Life Stages Archives

Aug

2022

Guide to Paying a Credit Card in Full vs Over Time

By Jackie Lam | Budgeting & Goals, Credit, Financial Independence | Comments Off

In a perfect world, you’d be able to zap away debt in a flash. But the reality is, sprinting through payments on high-interest debt isn’t exactly easy to do. That’s because you’ll still need to juggle staying on top of bills and covering daily expenses, among other financial obligations.

If you’re wondering whether it’s better to pay off your credit card or keep a balance, the answer largely depends on your particular set of circumstances. Let’s take a look at the pros and cons of paying off credit cards in full vs. over time to help you determine if you should pay off your credit card in full or space payments out a bit.

Recommended: When Are Credit Card Payments Due

Does Paying Down Credit Cards Slowly Affect Your Credit Score?

Paying off credit cards slowly can impact your credit score because it can affect your credit utilization, which makes up 30% of your consumer credit score. When you’re slow to pay off your credit card balance, your credit utilization — or how much of your total credit you’re using — can be higher. A higher credit utilization rate can adversely affect your credit score.

What Is Credit Utilization?

Credit utilization measures how much credit you have against how much credit you’ve used. This ratio is expressed as a percentage. You can find your credit utilization ratio by dividing your total credit card balances by your total credit limits across all of your cards.

How Credit Utilization Works

As we discussed, credit utilization is expressed as a percentage, and you can find it by dividing your credit card balances by your credit limits. As an example, let’s say you have three credit cards, and your total credit limit across those cards is $30,000. The total of your credit card balances on all three cards is $9,000.

In that case, your credit utilization is 30%, as demonstrated by the math below:

Credit limit on Card 1: $8,000
Credit limit on Card 2: $12,000
Credit limit on Card 3: $10,000

Total credit limit: $8,000 + $12,000 + $8,000 = $30,000
Total balances across Cards 1, 2, and 3: $9,000

$9,000 / $30,000 = 0.30, or 30%

Recommended: What is the Average Credit Card Limit

How Credit Utilization Can Affect Your Score

The lower your credit utilization, the better it is for your credit score. It’s generally recommended to keep your credit utilization ratio under 30% to avoid negative effects on your score. Keeping your score below this threshold indicates to lenders and creditors that you aren’t stretched financially, are a responsible user of credit, and have available credit that you can tap in to.

If you’re wondering, do credit card companies like it when you pay in full? The answer is that it certainly helps with your credit score, as a low credit utilization ratio can positively impact your credit score, and credit card companies generally look more favorably upon higher credit scores.

Differences Between Paying a Credit Card in Full vs Over Time

Trying to determine whether you should pay off your credit card in full? Here are some of the key differences between paying off credit cards in full compared to making payments over time:

Paying a Credit Card in Full	Paying a Credit Card Over Time
Might need to spend less or earn more to speed up payments	Can make payments based on current income and budget
Can save money on interest charges	Costs more in interest payments
Frees up money sooner for other financial goals	Continue juggling debt payoff with other financial goals for longer
Can lower credit utilization, potentially improving your credit score	Won’t make as much of an impact in lowering credit utilization

Recommended: What is a Charge Card

Reasons to Always Pay Off Your Credit Card in Full

When it comes to paying off your credit card in full, there are a handful of reasons why it could be a good idea:

• Helps with your credit score: As we talked about, paying off your card balance means keeping a lower credit utilization, which can help keep you maintain a solid score.

• Frees up money for other goals: By paying off your credit card bill sooner than later, you’ll free up that money you were putting toward debt payments. In turn, you’ll have “extra” cash to put toward savings, retirement, and your short-term and long-term goals.

• Allows you to save on interest: The longer you stretch out your payments, the more you’ll end up paying in interest. By paying off your credit card in full each statement cycle, you won’t owe interest, given how credit card payments work.

Reasons to Pay Down Your Credit Card Over Time

While it may be ideal to pay off your credit card all at once, credit card debt is hard to pay off — especially when you’re spinning a lot of plates money-wise. Let’s take a look at why you might opt to pay down your credit card over time instead:

• Allows for a more manageable debt payment schedule: Paying down your credit card over time won’t put pressure on you to cut back on your living expenses, or find ways you earn more so you can pay off your credit card balance more quickly. Depending on your situation, gradually making payments might feel like the more reasonable route.

• Frees up money now: By not focusing on aggressively paying off your credit cards, you can potentially work on other money goals, such as saving for retirement or creating an emergency fund. Still, you’ll want to at the very least make your credit card minimum payment to avoid the consequences of credit card late payment.

