as the IRS considers that as income. Consider talking to a tax professional about any tax repercussions you may face if you settle your debt.

Debt Settlement Can Damage Your Credit

If you stop paying your creditors, you may be hit with late fees, penalty payments, higher interest charges, and other fees that can increase your overall debt. Late or missed payments can also be reported to the credit bureaus, and your credit score will likely be seriously damaged.

Something else to keep in mind: Though not as serious as bankruptcy, settled accounts are generally seen as negative events in credit history and can stay on credit reports for up to seven years.

There’s No Guarantee Debt Settlement Will Work

Creditors are under no obligation to accept a settlement proposal, and not all creditors will negotiate with a debt relief company. If your settlement is rejected, you may want to consider creating a debt management plan and start making payments.

How Does Debt Settlement Affect Your Credit Scores?

When you’re trying to settle a debt, your credit scores can take a hit. Late or missed payments, being sent to a collection agency, and even a settled account can all have a negative impact on your credit scores for years afterward.

What’s more, if you try to settle a debt and fail — and you have no other options — you may end up considering bankruptcy as a solution. Depending on the type of bankruptcy settlement you choose to file, it could stay on your credit report for seven to 10 years. It may also make it difficult to get credit, buy a home, or in some cases, get hired for a job.

How Is Debt Relief Different From Debt Consolidation?

Though these two debt payoff strategies sound similar, debt relief and debt consolidation work differently.

With debt consolidation, you take out a loan or line of credit and use it to pay off other debts. Once you consolidate those existing loans into a single loan, you have just one predictable, monthly payment and one (hopefully better) interest rate. Consolidation can help make budgeting and bill paying easier, and if you’re able to secure a lower interest rate, you may even save money by reducing how much interest you pay over time.

Debt settlement, on the other hand, involves negotiating the terms of your debt with your creditor so you end up paying less than what you owe, usually in one lump sum.

What Are the Pros and Cons of Working With a Debt Settlement Company?

Before jumping into debt settlement, there are some pros and cons a debtor might want to consider first. On the plus side, that anxiety about answering phone calls for fear a collection agency is on the line could go away.

In addition, all those debts could be consolidated into a single bill, so the debtor wouldn’t have to pay numerous bills a month on debt. And, of course, debt settlement could reduce debt long term and help avoid bankruptcy.

However, there are some potential negative financial implications:

•   Debt settlement companies typically encourage those who enroll in their services to stop sending payments to creditors during the negotiation period. This can seriously affect credit scores, incur late fees, and build up interest, actually digging a deeper hole. Creditors can also sue for repayment even when a debtor is working with a debt settlement company, and can take money directly from someone’s wages or force repayment in other ways.

•   Creditors are not under any obligation to work with debt settlement companies. Even saving the monthly amount the programs require is no guarantee the two parties will be able to settle some of the debts.

•   Debt settlement companies could still charge fees even if the entire debt wasn’t settled. While debt settlement agencies cannot charge fees until a settlement is reached, and at least one payment is made as part of the agreement, each time they successfully settle a debt with one creditor, the company can charge another portion of its full fee.

Beware of Debt Settlement Scams

Before deciding to enroll in a debt settlement program, it’s important to check the company with the local state attorney general and local consumer protection agency . These agencies can help determine if there are any customer complaints on file about the debt settlement company.

Also, a quick internet search of the company name and “complaints” could reveal any current lawsuits or deceptive and unfair practices. One easy method to find the top debt settlement companies is to look for those with good grades from the Better Business Bureau.

Some common red flags when researching any company promising to settle debt:

•   Charging any fees before settling any debt. This is prohibited by the FTC’s Telemarketing Sales Rule.

•   Promising to settle all debt for a specific percentage. Debt settlement companies cannot guarantee the amount of money or percentage of debt that could be saved by using their services. They also can’t guarantee how long the process will take.

•   Claiming there is a “new government program” that they are assisting with

•   Guaranteeing to eliminate debt entirely

•   Explicitly giving instructions to stop communications with creditors, and not explaining the serious financial consequences of doing so

•   Saying they can stop all debt collection calls or lawsuits

•   Starting enrollment without any review of an individual’s financial situation

The FTC advises people to avoid any sort of organization, whether they are offering credit counseling, debt settlement, or any other financial service, that fails to explain the risks associated with their programs, makes grandiose promises, and asks for any money upfront.

