Smartphone and credit card

Pros & Cons of Online and Mobile Banking

These days, it seems like you can do just about anything online. From scheduling a workout class to arranging for a ride at your doorstep to ordering toothpaste instead of grabbing it from a store, our smartphones and computers make it easy.

Still, there are some folks who don’t feel comfortable conducting their banking online. Having a physical bank makes them feel more at ease, is more familiar to them, and they feel like their money is safer.

Those who prefer to do online banking may like the convenience of 24/7 access to their info. Generally speaking, they are not people who tend toward physical banking services, like depositing checks with a bank teller. For those that would like to take a more balanced look at the question of where to bank, let’s examine some pros and cons of online banking.

Once we’ve examined these pros and cons to online banking, you can make an informed decision about whether online banking is right for you. Then, we’ll talk about how to move your banking to an online-only platform.

What is Online Banking?

Consumers have a few different options when it comes to where they park their money. The traditional options are to use a commercial bank, or a credit union. A credit union is a financial co-op that is generally owned and operated by its members (as opposed to being a publicly-traded company).

Most traditional, retail banks offer mobile banking. Mobile or online banking in this sense allows you to look up your accounts and transactions online, transfer funds, and even mobile deposit checks. But that is not what we are talking about today; here, we are discussing the use of an online-only or an internet-based bank.

Online-only banks are a newer alternative to traditional banks, where consumers conduct all banking operations online. Online banks generally have no physical locations, which can help them to keep overhead costs low. In turn, they typically offer some perks over traditional banks, such as a higher interest rate on savings accounts.

Often, an online savings account that offers a more competitive rate of interest than traditional banks will limit the amount of times that a customer can move money out of an account. Restricting the number of transactions or services is another way for online banks to minimize costs. These types of restrictions typically vary by online bank.

Because not all online banks are the same, the following list of pros and cons won’t capture every nuance, but hopefully you’ll get an idea of what services are offered, and the benefits of both mobile banking and traditional banking.

Pros of Online Banking

Higher Interest Rates

As mentioned, banks without brick and mortar locations tend to offer a higher rate of interest on cash savings accounts. Currently, the national interest rate on savings accounts is 0.08% .

This is a mere $.80 per $1,000. On the other hand, an online bank is likely to pay 1% annual percentage yield (APY) or more , which amounts to $10 for every $1,000. This is a significant improvement.

No Minimum Balance

Many traditional banks still require that you maintain a minimum balance or have an established automatic deposit or they will charge you a monthly fee.

Some online financial institutions do not require a minimum amount of cash. SoFi Money®, a cash management account, is one of them; new customers can get started with no minimum balance.

Convenience

Online banks are open 24 hours a day, which some customers find useful for maintaining their finances and making transactions after normal bank hours. All you need is access to the internet. When you’re working an 8-to-6 job where you can’t sneak out to chat with a teller for an hour, the convenience of banking outside working hours is a gamechanger.

ATM Access

Most online banks will be part of an online network of ATMs, such as MoneyPass or Allpoint. There is generally no fee to use the ATMs, and customers can locate them online. If they do not use an ATM network, they will typically offer to refund ATM fees up to a certain number of withdrawals.

SoFi Money: No account fees
and fee-free access to 55,000+ ATMs worldwide.


Cons of Online Banking

No Live Assistance

While most online banks provide a customer service line, they generally do not offer personal bankers. This means that there is no “live” person to help you with your banking needs, such as setting up accounts, applying for loans, getting a notary, or even just someone with whom you can discuss a simple issue or complaint.

A personal relationship with a banker could come in especially handy in the event that you are trying to secure a loan at the best rate, or have a business that you are looking to expand via borrowed funds. This is a person who knows and trusts you and could potentially make a difference in whether or not a bank will issue a loan.

Limited Access

Online banks typically keep their fees low and interest rates higher by offering limited services. They may or may not offer debit or credit cards, or the ability to deposit physical cash. Every online bank is different, so do your research on the services they offer.