Strategies for Paying Off Credit Card Debt

If the idea of paying off your credit card debt feels overwhelming, here are a few popular strategies to consider for crushing your debt.

Debt Avalanche Method

With the debt avalanche method, you focus on paying off the card with the highest interest rate first. Meanwhile, you’ll continue making the minimum payments on all of your other accounts.

Once your account with the highest interest rate is paid off, you’ll move on to focusing on the account with the next highest rate, continuing to make minimum payments on the others. You’ll continue this cycle until all of your debt is paid off.

The major benefit of this method is that you’ll save on interest payments.

Recommended: How to Avoid Interest On a Credit Card

Snowball Method

In this strategy, you make the minimum payments on all your cards by the credit card payment due date. Then, you put any remaining funds toward paying off the card with the lowest balance. Once that’s paid off, you move on to the card with the next lowest balance.

The main advantage of the snowball method is that it keeps you motivated to continue to pay off your debt. That’s because it feels good to get a card paid off, which is easier to do with a card that has a lower balance.

Debt Consolidation

With debt consolidation, you take out a new loan that you then use to pay off all of your outstanding debts. This effectively rolls all of your credit card payments into a single fixed payment each month.

In turn, debt consolidation can simplify your payments, and potentially lower your payments. However, depending on the new payment schedule and terms, you might end up paying more in interest over the course of the loan. Also keep in mind that you’ll generally need a decent credit score to qualify for debt consolidation.

When Carrying a Balance Hurts Your Credit Score

Carrying a balance on your credit card hurts your score if it pushes your credit utilization too high. You’ll want to keep your credit utilization under 30% to avoid adverse effects.

Keeping a low balance, which decreases your credit utilization, can help your credit score. Besides paying off your cards, other ways to lower your credit utilization are to open a new credit card or request a credit limit increase. Both of these actions will increase your overall credit limit, thus potentially improving your credit utilization rate.

Recommended: Can You Buy Crypto With a Credit Card

The Takeaway

While paying a credit card in full can help with your credit utilization, which also can improve your score, it’s not always realistic. You’ll want to weigh the pros and cons of both paying off credit cards in full and making payments over time to see which one is right for your current situation.

While making credit card payments is one way to lower your credit utilization, another option is opening a new credit card.

If you’re looking for a new credit card, you might apply for a credit card with SoFi.

Enjoy unlimited cash back rewards with fewer restrictions.

FAQ

Is it better to pay off your credit card or carry a balance?

While paying off your credit card in full can help with your credit utilization ratio and save you on interest, spreading out your payments over time might make debt payoff more manageable. Which approach is best depends on your financial situation and preferences.

Does completely paying off a credit card raise your credit score?

Paying off a credit card can lower your credit utilization, which can positively affect your credit score.

Why did my credit score go down when I paid off my credit card?

Paying off your credit card doesn’t usually bring down your credit score. However, your credit score may drop if you closed your account after paying it off, as that can impact your credit mix or the average age of your accounts. It could also decrease your available credit, which can drive up your credit utilization.

Do credit card companies like it when you pay in full?

Paying in full shows creditors that you’re a responsible cardholder and that you have the financial means to pay off what you owe. It can also help to improve your credit score, which credit card companies look upon favorably.

Photo credit: iStock/Foxyburrow

¹See Rewards Details at SoFi.com/card/rewards.

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.

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 .

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

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Aug

2022

Refinancing Student Loans to Buy a Car

By Anna Davies | Debt Payoff, Family Finances, student_loan | Comments Off

If you’re thinking about buying a car, it’s important to consider how the purchase will fit into your overall financial responsibilities, including student debt. You’ll want to be sure you can afford both the cost of the car and the ongoing expense of driving and maintaining it.

Refinancing student loans to buy a car is one option that may allow you to free up money to put toward the cost of a car or monthly car payments. Here’s what to know about refinancing student loans to buy a car, if you can use student loans to buy a car, and how to make the choice that’s right for you.

Can I Use Student Loans to Buy a Car?

Federal student loans (and many private ones) are for “qualified” educational expenses, such as tuition, room and board, and books and supplies. And while the cost of transportation (for example, commuting to school) is considered a qualified expense, purchasing a car is not.

So can you use student loans to buy a car if you’re using the car to drive to class? No – only an allowance for the cost of driving the car to school would be an eligible expense. It’s an important distinction: A borrower caught misusing student loan funds can face serious repercussions, including having their loan revoked and the balance becoming immediately due.