Debt Settlement Alternatives

Credit counseling

In contrast to some debt settlement companies that are profit-driven, reputable credit counseling organizations might be available to offer help with managing money and debts, developing a budget, and providing free educational tools and workshops.

Counselors should be certified and trained and help develop an individual plan for solving money problems. One place to start could be this list of nonprofit agencies certified by the Justice Department, which offer counseling and debt management plans.

Credit counselors might suggest a debt management plan, where one monthly payment is made to the credit counseling organization, and then they make all of the individual monthly payments to creditors. Counselors do not typically negotiate any reduction in debts owed, but could help lower monthly payments by working to increase the loan terms or lower interest rates.

Talking to Creditors

A debtor could take the DIY approach and talk to the creditor personally, even if negotiations for a lower rate or debt reduction have not worked in the past. Instead of paying a company to talk to a credit card company or other debt creditor on their behalf, remember that anyone can do it themselves for free.

The conversation could be approached with the goal of figuring out a modified payment plan to reduce payments to a manageable level.

Creditors and their collection agencies are typically willing to negotiate, even if they have already written off a debt as a loss.

According to the Consumer Financial Protection Bureau, many creditors and debt collectors will not negotiate how much they are willing to settle for, meaning debt settlement companies likely can’t get better terms than an individual could get by talking to the creditors themselves.

Balance Transfer

A balance transfer could also help when it comes to consolidating credit card debt.

A balance transfer is when someone moves debt from one credit card to another, usually taking advantage of a 0% interest offer on the newer card. While the 0% rate only lasts for a specific amount of time, this offers the opportunity to pay off more of the credit card debt during that promotional period since new interest isn’t accruing.

💡 Quick Tip: If you’ve got high-interest credit card debt, a personal loan is one way to get control of it. But you’ll want to make sure the loan’s interest rate is much lower than the credit cards’ rates — and that you can make the monthly payments.

Fixed-Rate Personal Loan

Rather than looking to a debt settlement company to fix high debt, another alternative that could be considered is a fixed-rate personal loan, which might be easier to manage and could help save money in the long run. By consolidating qualifying high-interest debt into one low-interest personal loan, a borrower could simplify by only having one fixed monthly payment.

The Takeaway

In certain situations, debt relief programs can be a viable alternative to bankruptcy — and for some, a debt solution that provides some relief. But in general, they’re seen as a last resort for those at the end of their financial rope. The process may take a long time and often involves paying high fees, which could bite into any savings you would have received from a settlement. And if you decide to stop paying your creditors and instead pay into a savings account, you may incur penalties, and your credit score will likely be damaged. There are alternatives to debt relief programs that may be worth considering, including negotiating with creditors yourself, credit counseling, and balance transfers.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

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

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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.

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.

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Unlike student loans or mortgages, personal loans have a relatively short repayment timeline — typically around two to five years. Still, there may be situations when you want to pay off the remaining balance on a personal loan even faster. Is that possible? The short answer is “yes” and, in many cases, it can be a wise decision.

But if there’s a prepayment penalty, then this loan payoff may be more costly than you’d expect. Learning how a prepayment penalty might affect your payoff amount can be helpful in making the decision whether or not to pay off a personal loan early. And if you’re gathering information about a personal loan early payoff without incurring a prepayment penalty, you do have some options.

How to Manage Your Personal Loans

Securing a personal loan may be top of mind for borrowers, but just as important is figuring out how to repay the debt. Having some basic info on hand — such as your monthly take-home pay, the cost of your essentials and non-essentials, and short- and long-term savings goals — will help.

While there’s no one-size-fits-all strategy to budgeting, here are two popular budgeting methods to consider:

•   50/30/20 budget. With the 50/30/20 budget strategy, your take-home pay falls into three main buckets, according to percentages: 50% to “needs” (housing, utilities, groceries, etc.), 30% to “wants” (take-out meals, entertainment, travel costs, etc.), and 20% to savings (emergency fund; IRA or other retirement contributions; debt repayment and extra loan payments, etc.)