Limited ATM Access

Although many online banks will have a network of ATMs that customers can access, they may not be as easy to track down as ATMs for the major retail banks.

Security

There is somewhat of a misunderstanding about security at banks. Traditional banks are no more or less secure than online-only banks. Any bank that is insured by the FDIC guarantees the same amount of insurance in the event that the bank goes under, $250,0000, regardless of whether the bank is online or not. Online banks generally tend to offer similar fraud protection programs to the retail banks.

Security typically has more to do with whether the consumer uses their debit card only on protected sites, does not access their banking information on a public computer, and avoids accessing private information while on public Wi-Fi networks. Unfortunately, even people who do everything right and take all of the proper precautions still find themselves the victims of fraud. Sometimes, it can only be attributed to bad luck.

How Do I Open An Online Account?

It all depends on the bank, but these banks generally have made it easier than ever to open up accounts and transfer money over. Typically, the process can all be done online, so you don’t have to sign and return physical paperwork.

The process usually happens in two steps: First, a new account at the new bank needs to be opened. To do this, you will have to answer a series of questions, and you will likely need to provide personally-identifying information like your Social Security number, date of birth, and more.

Next is funding the account, which can be done with a check or via a funds transfer. Usually, you are able to “pull” the assets into the new bank account, sometimes by simply providing the log-in information of your “old” account. They may require some extra verification (like making and confirming small deposits) before money can be moved. Most of the time, the process can be done in the matter of just a few days.

Interested in learning more about money management account offerings? SoFi Money is an online cash management account where you can spend, save, and earn, all in one product.


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.
SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.

SOMN18115

Read more
2055 birthday candles

What Is a Target Date Fund?

For a newbie, investing can feel utterly confusing. And though there are a lot of people and institutions out there who are trying to make it easier, it doesn’t erase the fact that jargon abounds.

One of the hottest buzzwords—and investing products—in the last few years has been the target date fund. While advisors are doing a lot to make investing more accessible, it doesn’t take away from the reality that a lot of people still don’t know the answer to the question, “What are target date funds?”

A target date fund is essentially a fund of mutual funds, and the goal is to provide a calculated rate of return, that’s based on a person’s age and risk profile, usually over a long period of time. Target date funds will vary by the financial institution that is offering them, but in general, target date funds will hold a mixture of stock and bond mutual funds, among other investments.

The proportion of an investor’s money allocated to stock funds and bond funds depends on your age, as designated by your “target retirement date,” which is the year you hope to retire.

Below, we will dive into the question, “What is a target date fund” and the pros and cons of target-date funds, as well as discuss whether an investor should use a target date fund. But first, a primer on some of the investment terms that are critical to understanding target-date funds and how they function.

First—A Few Investment Basics

To answer the question, “What are target date funds,” you must first understand some basics of investing. Most notably, you need to understand what a mutual fund is.

Mutual funds were created hundreds of years ago, allowing investors to pool their money together so that they could invest in a variety of business endeavors. This “strength in numbers” effect made it possible for small investors to own many different types of investments—to achieve diversification.

It’s the same idea today—pool your money together with a bunch of strangers, and you then spread that money over a wide swath of investments. (Sometimes it is helpful to think of the word “mutual” literally.)

Investors should think of a mutual fund as a big ol’ basket of investments. Those investments could be many different types of things, but mutual funds that hold stocks or bonds (or some combination of the two) are the most commonly-used types of mutual funds, especially within retirement accounts.

Now listen up, because here’s the important part: More important than the mutual fund itself is what is inside the mutual fund. If you are invested in a stock mutual fund, you are invested in stocks. If you are invested in a bond mutual fund, you are invested in bonds.

A first step new investors should take is to learn about these underlying investment types. Then, you can decide whether they have a place in your overall investment strategy.

Stocks represent a small share of ownership in a publicly-traded company. Online stock trading comes with a degree of risk, along with the potential for growth. There are many types of risk. In the case of the stock market, this risk comes in the form of volatility, or market risk.

Bonds are an investment in the debt of a company or the government. When an investor buys a bond, they are essentially loaning out that money for a designated amount of time, in exchange for a stated rate of interest.

