Aug
11
2025
How and Why to Invest in Oil

How and Why to Invest in Oil

By | Growing Wealth, invest, Investing | Comments Off on How and Why to Invest in Oil

Oil is valuable, and one of the most widely used and widely traded commodities in the world. Despite the growth of many forms of alternative energy, oil remains essential to the functioning of industry and transportation around the globe.

Given all the factors that go into oil prices, it’s no wonder that they can fluctuate dramatically, often on a daily basis. The price of oil has an impact on a wide range of industries, and ultimately on the prices that consumers pay at the pump, in the supermarket, and beyond. That also makes it attractive to some investors.

Key Points

•   Investing in oil remains attractive to some investors due to its critical role in global industry and transportation, despite the rise of alternative energy sources.

•   Various investment options exist, including oil company stocks, mutual funds, ETFs, and exchange-traded notes that track oil prices directly.

•   Market dynamics, including OPEC decisions, global supply and demand fluctuations, and production costs, heavily influence oil prices.

•   Natural disasters and geopolitical tensions can lead to significant price changes, affecting both supply and investor sentiment in the oil sector.

•   Oil investment carries inherent risks due to its volatility, making thorough research and consideration of individual investment goals essential before proceeding.

Ways to Invest in Oil

For those who are interested in incorporating crude oil investing in their portfolio, there are many ways to get started.

Oil Company Stocks

In addition to the massive global names, there are other companies that specialize in different aspects of energy production, oil exploration, drilling, equipment, delivery and more. There are also smaller oil companies with vertical operations, but only in specific parts of the world. Each of those types of companies will perform differently depending on the many geopolitical, economic, technological, and other factors that drive the price of oil up and down.

Recommended: Investing in the Energy Sector: What Any Investor Should Know

Oil Funds

Not every investor has the time or interest to research a host of oil companies. For those investors, another approach might be investing in a mutual fund or exchange-traded fund (ETF) that focuses on the oil sector, or more broadly on the energy sector.

Since thematic ETFs and mutual funds hold many securities, they offer investors a level of diversification within their portfolio.

Recommended: Key Differences between Mutual Funds and ETFs

Exchange-Traded Notes (ETNs)

Exchange-traded notes are a vehicle that invests directly in oil futures contracts. They may be attractive to some investors because they offer easy access to oil futures, without some of the other factors that can affect the performance of oil companies, such as currency fluctuations and swings in the equity markets. Because they buy oil futures directly, ETNs can offer investors a more direct investment in the price of oil.

Derivatives

More sophisticated investors may also consider investing in the derivatives markets, buying futures, and options. Crude oil options trade on the New York Mercantile Exchange (NYMEX) and on the ICE exchange.

Alternative Investments

Investors interested in alternative investments might get exposure to oil by purchasing mineral rights or buying into Limited Partnerships (LPs) that invest throughout the sector.


💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

Oil prices plummeted in 2020, as pandemic-associated lockdowns drove U.S. oil prices into negative territory for the first time in history. In April 2020, investors bid the price for West Texas Intermediate (WTI) from $18 per barrel, down to roughly negative $37 a barrel.

Later that year, oil prices began to normalize. Demand returned in 2021, and oil prices shot back up in 2022, when they reached levels not seen in decades. Then, in 2023, prices did fall a bit again, and remain around $66 per barrel as of mid-2025 — but the point is that prices are always on the move. Given the unpredictability of the global economy, too, it’s very difficult to determine how oil prices will perform going forward.

Forces That Drive Oil Prices

There are many factors that determine oil prices. That, in turn, can affect prices for gasoline and more. Here are some of the forces at play.

The Organization of Petroleum Exporting Countries (OPEC)

Another important contributor to oil prices is the Organization of Petroleum Exporting Countries (OPEC), a group of 12 oil-producing countries, including Algeria, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela.

Together, they’re responsible for nearly 80% of the planet’s oil reserves. As an organization, OPEC meets regularly to set production levels. And its decisions can directly change the price of oil and gas. And while it has a massive influence on the price of oil, it doesn’t control the price.

Market Fundamentals

The global oil market is a force in its own right, as supply and demand tend to fluctuate sharply and unpredictably. There can be too much supply. Within OPEC, members don’t always follow through on the limits they agreed upon limits. There are also major oil suppliers, such as the United States, who are not OPEC members who may produce more oil than expected. That can cause high levels of supply relative to demand, which can drive down prices.

Production Costs

Oil in Canada’s oil sands or American shale reserves is far more labor-intensive and expensive to extract and refine than the oil in the Middle East. Those extraction costs contribute to the price of the oil, which can drive the oil prices higher or lower, depending on where the bulk of supply is coming from at any given time.

Natural Disasters

Oil prices are also susceptible to change as a result of natural disasters. Hurricanes, for example, regularly shut down oil production in the Gulf of Mexico, which can reduce the supply of oil and drive prices up.

International Relations

The headlines, especially international ones, can also drive oil prices. A significant amount of the world’s oil comes from the Middle East. Political instability in that region creates investor uncertainty, which can lead to price fluctuation. The same goes for countries like Russia, which produces a lot of oil, but is often involved in geopolitical conflicts.