Some private loans may have broader criteria for what constitutes an educational expense, and fewer penalties for how you use the loans. Still, using a private student loan to buy a car may not be the most efficient or smartest use of funds. You may end up paying more interest than you would on a typical car loan, and then have fewer funds to go toward the educational expenses you need.

So what do you do if you have student debt and need to buy a car? Refinancing may be an option, and can free up money in your budget to open a car loan. Here’s what to consider before refinancing student loans to buy a car.

Recommended: Should I Buy a New or Used Car?

Refinancing Student Loans to Buy a Car

When you refinance a student loan, you pay off all or some of your loans with a new loan with new terms from a private lender. The primary benefit of refinancing is that you can save money over the life of the loan if you’re able to lower your interest rate.

You can also change the terms of your payment, potentially spreading your payment over a longer period of time, and paying less each month. If you go this route, however, you may end up paying more in interest over the life of your loan.

Refinancing student loans can help lower your monthly payments and have more room in your budget to cover the costs of a car. However, it’s important to understand that if you refinance federal student loans, you’ll lose access to federal benefits and protections, such as income-driven repayment plans and forgiveness. If you’re planning to take advantage of any of these federal programs, refinancing is likely not a good option for you.

Pros of Refinancing Student Loans to Buy a Car

Considering the pros and cons of refinancing student loans to buy a car can help you decide if this choice is right for you. You’ll want to be able to cover the costs of the car as you continue to pay your student loans back. Some of the pros of refinancing a student loan to buy a car include:

Lower Monthly Student Loan Payments Can Offset Car Costs

Refinancing your student loans can lower your monthly student loan payment if you’re able to secure a lower interest rate or extend your loan term. A lower monthly student loan payment can mean that you have more funds to cover the costs of buying or maintaining a new car.

Recommended: Guide to Student Loan Refunds

As mentioned, lowering your interest rate can save you money over the life of a loan. Extending your loan term may not save you money, but it can free up cash to have more funds to put toward the costs of a car.

Simplified Payments Can Make Tracking Car Expenses Easier

When you refinance multiple loans into a single new loan, you’ll have one new monthly payment. This can make it easier to keep track of your student loan payments and be sure you’re making them on time.

And if you’re looking for ways to get a car loan, having a simplified student loan payment can make budgeting easier as you add a new loan to the mix. As mentioned earlier, you may find lower interest rates on car loans than what you’re paying on your student loans — another reason using student loans funds toward car expenses may not be the best choice even if they’re allowed according to your loan terms.

Saving Money on Student Loans Can Help Pay for a Car

Many people explore refinancing even when they don’t need to make an immediate purchase like a car. That’s because refinancing may help save money over the life of the loan if you can lower your interest rate.

And while applying for student loans can be arduous, applying to refinance student loans is relatively straightforward. You can check your rate and get an estimate of loan terms before you officially apply, and an application can generally be completed online. You can also compare refinancing rates without triggering a hard credit check—a credit check is only done once a formal loan application is submitted.

Cons of Refinancing Student Loans to Buy a Car

While refinancing student loans to buy a car can be one way to cover car payments when you have existing student debt, there are cons to this option as well. Here are some of the cons of refinancing a student loan to buy a car.

Recommended: How To Save Up For a Car

Losing Access to Original Loan Terms

If you refinance your loans, you lose access to the terms of the original loan. This may be important to consider if you’re refinancing federal loans.

Refinancing federal loans not only means potentially missing out on federal forgiveness or repayment programs, but also the opportunity for deferment or forbearance if you qualify.

As mentioned earlier, if you plan to take advantage of federal programs, refinancing is likely not a good option for you. Some people may choose only to refinance private loans.

Repayment May Take Longer

If you extend the length of your student loan term when you refinance to lower your monthly payments to offset the costs of a new car, it will take longer to repay your loan and you may end up paying more in interest over the life of the loan.

Overstretching Your Budget

It’s important to make sure that you can afford any car loan that you take out. If you’re planning on getting a car loan or leasing a car, will you be able to comfortably cover your student loans, the car payment, and other bills? What would happen if you were to lose a job or source of income? Those questions can help you assess whether a car payment would stretch you financially.

A borrower who can’t make the payments risks having the car repossessed and damaging their credit. If you ever think you’ll miss a monthly car payment, reach out to your lender to find out what your options are. Down the road, refinancing your car loan is also an option if you’re able to secure better terms.