The money the investor earns comes from the interest paid on the bond. Therefore, bonds are considered to be an investment that is more stable than stocks, but without as much upside potential.

Generally it is recommended that investors maintain some combination of stocks and bonds. Because of the affordable, instant diversification provided by mutual funds, many investors are gravitating towards using a combination of mutual funds to fulfill their stock and bond allocations.

How much you designate towards stocks and how much towards bonds depends on your personal goals, your investing timeline, and your risk tolerance. Generally, young people with a longer investing timeframe have a higher risk tolerance and therefore have a higher allocation towards stocks. Those who are closer to retirement may want more in bonds.

A DIY investor would then purchase the mutual funds that correspond with their desired allocations. For example, if an investor wanted a portfolio of 80% stocks and 20% bonds, they could buy one or two mutual funds to fulfill each of these different investment categories.

What Are Target Date Funds?

With investment basics out of the way, we can now answer the question, “What is target date fund?”

A Target Date Fund is a fund of funds. Generally, a target date fund will hold a combination of stock funds and bond funds. The investor picks their approximate “target retirement date,” and buys the corresponding fund, which will have an appropriate mix of stock and bond funds according to their age.

For example, a 30-year-old could choose a target date fund with the year “2055” because that would correspond with a retirement age of approximately 67.

In general, a younger investor would choose a target date fund with a farther-out date. An older investor, who is closer to retirement, would choose a sooner date. This does not mean that you have to retire in that exact year. It is simply a way to gauge your age and how close you are to retirement, and therefore how aggressive or conservative your investment mix should be.

A target date fund provides three primary services:

1. You Can Buy a Ready-made Portfolio with One Click

Some investors might find the DIY approach simple, and others will find it difficult. For those that don’t want to be bothered with designing their own portfolio, a target date fund could be a suitable option. With the purchase of one fund, a target date fund provides a holistic, diversified investment portfolio.

2. Annual Rebalancing Is Done for You

Given the uneven nature of growth in the markets, one fund might grow out of proportion with the other funds. This is normal and natural. When this happens, investors should sell shares of the fund that is outperforming and re-invest in the fund that is underperforming.

This way, the portfolio maintains the desired mix of investment types. This is called rebalancing your investments, and can be done every month, quarter, year, or every few years. A target date fund takes care of all rebalancing.

3. Shifts Towards a More Conservative Allocation over Time

Personal finance experts generally recommend that investors shift their investment portfolios into a more conservative allocation the closer they get to retirement. Often, this means replacing some of the stock funds with bond funds. A target date fund builds this trajectory into the strategy, so it’s done for you.

Pros of Target Date Funds

It’s Easy

When it comes to investing, a target date fund is pretty dang easy. Investors only need to continue buying more and more of the fund, which can be done using an automatic reinvestment function.

Low-cost

For small investors, mutual funds are a more cost-conscious way to invest than if they were to buy their own individual stocks. A good target date fund will pass along these savings to their investors. (Although, not all target date funds are particularly cost-friendly. See Cons, below.)

Diversification

Because mutual funds are these baskets of investments, they are inherently diversified. A target date fund provides additional diversification by mixing together different asset types.

Diversification is one of the core tenets of investing, and target date funds provide that diversification in an easy, affordable way.

Cons of Target Date Funds

Not All Target Date Funds Are Created Equal

Some target date funds use index mutual funds. Other target date funds use managed mutual funds. Managed mutual funds charge higher fees and attempt to outperform the market average—and usually fail . This comes at a cost to the investor, who could have paid less to earn more via index funds.

Before you use a target date fund, take a look at its holdings. What kind of funds do you see? If they are index funds, they will quite literally say “index” in the name of the fund. And as always, if you have questions, consult a professional.

Lack of Control

Some investors won’t like a target date fund because they don’t get to control the mix of investments, when target date funds rebalance, and how quickly they shift to a more conservative allocation.

Should I Use a Target Date Fund?