•   Zero-Sum Budget. This type of budget calls for earmarking every dollar you earn for either savings or discretionary spending. First, you assign monthly after-tax income dollars to non-negotiable bills, such as rent and groceries. Then you assign leftover funds to discretionary spending and saving, which could include making extra payments on a personal loan.

Tips to Pay Down Your Personal Loan

Creating a budget is one tool to consider, but here are other loan repayment strategies you may want to explore if you want to pay off the debt faster.

•   Switch to biweekly payments. Ramping up payments from once a month to twice a month could help you reduce the principal amount of a loan — and potentially pay off the debt — faster. It may even decrease how much interest you end up paying over the life of the loan.

•   Make extra payments when possible. Exceeding your minimum loan payments
may help accelerate your loan repayment and potentially minimize the cost of high interest rates.

•   Tap a second source of income. Starting a side hustle is one way to boost your income, and you can put the extra cash toward your debt. You can also use tax returns, work bonuses, even birthday gifts to pay down a personal loan faster.

•   Refinance your loan. When you refinance a loan, you’re essentially replacing your old loan with a new loan that has a different rate and/or repayment term. Depending on the new rate and term, you may be able to save money on interest and/or lower your monthly payments.

•   Round up monthly payments. Over time, rounding up payments to the nearest $50 or $100 could slightly accelerate your payment schedule.

It’s important to note that many personal loans come with early payment fees, which could undo whatever money you would have saved on interest. More on that below.


💡 Quick Tip: Fixed-interest-rate personal loans from SoFi make payments easy to track and give you a target payoff date to work toward.

Can You Pay Off a Personal Loan Early?

It’s unlikely that a lender would refuse an early loan payoff, so yes, you can pay off a personal loan early. What you have to calculate, though, is whether it’s financially advantageous to do so. If a personal loan early payoff triggers a prepayment penalty, it might not make financial sense to do so.

Understand Prepayment Penalties

If and how a prepayment penalty is charged on a personal loan will be stipulated in the loan agreement. Reviewing this document carefully is a good way to find out if the penalty could be charged and how your lender would calculate it.

If you can’t find the information in the loan agreement, ask your lender for the specifics of a prepayment penalty and for them to point out where it is in the loan agreement.

There are a few different ways a lender might calculate a prepayment penalty fee:

•   Interest costs. In this case, the lender would base the fee on the interest you would have paid if you had made regular 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.

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

Avoiding Prepayment Penalties

If your loan has a prepayment penalty, it 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. However, you have some options.

For starters, you could simply decide not to pay the loan off early. This means you’ll need to continue to make regular payments rather than paying off the personal loan balance sooner. But this will allow you to avoid the prepayment penalty fee.

Or, you could talk to the lender and ask if the prepayment penalty could be waived.

If your prepayment penalty is not applicable throughout the entire term of the loan, you could wait until it expires before paying off your remaining balance.

Another strategy is to calculate the amount of remaining interest owed on your personal loan and compare that to the prepayment penalty. You may find that paying the loan off early, even if you do have to pay the prepayment penalty, would save money over continuing to make regular payments.

Recommended: How to Avoid Paying a Prepayment Penalty

Does Paying Off a Personal Loan Early Affect Your Credit Score?

Personal loans are a type of installment debt. In the calculation of your credit score, your payment history on installment debt is taken into account. If you’ve made regular, on-time payments, your credit score will likely be positively affected while you’re making payments during the loan’s term.

However, once an installment loan is paid off, it’s marked as closed on your credit report — “in good standing” if you made the payments on time — and will eventually be removed from your credit report after about 10 years.

So does paying off a loan early hurt your credit? Short answer, yes. Paying off the personal loan early might cause it to drop off of your credit report earlier than it would have, and it may no longer help your credit score.

If You Pay Off a Personal Loan Early, Do You Pay Less Interest?

Since a personal loan is an installment loan with a fixed end date, if you pay off a personal loan early, you won’t pay less interest. You won’t owe any interest anymore because the loan will be paid in full.

Recommended: Average Personal Loan Interest Rates & What Affects Them

Advantages and Disadvantages of Paying Off a Personal Loan Early

There are definitely some advantages to personal loan early payoff. One obvious benefit is that you could save on interest over the life of the loan.