Pros of refinancing student loans to buy a car	Cons of refinancing student loans to buy a car
Lower monthly student loan payments can offset car costs	Losing access to federal benefits and protections if you refinance federal loans
Simplified payments can make tracking car expenses easier	Longer repayment time if you extend your term
Saving money on student loans can help pay for a car	Overstretching your budget if you’re not able to afford the costs of a new car

Recommended: Passive Income Ideas

Refinancing Your Student Loans With SoFi

When you need a new car, you may need to rethink your finances in order to cover the costs. Refinancing student loans to buy a car is one option that can help you free up funds. You may be able to lower your monthly payments and save money over the life of the loan if you qualify for a lower interest rate. You can calculate your potential savings using a student loan refinance calculator.

Refinancing can be a good option if you’re able to qualify for a lower interest rate and are not planning to use any federal programs. When you refinance a federal loan, you lose access to federal benefits and protections.

If you’re considering refinancing your student loans, SoFi offers flexible terms, competitive rates, and no fees.

Learn more about whether refinancing student loans with SoFi is right for you.

FAQ

Do car dealerships look at student loans?

Your student loans appear on your credit report. If you apply for a car loan from a dealership, then they may be able to see your payment history and your credit score on your credit report. Student loans also count toward your debt-to-income ratio which may affect your ability to secure a car loan.

Does financing a car affect student loans?

Financing a car won’t affect your current student loans, but consider how taking on another loan will impact your finances. It’s important to be certain that you’ll be able to pay both your student loan payments and any new car loan payments on time. Refinancing a student loan can help offset the costs of a new car if you can save money by qualifying for a lower interest rate. It can be a good option if you’re refinancing private loans or not planning to take advantage of any federal programs.

Is it smart to buy a car after college?

Buying a car after college is a personal decision. But keep in mind that a lot can change in a few years, and a new car or a lease may be a liability if your plans change. It may make sense to consider buying a used car or holding off on buying a car until you have a sense of what your commute and lifestyle will look like.

Photo credit: iStock/LeoPatrizi

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.

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.

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.

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Aug

2022

Buying a Home With Student Loan Debt: How Difficult Is It?

By Jacqueline DeMarco | Financial Independence, Student Loans, student_loan | Comments Off

While student loan debt can make it harder to qualify for a mortgage, that isn’t necessarily the case for every student loan borrower.

Keep reading to learn more about buying a home when you have student loan debt and how to make the process easier.

How Student Loan Debt Might Affect Buying a Home

Student loan debt isn’t singled out by mortgage lenders, but when someone applies for a mortgage, all of their debt is taken into account when the lender decides whether or not to loan them money and what rates or terms to offer — particularly when it comes to their DTI, or debt-to-income ratio.

Does the Government Have a Student Loan Home Buying Program?

The government doesn’t have a home buying program whose goal is to help people with student loans secure a mortgage, but it does have programs designed to help first-time and repeat homebuyers buy a single-family home, condo, or other primary dwellings, which may be a good fit for borrowers with student loan debt.

FHA loans (guaranteed by the U.S. Federal Housing Administration) are the best known. Applicants with a minimum 580 FICO® credit score qualify for the 3.5% down payment advantage; someone with a 500 to 580 score might be able to get an FHA loan with 10% down.

Lenders of VA loans (backed by the Department of Veterans Affairs or, in the case of Native American Direct Loans, issued directly) and USDA loans (backed or issued by the Department of Agriculture) often accept lower credit scores than would be required for a conventional mortgage.

VA loans usually require no down payment, and USDA loans never do.

Do Student Loans Affect Your Credit Scores?

When it comes to student loan debt and buying a home, what matters more during the mortgage application process than having student loans is a potential borrower’s credit score.

Credit scores, usually from 300 to 850, are made up of factors such as a history of on-time debt payments, how much debt someone has, and what type of debt it is. Mortgage lenders use FICO scores for applications, with some exceptions.

FICO created different scoring models for Experian, Equifax, and TransUnion, the three main credit reporting bureaus. Mortgage lenders often receive a single report that contains an applicant’s three credit reports and FICO scores.

Student loan debt can help or hurt your credit scores. If you have a history of making on-time payments to your student loans and having them improves your credit mix, that debt could help your credit scores. If you have a history of making late student loan payments, your credit scores can be negatively affected.

Student Loan Debt-to-Income Ratio

Because debt can, clearly, strain a monthly budget, mortgage lenders evaluate the applicant’s DTI ratio. This is one of the factors mortgage lenders take most seriously, as the ratio accounts for how much of your gross monthly income is spent on your debt payments, including student loans.

DTI = monthly debts / gross monthly income x 100

Typically lenders want to see a DTI of 36% or less, though that is not necessarily the maximum.

If your DTI ratio is high and it makes it hard for you to qualify for a mortgage, there are steps you can take to lower your DTI.