If you’re looking for an easy, hands-off way to invest, a low-cost target date fund could be a great option for you. In fact, many retirement plans are now automatically participants into a Target Date Fund.

A target date fund might not be for everyone, though. For one, investors might want to reconsider a target date fund if the only option available in their 401k or at their brokerage bank is a high-cost, managed fund. Other investors might feel uneasy at the lack of investment guidance with this approach.

For investors who like the idea of using low-cost funds to invest, but would prefer access to a financial advisor, a SoFi automated investing account is a great option. SoFi offers financial advisors as complementary to the service. Best of all, you only need $100 to get started.

That way, you can have the benefits of both worlds. Investors get low-cost index funds, diversification, automatic rebalancing, and a custom mix of aggressive and conservative investment types—and an advisor that can answer questions about the investment portfolio or your financial situation.

Ready to put a plan into place for your future? Learn more about $0 for access to a financial advisor through SoFi Invest®.


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.
Diversification can help reduce some investment risk. It cannot guarantee profit or fully protect in a down market. 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. Advisory services offered through SoFi Wealth, LLC.
SOIN18117

Read more
Woman looking out window

Divorce and Debt Responsibility: What Happens to Your Debt When You Separate?

If you’re getting divorced, one of your concerns will most likely be how the divorce will impact your personal finances. Although each case is unique‑and this article should not take the place of consulting an attorney—this post will share helpful information and important questions to ask as you navigate the divorce process.

One commonly asked question is: “Am I responsible for my spouse’s debt after separation?” The answer to this question will vary, depending upon your personal circumstances and the state you live in. States generally follow either community property rules or common law property rules.

Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. If you live in Alaska, you and your spouse may have signed an agreement making your assets community property, but if you didn’t sign this agreement, Alaska follows common law property rules—as does every other state excluding the nine states that adhere to community property law.

The rest of this post will share more information on the distinctions, as well as some answers to other questions about divorce and debt responsibility. We’ll share strategies for consolidating your debt through personal loans, refinancing your student loans in your new name (if applicable), and much more.

Community Property vs Common Law Property Rules

If you live in a state where community property laws apply, both spouses are typically responsible for debts incurred while married. In fact, most debts are considered to be the responsibility of the “community” (the two married partners) even if only one of them signed the paperwork.

After a legal separation takes place, debt in these states is typically owed only by the person who took on that debt. Exceptions are made if the debt was taken on, pre-divorce, to maintain a joint asset, such as a new HVAC system on a home; if what was purchased was needed for family necessities; or if the couple keeps joint accounts.

But what if one or both members of a married couple took out student loans before the marriage? In this case, the debt very well might not be considered part of community debt, although it could if the spouse signed on as a joint account holder.

If your state follows common law for property , debts taken on by one spouse are, typically, solely that person’s debts. Exceptions can include ones that benefit the marriage, such as childcare, food or clothing, and shelter or household items considered necessary.

Both parties are typically responsible if they both signed a contract agreeing to make payments, or if both names are on a property title to property or a shared account. This can also be true if both spouses’ income was considered when a creditor was making a lending decision.

End of Debt Accrual

A crucial question to have clarified is when, exactly, during the separation/divorce process will you stop incurring marital debt in your state? In California, as one example, a person stops being responsible for his or her spouse’s debt on the date they separate. Every state is different so it is best to consult with an attorney.

Note that, even though state law may draw the line on your liability for a spouse’s debts because of separation or divorce considerations, creditors may still have a legitimate case for pursuing payment from you if repayment of the debt falls behind.

Plus, let’s say that according to the divorce decree, your soon-to-be ex-spouse will be responsible for payments made on a credit card. If your name is on that credit card, the court would order your ex-spouse to make payments—but, if he or she doesn’t actually make the payments on time, it can still affect your credit in a negative way.

Talk to your attorney about options available to get your name off of any accounts with debts assigned to your ex-spouse, including having your ex-spouse refinance the loan so that it is solely in his or her name. You and your ex-spouse could agree to each ask creditors to remove one another’s names according to the dictates of the divorce decree, but creditors are not required to comply.