For example, a $10,000 loan at 8% for 5 years (60 monthly payments) would accrue $2,166.50 in total interest. If you could pay an extra $50 each month, you could pay the loan off 14 months early and save $518.42 in interest.

Not owing that debt anymore can be a psychological comfort, potentially lowering bill-paying stress. If you’re able to make that money available for something else each month — maybe creating an emergency fund or adding to your retirement account — it might even turn into a financial gain.

If you no longer owe the personal loan debt, you’ll essentially be lowering your debt-to-income ratio, which could positively affect your credit score.

That said, if your personal loan agreement includes a prepayment penalty, paying off your personal loan early might not be financially advantageous. Some prepayment penalty clauses are for specific time frames in the loan’s term, e.g., during the first year.

If you pay off the loan during the penalty time frame, it could cost you just as much money as it might if you had just paid regular principal and interest payments over the life of the loan.

You might be thinking of a personal loan early payoff so you can put your money to work somewhere else. But if the interest rate on the personal loan is relatively low, it might make financial sense to put your extra money toward higher-interest debt, or to contribute enough to an employer-sponsored retirement plan so you can get the employer match, if one is offered.

Another thing to consider is whether paying off your personal loan early will hurt your credit. As mentioned above, making regular, on-time payments to an installment loan like a personal loan can have a positive effect on your credit score. But when the loan is paid off, and marked as such on your credit report, it’s not as much help.

Advantages of early personal loan payoff	Disadvantages of early personal loan payoff
Interest savings over the life of the loan	Possible prepayment penalty
Could alleviate debt-related stress	Extra money could be better used in another financial tool
Lowering your debt-to-income ratio	Removing a positive payment history on the loan early could negatively affect your credit
More cushion in your monthly budget	Taking money from another budget category might leave an unintentional financial gap

What Happens If You Don’t Pay Back a Personal Loan?

Let’s say your personal loan payment is due by the 1st of every month. One month, the 10th arrives and you realize you haven’t paid what you owe. You’ll likely be considered delinquent on the loan. You may also be hit with a late fee, and your credit score could be impacted.

When Is a Loan Considered to Be in Default?

What happens if you stop making payments on a loan altogether? Then you’ll likely be considered in default on the loan. Note that there’s no set amount of time when a loan is considered in default — a borrower may be one payment behind or they may have missed 10 in a row. It depends on the type of loan, the lender, and the loan agreement.

What Happens When You Default on a Personal Loan?

When you default on a personal loan, you’ll likely be charged late fees. But you may face other consequences, such as:

•   Your credit may be damaged. Creditors may report payments that are more than 30 days late to the credit bureaus. The missing payments could end up on your credit reports and stay there for up to seven years. This could cause your credit scores to drop and may pose an issue the next time you apply for new credit.

•   You may need to deal with debt collectors. If you fall far enough behind to be contacted by a debt collector, you may encounter aggressive behavior on the part of the collection agency. However, keep in mind that the Fair Debt Collection Practices Act limits just how far debt collectors can go in trying to recover a debt. If you feel a debt collector has gone too far, you can file a complaint with the Consumer Financial Protection Bureau (CFPB).

•   You could be sued. A lender or collection agency may file suit against you if they believe you aren’t going to repay the money you owe on a personal loan. If the judgment goes against you, your wages could be garnished, or the court could place a lien on your property.

•   Your cosigner may be impacted. If you have a cosigner or co-applicant on your personal loan, and you default on that loan, they could be impacted. For example, a debt collector could contact you and your cosigner about making payments. And if your credit score drops because of a default, theirs may drop, too.

If you’re facing a loan default, there are some things you can do now to help yourself. A good first step is to contact the lender, preferably before your next payment is due. Explain your situation to them, and find out if they can offer you any relief measures — for example, temporarily deferring loan payments.

You may also want to reach out to a credit counselor. They can work with you to create a budget that covers the essentials and frees up funds so you can pay down what you owe.

Depending on your situation, it may also be a good move to contact a lawyer. Having legal assistance is especially crucial if you’ve been served with a lawsuit.

Recommended: Better Money Management Tips

Types of Personal Loans

In general, there are two types of personal loans — secured and unsecured. Secured loans are backed by collateral, which is an asset of value owned by the loan applicant, such as a vehicle, real estate, or an investment account.