Pay Down Your Debts

One straightforward way for aspiring homebuyers to lower their DTI is to pay off more of their student loan debt.

If they can’t pay off the debt in full, they can try to increase their monthly payments or make principal-only payments. Each month as they pay down their debt, their DTI will improve as long as they don’t take on more debt.

Increase Your Income

One way to improve your DTI is to increase your income by applying for a new job, plotting a promotion, or starting a side hustle. An income boost will make the ratio of debt to income smaller.

Increasing your income can serve a second purpose: You can put the extra funds toward debt repayment, which also will decrease your DTI.

Recommended: Passive Income Ideas

Refinance Your Student Loans

Refinancing student loans can be appealing if you can get a lower interest rate or a better-fitting repayment term.

When someone refinances a private or federal student loan, they take out a new loan from a private lender and use it to pay off the existing loan. If you can secure a lower interest rate and keep or reduce the term, you will spend less on total interest and put more money each month toward principal. It might help to crunch some numbers with a student loan refinancing calculator.

A better interest rate when refinancing is not guaranteed, so it’s worth shopping around for the best deal to see if refinancing is worthwhile. Let’s say you find a good deal but later find a better deal. Can you refinance student loans more than once? Indeed.

It’s important to note that although refinancing a federal student loan into a private one can potentially save the borrower money on interest, the conversion will mean losing access to federal deferment, income-driven repayment programs, and public service loan forgiveness.

Borrowers with federal student loans can consolidate them, but doing so doesn’t save money on interest because the new rate for a Federal Direct Consolidation Loan is simply an average of the loan rates, rounded up to the next one-eighth of a percentage point. Still, the consolidation loan remains eligible for federal benefits.

Income-Based Repayment Plan

A potential homeowner who has federal student loans may choose income-based repayment. Those who enroll tend to have big loan balances and/or lower income.

The four income-driven repayment (IDR) plans base payments on family size and state of residence in addition to income. After 20 or 25 years of payments, borrowers are eligible to have any remaining balance forgiven.

An IDR plan lowers monthly payments, which could free up money to save for a down payment. But the longer loan term may slow down progress toward paying off your debt, so it’s worth thinking about how an IDR plan will affect your DTI ratio over time.

Fannie Mae Guidelines

Lenders often follow Fannie Mae guidelines when deciding whether to approve a conventional home loan, which is one not backed by the federal government and is the most common type of mortgage.

Here are some key guidelines:

• Minimum credit score: 620

• DTI ratio: usually up to 45%

• Income: two years of stable income and employment, with some exceptions

• Down payment minimum: 3%

• Private mortgage insurance: required when down payment is under 20%

The Fannie Mae HomeReady® Mortgage is an option for low-income first-time homebuyers and repeat buyers. The loan has pricing that is better than or equal to standard loan pricing and has lower than standard mortgage insurance coverage requirements.

The Takeaway

Having student loans doesn’t necessarily make it harder to qualify for a mortgage, but borrowers may find that refinancing or paying off their student loans frees up room in their monthly budget, which can make homeownership more accessible.

Student loan borrowers dreaming of buying a house may want to consider student loan refinancing with SoFi.

Choose from low fixed or variable rates on a SoFi refi.

FAQ

Does student loan debt have a negative impact on buying a home?

Not necessarily, but student loan debt can lower or nix borrowers’ chances of mortgage approval if their DTI ratio is too high, and late student loan payments can ding credit scores.

Is it possible to buy a home with student loan debt?

Yes, it’s quite possible to buy a home with student loan debt, especially if the mortgage applicant’s income is much higher than their monthly debt payments.

Should you pay down your student loans before buying a house?

It’s not necessary to pay down a student loan before trying to buy a house, but doing so can’t hurt. The student loan balance affects a mortgage applicant’s DTI ratio, and any money freed up in the budget can go toward the down payment, closing costs, or future mortgage payments.

Photo credit: iStock/tonefotografia

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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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Aug

2022

9 Ways to Keep Inflation From Ruining Your Kitchen Reno Budget

By Tricia Romano | Family Finances, Home Ownership, personal_loan | Comments Off

Maybe you’ve just bought a house, or maybe you’ve had your house for decades and love everything about it — except for the extremely outdated kitchen, built before the days of marble top counters, stainless steel appliances, and kitchen islands. Renovating your kitchen can get expensive fast, but with inflation, materials cost even more than usual, so it can be tougher to control expenses. Luckily, there are a few strategies you can use to get the updates you crave, without emptying your pockets.