In response to your request, a lender could, for example, ask you to apply individually for credit to see if you can manage the debt based on your income and credit history only; if satisfied with your ability to repay the debt, the lender might agree to remove your ex-spouse’s name. If one spouse has higher income and/or better credit history than the other, requests might be approved for one and not the other, making the situation more inequitable.

Additional Considerations

Courts may assign debts that are considered necessities to the party believed to have the ability to pay them. This may or may not be divided equally, especially in common law property states where the goal is equitable division, rather than equal division of property.

No matter which one of these legal structures your state follows, debt typically follows the asset. In other words, if you get a car, you’ll probably also be responsible for paying it off. This also means that, if you end up with more property than your ex-spouse after the divorce, you may be taking on a greater percentage of the debt.

If you and your spouse signed a prenuptial or postnuptial agreement that lays out division of debt in case of divorce, your situation probably won’t mirror the typical divorce in your state.

Because laws about divorce and debt responsibility differ by location, it’s important that the attorney you consult is experienced in the laws of your state. Some couples find that using a mediator to amicably divide debts and assets is preferable to having a judge make the calls. Some mediators are also attorneys, which can be helpful.

Managing Debt After a Divorce

Once the dust clears after a divorce, you’ll need to take stock of what you owe, balance-wise, and what monthly payments you are responsible for. You may discover that payments are higher than what you can comfortably afford each month, now that you’re only relying upon just one income.

In that case, are there any loans that you can pay off and still have enough of a savings cushion in the bank? You might, for example, have a loan with a relatively high monthly payment but, if you only have a few payments left, paying off the loan may help.

If not, consider consolidating your high-interest credit cards and loans into one payment through a lower-interest personal loan. That way, you can focus on paying down just one loan, one that can come with more favorable repayment terms. Consolidating debt with a personal loan could significantly free up cash flow, right when you need it after a divorce.

If you are currently paying off student loans, you may consider refinancing your student loans as a way to free up cash flow post-divorce. At SoFi, you can refinance student loans in a different name; important if, as one example, you take back your maiden name after your divorce.

Tackle post-divorce debt at SoFi today with a divorce loan. Apply for a personal loan and/or refinance your student loans to free up cash flow at the start of your new life.


This article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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 on credit.
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.
PL18217

Read more
Legs of businessman walking stairs

How To Explain Being Fired In A Job Interview

Interviews are nerve-wracking as is it; you want to say the right things to convey you’re the best fit for the job. But if you’re interviewing with a company after being terminated from your last role, there’s a whole different level of anxiety. Beyond preparing for the standard “tell me about yourself,” you now have to figure out how to answer questions about being fired.

Determining how to explain being fired in a job interview can be tough. How honest do you need to be? Should you bring it up proactively? Will your interviewers ask a string of probing questions? Will the termination affect your chances of getting an offer?

According to Alexandra Dickinson, a career coach and Member Strategy Lead at SoFi, it’s not an uncommon situation to be in—and easily navigable with these tips.

Anticipate the Question

While your interviewer may not directly ask about your termination, there is a good chance he or she will pose a related question, like “Why did you leave your last job?” or “Why are you looking for a new role?”

So, just like you would prepare a response for any other common interview question, you should anticipate a question about your departure from your last company. The worst thing you can do is be caught off guard.

Choose the Right Way to Phrase It

As you’re thinking about how to explain why you were fired, Dickinson recommends that you choose your phrasing carefully.

“‘I was let go’ has a different meaning than ‘I was fired,’” she explains, “and I wouldn’t conflate the two.” The former, she says, gives the impression that the situation wasn’t your fault—perhaps that your position was redundant and therefore eliminated. It doesn’t convey that you were fired for cause—so if that’s the case, and it comes out later in the process, it likely won’t bode well for your candidacy.

Instead, she suggests using a phrase like, “It didn’t work out,” “I didn’t leave on my own terms,” or even “I’m not there anymore.”

“It’s kind of vague,” she admits, “But there’s really only one reason why you would be that vague—so it answers the question without really answering the question, which could make you feel more comfortable.”