Unsecured personal loans 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. Typically, these are installment loans the borrower repays at a certain interest rate over a predetermined period of time.

Personal Loan Uses

Acceptable uses of personal loan funds cover a wide range, including, but not limited to:

•   Consolidation of high-interest debt

•   Medical expenses not covered by health insurance

•   Home renovation or repair projects

•   Wedding expenses

While there are benefits to taking out a personal loan, it might not always be the right financial move for everyone. Personal loans offer a lot of flexibility, but they are still a form of debt, so it’s a good idea to weigh the pros and cons before signing a personal loan agreement.


💡 Quick Tip: With low interest rates compared to credit cards, a personal loan for credit card consolidation can substantially lower your payments.

The Takeaway

If you’re able to pay off your personal loan early, that’s terrific. Doing so could help you save on interest over the life of the loan, provide more of a cushion in your monthly budget, lower your debt-to-income ratio, and alleviate debt-related stress.

However, before you pay off the balance, it’s a smart idea to calculate whether it’s a good financial decision or not. If your personal loan agreement includes a prepayment penalty that could take a bite out of any savings you might see on interest costs. Removing a history of regular payments on a loan too early can have a slight negative impact on your credit. Plus, the extra money might be put to better use in another financial tool.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

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

FAQ

Is it good to repay a personal loan early?

Paying off a personal loan early can be a good financial decision, as long as any prepayment penalty charge doesn’t cost more than you might pay in interest.

If I pay off a personal loan early, do I pay less interest?

Paying off a personal loan early doesn’t affect the interest rate you’ve been paying up until that point. It would mean, however, that the total amount of interest you’d pay over the life of the loan would be less than anticipated.

Does paying off a personal loan early hurt your credit?

Because making regular, on-time payments on an installment loan such as a personal loan is a positive record on your credit report, removing that history early can have a slight negative affect on your credit.

What is the smartest way to pay off a loan?

There are a number of ways you can go about paying down debt. Two popular methods include the avalanche method (which focuses on making extra payments toward highest-interest rate debt first) and the snowball method (which calls for paying off the smallest debt first, the moving on the next largest debt, and so on).

Do you save money if you pay off loans early?

Paying off loans early could save borrowers money in interest. However, they may be hit with a prepayment penalty, which could negate those savings.

Are shorter or longer loans better?

It depends on your financial needs and goals. Generally speaking, borrowers with longer-term loans tend to pay more interest. By comparison, borrowers with shorter-term loans typically have lower interest costs but higher monthly payments.

How long can you stretch out a personal loan?

Lenders offer a range of loan term lengths, though generally speaking, most are between two and seven years.

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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 .

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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.

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If you have multiple loans or credit cards with high interest rates, you might feel like you are continually paying interest and not making much headway on the principal of the debt. By consolidating those debts into one loan — ideally with a lower interest rate — you may be able to reduce your monthly payments or save on interest. Using a personal loan to consolidate debt can be one way to accomplish this goal.

This guide tells you everything you need to know about how loan consolidation works, what types of loans benefit from consolidation, and when to start the consolidation process.

What Is Loan Consolidation?

Loan consolidation, at its most basic, is the process of combining multiple debts into one. Usually, this means using a new loan or line of credit to pay off your existing debts, consolidating multiple payments into one.

For example, imagine you have the following debt:

•   $5,000 on a private student loan

•   $10,000 in credit card debt on Card A

•   $10,000 in credit card debt on Card B

Your private student loan may have a high interest rate, and your credit card interest rates probably aren’t much better. Each month you’re making three different payments on your various debts. You’re also continuing to rack up interest on each of the debts.

When you took out those loans, maybe you were earning less and living on ramen you bought on credit. But now you have a steady job and a good credit score. Your new financial reality means that you may qualify for a better interest rate or more favorable terms on a new loan.

A personal loan, sometimes called a debt consolidation loan, is one way to help you pay off the $25,000 you currently owe on your private student loan and credit cards in a financially beneficial way.

Using a debt consolidation loan to pay off the three debts effectively condenses those debts into one single debt of $25,000. This avoids the headache of multiple payments with, ideally, a lower interest rate or more favorable repayment terms.

Recommended: Using Credit Cards vs. Personal Loans

What Types of Loan Consolidation Are Available?