How to Keep Inflation From Ruining Your Kitchen Renovation

1. Setting A Budget

Like most people, you probably already have a budget in mind. That’s a good start, but even with a spending limit in place, it’s smart to use a tool like this home renovation cost calculator to get an estimate of what your kitchen reno will ultimately cost, and make sure your budget will truly cover it. These calculators allow you to choose from basic to extremely bespoke changes, and they consider the cost of labor and raw material, generally with a 20% margin for the contractors. (And contractors can cost much more than you may expect!)

2. Being Flexible

Be flexible about your upgrades. It’s not uncommon to have to cut back on some of your plans due to price hikes, sold out materials or surprise developments during construction. Expect to make compromises. If your dream project begins to get pricey, consider focusing on just one or two aspects of your reno that are most important to you, and saving other changes for another time.

3. Getting Creative

To keep your costs down, try thinking outside the box. Say the countertop you really want is way out of your budget. Perhaps your contractor may know where to find salvaged materials at a deep discount. Or the cabinets you had your eye on have jumped in price. Opting to reface instead of replace your existing cabinetry could be a reasonable, cost-effective approach. Being open to these kinds of options can really help keep your spending in check.

4. Doing It Yourself

DIY can be a great way to keep inflation from ruining your kitchen budget … if you know what you’re doing. There are millions of how-to videos online with detailed instructions on everything from putting in new flooring to installing sinks. One of the largest costs of any renovation is labor, and you can reap some significant savings by doing some of the things yourself, and saving the really hard stuff for a contractor. Keep in mind, though, that taking on tasks outside of your abilities could end up costing you in the end, so be realistic about what projects you can handle and which are better left to the professionals.

💡 Recommended: How Much Does it Cost to Remodel a House?

5. Considering Temporary Fixes

Can you update your cabinets and countertops with removable materials? Or perhaps a new coat of paint and some new pulls? Peel and stick wallpaper has become particularly popular due to its variety and flexibility. It comes in countless prints from wood grain to marble, and can be used as a backsplash, on countertops, kitchen cabinets, and yes, walls. Incorporating one of these simple changes can give your kitchen a fast and financially friendly refresh.

6. Renovating vs Remodeling

Yes, there’s a difference, and the distinction is important. If you are remodeling, you are changing the physical space, breaking down walls, removing cabinetry, etc. Remodels are almost always more labor intensive, require more materials, possibly permits, and definitely more of your contractor’s time, so they are almost always more expensive, even without inflation. Renovating, however, means you are updating what already exists. In this scenario, it’s often easier to pick your battles — keep the cabinets but change the countertop, for instance. So, if you really want to keep costs down, you may want to consider renovating cosmetic features instead of remodeling.

7. Consider a Loan

If you can’t wait to renovate but don’t have all the cash you need, you could consider getting a personal loan to cover the costs. If you’ve made enough mortgage payments, tapping into your home equity could be another option for funding your project. There are both benefits and drawbacks to borrowing so be sure to read the fine print, keep a close eye on interest rates and do your best to keep your project on track and under budget.

8. Increase Your ROI

Tapping into a mortgage refi or getting a personal loan might seem risky, but it can make sense if you’ve considered how much your home improvement may boost the value of your home when it comes time to sell it. Using a home improvement ROI calculator can help you estimate how much value you can add to your home after a renovation or remodel.

Another metric you may want to consider is the return on investment, for a particular project. Boosting your curb appeal — that is, the exterior of the house — can give you the most bang for your buck. So can things like replacing a garage door, sprucing up the yard and landscaping, and even painting the exterior of the house. And even a minor kitchen renovation can boost your home’s value, potentially offsetting any inflation costs you may incur.

9. Choosing The Right Contractor

Once you’ve decided what you want to do and what you can afford, it’s time to find a good contractor to execute your vision. This one decision can make or break the entire project, so it’s wise to ask for personal referrals. If that’s not an option, you can always search the top-reviewed contractors in your area. And just like comparing prices at the grocery store, getting estimates from at least three contractors can help you save.

The Takeaway

Inflation might be sky high right now, but it doesn’t have to stop you from having the kitchen of your dreams. Whether you are going for a full remodel or a few cosmetic changes, there are ways to update the look of your kitchen without breaking the bank.

And should you decide to pick up a personal loan to cover those costs, be sure to budget a little extra for the “just-in-case.” SoFi’s home improvement loans range from $5K to $100K and can cover just about any kitchen project. Plus, with no collateral and same day funding, you can kick off your project sooner and can find yourself cooking in your new kitchen in no time.

Learn how a SoFi home improvement loan may help you fund your remodel in no time.