Practice Your Delivery

Whatever phrase you select, practice saying it out loud a few times so your delivery feels natural.

“For some people, being fired can be a really emotional thing to go through,” says Dickinson. “And then to have to talk about it in a situation that’s already stressful? That can be really difficult.”

So, grab a friend or a family member—or even just a mirror—and practice delivering your explanation. Get to the point where the answer feels natural and unrehearsed, so you can go into the conversation with confidence.

Be Honest, but Don’t Share More Detail than Necessary

When you’re considering how to explain being fired, you’ll probably wonder how much detail you have to share about the situation. Unfortunately, says Dickinson, there’s no standard requirement.

“It depends on the nature of what happened,” she explains. She suggests thinking about what might come up in a background check or employment verification. That can guide how much you need to disclose about your situation. After all, she says, “you don’t want them to uncover some giant surprise.”

But in many cases, you won’t need to go into a lot of detail, and ideally, they won’t question you further. “If they do press you in a way that makes you feel uncomfortable, is that a place you’re going to feel great about joining?” Dickinson asks.

Don’t Show Any Ill Will

Going through a termination can leave you feeling raw and defensive—but don’t let those feelings infiltrate your interview.

“You don’t want to sound bitter,” says Dickinson. “You may be bitter or defensive, and it’s fine to have those feelings and work through them. But you don’t want that to come across in an interview, because it’s not relevant. The point of an interview is for you to determine if you’re interested in working at this place and for them to determine if they’re interested in hiring you.”

Focus on that, rather than on your feelings toward your past employer, and you’ll be much more likely to impress your interviewers.

Pivot the Conversation

Most importantly, says Dickinson, don’t dwell on the subject. Yes, figuring out how to explain being fired is important, but once you’ve provided a sufficient answer, pivot the conversation to what you can bring to this company.

“Even if you have to be kind of forthright about it, it’s okay to change the subject,” she says. “You can say something like, ‘I’m not there anymore, and I am really excited to talk about this job; this is one particular aspect of job description I’m interested in, can we dive into this more?’”

That can help you get back to the real purpose of the interview: allowing both parties to determine if the role will be a good fit.

Don’t Let It Impact Your Confidence

After getting fired, you may feel like you’ll never bounce back—but according to Dickinson, that isn’t the case.

“Many of us have been let go from a job,” she says. “If that was such a black mark that you could never get a job again, a lot of us would be out of work forever.”

If you’re feeling low, especially before heading into an interview, seek someone out to provide a pep talk. “Talk to some people who love you. Remind yourself that you are loved, even if not by that particular boss. Do what you need to do to feel good about yourself.”

Then, go into that interview with your head held high.

Nailing an interview can be tough, especially if you didn’t leave your last job on your own terms.

If you’re a SoFi member, sign up for a complimentary one-on-one session with a career coach, who can help you prepare for even the toughest interview questions. Not a SoFi member yet? Head to SoFi.com to learn more.


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.
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.
CG18142

Read more
Stack of credit cards

How to Consolidate Multiple Debts into a Single Payment

It’s not exactly a surprise that the average American has plenty of debt . Households with credit card debt carry an average balance of over $15,000. Frustratingly, these debts often come with exorbitant interest rates.

While some folks are able to manage their debts just fine, some may feel overwhelmed juggling loan payments of varying sizes with due dates scattered throughout the month. When life gets busy, missing a payment is too easy and can land you even further behind. Having multiple debts can be stressful and can make budgeting and planning for the future challenging. And let’s be real: No one likes feeling overwhelmed by multiple debt payments.

For most people, the goal with paying back debt—especially consumer debt, like credit card debt—is to do so as quickly and painlessly as possible. If this is your goal, you have options. One of those options is debt consolidation, where you pay off qualifying debts using a new loan, often called a “debt consolidation loan” or a “debt relief loan.” To determine whether consolidating your debts into one single payment is the right choice for you, read on.

Should I Consolidate My Debts?