There are different types of loan consolidation. Which one is right for you depends on your financial circumstances and needs.

Student Loan Consolidation

If you have more than one federal student loan, the government offers Direct Consolidation Loans for eligible borrowers. This program essentially rolls multiple federal student loans into one. However, because the new interest rate is the weighted average of all your loans combined, it might be slightly higher than your current interest rate.

You may also be able to consolidate your student loans with a personal loan. If you’re in a healthy financial position with a good credit score and a strong income (among other factors), a personal loan might give you more favorable repayment terms, including a lower interest rate or a shorter repayment period.

Consolidating federal student loans may not be right for every borrower. There are some circumstances in which consolidating some types of federal student loans may lead to a loss of benefits tied to those loans. By the way, you don’t have to consolidate all eligible federal loans when applying for a Direct Consolidation Loan.

Credit Card Consolidation Loan

If you’re carrying balances on multiple credit cards with varying interest rates — and those interest rates are fairly high — a credit card consolidation loan is one way to better manage that debt.

Credit card loan consolidation is the process of paying off credit card debt with either a new, lower interest credit card or a personal loan that has better repayment terms or a lower interest rate than the credit cards. Choosing to consolidate with a personal loan instead of another credit card means potential balance transfer fees won’t add to your debt.

General Loan Consolidation

Let’s say you have multiple debts from various lenders: some credit card debt, some private student loan debt, and maybe a personal loan. You may be able to combine these debts into a single payment. In this case, using a personal loan to consolidate those debts would mean you would no longer have to deal with multiple monthly payments to multiple lenders.

Why Consider Loan Consolidation?

There are many reasons to consider loan consolidation, but here are some of the most common:

•   You’re a minimalist. Did you join in the “pandemic purge”? If your home looks less cluttered and you’d like your finances to match, you might be thinking about financial decluttering by consolidating some of your high-interest debt into one personal loan that has a lower interest rate or terms that work better for your budget.

•   Your financial circumstances have improved. Maybe you spent some time living off student loans to finish your degree, and now you’ve started your dream job. You have a steady salary, and you’ve taken control of your finances. Because of your financial growth, you may be able to qualify for lower interest rates than when you first took out your loans. Loan consolidation can reward all that hard work by potentially saving you money on interest payments.

•   Your credit card interest rates are super high. If thinking about the interest rate on your current credit cards makes you want to hide under your desk, consolidating those cards with a personal loan may be just what you’re looking for. High interest rates can add up over the time it takes to pay off your credit card. Using a personal loan to consolidate those cards can potentially reduce your interest rate and help you get your debt paid off more quickly.

Are There Downsides to Loan Consolidation?

Using a personal loan to consolidate debt may not be the right move for everyone. Here are some things to think about if you’re considering this financial step.

Potentially High Interest Rate

Not everyone can qualify for a personal loan that offers a lower interest rate than the credit cards you want to pay off. Using a credit card interest calculator will help you compare rates and see if consolidating credit cards with a personal loan is worth it for your financial situation.

Fees May Apply

Looking for a lender that offers personal loans without fees can help you avoid this potential downside. Keep an eye out for application fees, origination fees, and prepayment penalties.

Recommended: Find Out How a Balance Transfer Credit Card Works

Putting Your Assets at Risk

If you choose a secured personal loan, you pledge a particular asset as collateral, which the lender can seize if you don’t pay the loan according to its terms.

Possibility of Adding to Your Debt

The general idea behind consolidating debt is to be able to pay off your debt faster or at a lower interest rate — and then have no debt. However, continuing to use the credit cards or lines of credit that have zero balances after consolidating them into a personal loan will merely lead to increasing your debt load. If you can get to the root of why you have debt it may make it easier to remain debt free.

The Takeaway

Using a personal loan to consolidate debt can be a financial savvy move — especially if you have the credit history and score to qualify for a low interest rate and favorable loan terms. Consolidating multiple credit cards and loans with a single personal loan can help simplify your finances, lower the interest you pay, and shorten the time until you’re debt free.

If you’re thinking about consolidating credit card or other debt, a SoFi Personal Loan is a strong option to consider. SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

Learn more about unsecured personal loans from SoFi.

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

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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.

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

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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