Photo credit: iStock/sturti

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.

SOPL0622012

Aug

2022

Compulsive or Impulsive Shopping: How to Combat It

By Marcy Lovitch | Budgeting & Goals, Financial Independence, money | Comments Off

Spending money on purchases is a part of daily life (groceries, for instance) and can be a pleasure (those cool new boots you’ve been eying for weeks). But for some people, shopping gets out of hand and becomes impulsive or compulsive shopping. They literally “can’t resist” buying and find themselves purchasing often and when they don’t really need anything.

Both compulsive and impulsive shopping can negatively impact your finances and personal life, though they are not the same thing. If you feel as if you can’t control your spending and your money management is suffering from it (such as debt is piling up), know that you can take steps to regain control.

Here, you’ll learn:

• What compulsive shopping is

• Causes of compulsive shopping

• What impulsive shopping is

• Causes of impulsive shopping

• How to take control of compulsive or impulsive shopping

What Is Compulsive Shopping?

Compulsive shopping is defined as an uncontrollable desire to shop, resulting in a person investing large amounts of time and money in the activity. People who shop compulsively tend to make purchases regardless of whether they need or want an item — or can actually afford it.

Compulsive shopping, or compulsive buying behavior (CBB), is considered a mental health condition that can have negative consequences financially and personally. It can become a preoccupation and involve the loss of self-control. Compulsive shoppers may use excessive spending as a coping method to mask feelings of low self-esteem, stress, and anxiety. They may feel a high when buying something but often experience disappointment and guilt afterwards.

Characteristics of compulsive shopping include:

• Obsessive research over coveted items

• Making unnecessary purchases

• Potentially dire financial issues as a result, such as bankruptcy, credit card debt, and foreclosure

Causes of Compulsive Shopping

Approximately 6% of adults experience compulsive shopping, which can express a variety of emotional needs and wants, such as:

• Perfectionism. The shopper may be focused on finding the perfect item, which brings them feelings of satisfaction once discovered.

• Desire to be in control. Purchasing items can make them feel as if they have achieved something when other aspects of their life are not well managed.

• Childhood trauma, neglect, or abuse. If a person has endured this kind of pain, buying items may feel like a reward that offsets this negativity.

• Feelings of loneliness and depression. Buying items can be an exciting mood-lifter; a kind of high.

• Mood, anxiety, or personality disorders. Compulsive shopping can be a self-soothing behavior.

What Is Impulsive Shopping?

Impulsive shopping is somewhat different from compulsive shopping, though some mental-health professionals consider them to be aspects of the same issue. Impulsive shopping tends to happen when a person gets caught up in the moment and spontaneously buys something. It’s a purchase without any forethought, planning, and it’s often not within a person’s budget.

People who impulse-shop are usually influenced by external triggers, such as seeing an item on sale or positively responding to a store’s atmosphere. Everyone indulges in some impulse-fueled retail therapy now and then. However, when these immediate gratification purchases become habitual, the behavior can morph into something uncontrollable and financially damaging. When it has this kind of negative impact, it nudges into the realm of a disorder.

Causes of Impulsive Shopping

Impulsive shopping can have a variety of causes, including:

• Wanting to ease negative feelings or improve one’s mood with a “pick-me-up”

• A need for fun or entertainment

• Lower levels of self-control

• Fear of missing out (FOMO) on items or experiences other people have

• Materialism; placing value on owning possessions

Compulsive vs Impulsive Shopping: What’s the Difference?

While these two behaviors’ names may sound similar, they are actually distinct. Here are the key differences when one compares impulsive vs. compulsive shopping:

Compulsive	Impulsive
Resembles addictive behavior	Can develop into addictive-like behavior if left unchecked
Buying things regularly	Buying is more occasional and situational
Shopping is planned and premeditated	Shopping is unplanned and spontaneous
More internally motivated by uncomfortable emotions	More externally motivated and influenced by shopping environments and marketing

Tips for Combating Compulsive or Impulsive Shopping

Impulsive and compulsive shopping can tip into the danger zone and ruin your budget and financial fitness. They can also take up too much mental space. If you have entered that realm and perhaps are carrying a hefty amount of debt, taking control of the situation can feel overwhelming. But there is help. Consider these suggestions on how to get started if you think you’re a shopaholic:

Seeking Some Professional Help

Individual counseling with a mental health professional can help you get to the emotional root of your buying issues. Psychotherapy, such as cognitive behavioral therapy (CBT), can effectively treat these shopping behaviors. Medication may also help manage unwanted or intrusive thoughts about shopping. Group therapy can also be beneficial.