It may be worth considering consolidation if it will help you simplify your finances and lower the amount of interest you pay overall on your combined sources of debt. For example, if you have multiple credit cards and each has a high interest rate, consolidating to one loan with a lower interest rate could get you out of debt sooner. That, and you could enjoy the sweet relief of only having one payment to manage for the debt you consolidated.

Consolidating your credit cards to a lower interest rate with a debt consolidation loan could help you get out of debt sooner.

Pros of Debt Consolidation

1) You can streamline multiple debts into one payment, making the payback process easier and more efficient.

2) If you consolidate your debt, you may pay less interest over the life of your loan.

3) Consolidating credit card debt can lower your revolving credit utilization ratio, which is a factor considered by most credit bureaus in the calculation of credit scores. If you lower your balance on several credit cards, but keep them open, you’ll decrease your credit utilization ratio. That’s a good thing! Revolving credit utilization ratios are also often considered by lenders when making credit decisions.

That said, debt consolidation isn’t for everyone. Taking out a new loan may come with fees, so you’ll want to do the math and make sure it’s worth it before moving forward. You should also be mindful of the repayment period and ensure you only finance the debt on a timeline that works for you. Be wary of a loan term that’s too long—even if the loan has a lower interest rate, you can pay more in interest over time with longer repayment periods.

Cons of Debt Consolidation

1) If the loan term is longer than necessary, you could potentially pay more in interest even if the rate is lower.

2) Some debt consolidation programs are scams. It is important to understand that not all loan consolidation tactics are created equal. There have been some unsavory and even fraudulent loan consolidation services that don’t really help get your debt under control. If a lender is asking for money upfront to consolidate your debt, for example, that’s a red flag.

Get $20* when you check your rate.
Get our lowest starting rate all year, with fixed rates as low as 4.99% APR (with all discounts).57


How Do I Consolidate My Debt?

Debt consolidation, in theory, is very simple. You, or a lender, pays off all of your unsecured debts (like credit cards and personal loans) using a new loan. Then, moving forward, you’ll only make one monthly payment on your new loan.

A “debt consolidation loan” or a “debt relief loan” is often just a personal loan. This means that you have the option to seek out personal loans from reputable banks, credit unions, or online lenders. You do not have to work with a debt consolidation services provider that you don’t feel 100% comfortable with. Think of it this way: If it sounds sketchy, it probably is.

When it comes to low-rate personal loans, at SoFi we pride ourselves on transparency and a level of customer service unmatched in the lending industry. Also, our personal loans come with no origination fees, prepayment penalties, or late fees.

Learn more about how a SoFi personal loan can help you manage your debt.


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 website on credit.

PL18196
​​

^ $500 SoFi Personal Loan Bonus Offer: Terms and conditions apply. Offer is subject to lender approval, and not available to residents of Ohio. The offer is only open to new SoFi Personal Loan borrowers and may not be combined with other offers aside from the autopay discount, direct deposit discount, and direct pay discount. To receive the offer, you must: (1) register and apply through the promotion link for a SoFi Personal Loan by 11:59pm EST 11/30/21; (2) complete and fund a personal loan application with SoFi before 11:59pm EST 12/14/21; (3) have or open a SoFi Money account within 60 days after starting a personal loan application; and (4) meet SoFi’s underwriting criteria. Once conditions are met, your $500 welcome bonus will be deposited into your SoFi Money account within approximately 30 calendar days after earning the bonus. If you do not qualify for the SoFi Money Account, SoFi will offer payment via ACH transfer pending completion of a W9 form. Bonuses that are not redeemed within 60 calendar days of the date they were made available to the recipient may be subject to forfeit. Bonus amounts of $600 or greater in a single calendar year may be reported to the Internal Revenue Service (IRS) as miscellaneous income to the recipient on Form 1099-MISC in the year received as required by applicable law. Recipient is responsible for any applicable federal, state or local taxes associated with receiving the bonus offer; consult your tax advisor to determine applicable tax consequences. SoFi reserves the right to change or terminate the offer at any time with or without notice.

Read more
TLS 1.2 Encrypted
Equal Housing Lender