Paying Close Attention to Spending Habits

Figuring out your particular shopping triggers can help you avoid or eliminate them. For instance, when buying, do you use credit cards instead of paying with cash or a debit card? Make shopping a priority over paying bills? Grocery shop without making a list? Being honest about how and why you may engage in certain overspending behaviors is vital to understanding the issue. Changing spending habits can then help you manage your finances better.

Having an Accountability Mentor

Get some support: A financial counselor, advisor, partner, family member, or friend can assist you on your journey to curb compulsive or impulsive spending. Try taking a trusted, non-judgmental confidant with you when you go shopping. Ask them to help rein you in if you start overbuying. You can also consider having them hold onto your credit cards to eliminate access, chat regularly with you to keep tabs on your progress, and be a sympathetic listener when you need to talk through your feelings.

National 12-step program support groups such as Debtors Anonymous (especially if you’ve racked up credit card debt) and Spenders Anonymous are also an option. They can connect you with others who are dealing with similar issues.

Setting a Budget

Creating and sticking to a budget allows you to gain control over your spending. A well-thought out budget will help with personal accountability and achieving financial discipline. Since life needs to be about balance and we all need to spend money on something fun here and there, try to set yourself up with the flexibility to splurge sometimes. This will help keep you from feeling completely deprived.

One suggestion is to consider incorporating the 50/30/20 budget rule. This guideline recommends spending up to 50% of your after-tax income on must-haves (say, housing, car payments, utilities, healthcare, and groceries). Then, take 30% of your money and reserve it for wants such as dinners out, vacations, concert tickets, electronics, and clothing. The remaining 20% should be allocated for investments, an emergency fund, debt repayment, or savings.

Recommended: 10 Personal Finance Basics

Minimizing Temptation

Many stores are carefully designed to get you to shop and spend, perhaps to an extreme. If a store’s atmosphere — the design, the scents, the music — tends to get you buying, avoid it. Don’t walk down the streets filled with your favorite shops; try to escape the triggers that make you shop too much. If you often spend free time at the mall or online shopping, sign yourself up for a class, take up a new sport, volunteer, or find other ways to fill the hours.

Online promotional discounts, coupon codes, and the ease of electronic transactions can make compulsive or impulsive shopping easier and more appealing. Go ahead and unsubscribe from retailer emails.

Curbing social media exposure can help, too. Research suggests ads and posts from social media influencers and seeing purchases from people in your social networks may encourage a “keeping up with the Joneses” mentality, often leading to impulsive and compulsive buying.

Starting a No-Spend or 30-Day Savings Rule

A quick way to stop spending money is to freeze any non-essential spending for an entire month. Commit to a 30-day shopping ban on things such as clothing, make-up, tech gadgets, or take-out, and see how much extra money you have at the end of the month. The difference may be eye-opening and help you break the cycle.

Successfully controlling your spending can provide a feeling of accomplishment and a confidence boost. Participating in a no-spend challenge can even become a fun game; you can involve other budget-conscious friends and know you’re all in it together.

The Takeaway

Although there are differences between compulsive and impulsive shopping, both can seriously affect your financial and personal life. Facing your impulsive or compulsive shopping habits can be daunting, but taking positive, concrete steps is likely to help conquer the problem. Getting past this spending issue, whether by shifting your behaviors or seeking professional help, can be a positive step, both for you personally and for your finances.

Want to get a better handle on your spending? Get started today by signing up for a SoFi Checking and Savings account. You can easily track your weekly spending on our dashboard. What’s more, when you open a SoFi online bank account with direct deposit, you’ll earn a competitive APY and pay no fees, so your money could grow that much faster.

Discover the benefits of banking with SoFi today.

FAQ

Is breaking a budget a sign of compulsive shopping?

Breaking your budget is not necessarily a sign of compulsive shopping. However, if you regularly deviate from your budget, spend money allocated for needs on wants, and find yourself saddled with credit card debt, you may need to rein in your compulsive spending. Analyze your shopping habits and budget to understand your behavior better.

Is making an impulse purchase a bad thing?

The reality is, most of us make occasional impulse buys, and they are not always such a bad thing. However, if this kind of shopping becomes habitual and leaves you with debt, pay attention and take steps to improve the situation.

How do I limit impulse purchases?

One way to limit impulse purchases is to avoid stores or websites where you know you tend to overspend. Also, ask yourself, “Do I need this or do I just want it?” when tempted to make a purchase. If the answer is the latter, wait 24 hours, and see if you still really want it. Your desire may dwindle during that cooling-off period.

Photo credit: iStock/jacoblund

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