Economic Factors

While not always the case, recessions and economic turmoil can push oil prices lower.

The relative strength of the U.S. dollar also plays a role in the price of oil. The thinking is that a strong dollar allows American oil companies to buy more oil, and cut the cost to U.S. consumers, who buy a good percentage of the oil on the market.

However, while oil does not typically perform well during a recession, it does typically become more attractive to investors later in the business cycle.

The Takeaway

Oil is always in demand, and fluctuates a lot in price, which may make it attractive to many investors. But it’s a volatile investment, which can make investing in oil a risky endeavor. Given that many people are focused on renewable energy sources, too, investing in oil may not be as attractive as it once was.

The volatility of oil and its importance to the global economy makes it an important asset class for many investors. But again, it’s risky — so, whether you decide to invest in oil or oil-adjacent sectors and companies should be given considerable thought.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.


Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

How can investors invest in oil?

There are several ways to potentially invest in oil either directly or indirectly, including oil company stocks, mutual funds, ETFs, and exchange-traded notes that track oil prices directly.

What sorts of factors determine oil prices?

There’s a long list of variables that may affect oil prices, including the goals of cartels like OPEC, production costs, natural disasters, and international relations or military conflicts.

What is OPEC?

OPEC is the Organization of Petroleum Exporting Countries (OPEC), a group of 12 oil-producing countries, including Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC makes up nearly 80% of the planet’s oil reserves.

Photo credit: iStock/kckate16

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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11
2025
Cyclical vs. Non-Cyclical Stocks: Investing Around Economic Cycles

Cyclical vs Non-Cyclical Stocks: Investing Around Economic Cycles

By | Growing Wealth, invest, Investing | Comments Off on Cyclical vs Non-Cyclical Stocks: Investing Around Economic Cycles

Cyclical investing means understanding how various stock sectors react to economic changes. A cyclical stock is one that’s closely correlated to what’s happening with the economy at any given time. The performance of non-cyclical stocks, however, is typically not as closely tied to economic movements.

Investing in cyclical stocks and non-cyclical stocks may help to provide balance and diversification in a portfolio. This in turn may help investors to better manage risk as the economy moves through different cycles of growth and contraction.

Key Points

•   Cyclical stocks tend to perform well during periods of economic growth, while non-cyclical stocks may thrive during economic contractions.

•   Cyclical stocks exhibit higher volatility and sensitivity to economic changes.

•   Non-cyclical stocks focus on essential goods, which may offer stability regardless of market conditions.

•   Economic cycles include expansion, peak, contraction, and trough phases.

•   Cyclical investing strategies may involve sector rotation and regular reallocation.

Cyclical vs Non-Cyclical Stocks

There are some clear differences between cyclical vs. non-cyclical stocks, as outlined:

Cyclical Stocks

 Non-Cyclical Stocks
May Perform Best During Economic growth Economic contraction
Goods and Services Non-essential Essential
Sensitivity to Economic Cycles Higher Lower
Volatility Higher Lower

A cyclical investing strategy can involve choosing both cyclical and non-cyclical stocks. In terms of how they react to economic changes, they’re virtual opposites.

Cyclical stocks are characterized as being:

•   Strong performers during periods of economic growth

•   Associated with goods or services consumers tend to spend more money on during growth periods

•   Highly sensitive to shifting economic cycles

•   More volatile than non-cyclical stocks

When the economy is doing well a cyclical stock tends to follow suit. Share prices may increase, along with profitability. If a cyclical stock pays dividends, that can result in a higher dividend yield for investors.

Non-cyclical stocks, on the other hand, share these characteristics:

•   Tend to (but don’t always) perform well during periods of economic contraction

•   Associated with goods or services that consumers consider essential

•   Less sensitive to changing economic environments

•   Lower volatility overall

A non-cyclical stock isn’t completely immune from the effects of a slowing economy. But compared to cyclical stocks, they’re typically less of a roller-coaster ride for investors in terms of how they perform during upturns or downturns. A good example of a non-cyclical industry is utilities, since people need to keep the lights on and the water running even during economic downturns.


💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Cyclical Stocks

In the simplest terms, cyclical stocks are stocks that closely follow the movements of the economic cycle. The economy is not static; instead, it moves through various cycles. There are four stages to the economic cycle:

•   Expansion. At this stage, the economy is in growth mode, with new jobs being created and company profits increasing. This phase can last for several years.

•   Peak. In the peak stage of the economic cycle, growth begins to hit a plateau. Inflation may begin to increase at this stage.

•   Contraction. During a period of contraction, the economy shrinks rather than grows. Unemployment rates may increase, though inflation may be on the decline. The length of a contraction period can depend on the circumstances which lead to it.

•   Trough. The trough period is the lowest point in the economic cycle and is a precursor to the beginning of a new phase of expansion.

Understanding the various stages of the economic cycle is key to answering the question of what are cyclical stocks. For example, a cyclical stock may perform well when the economy is booming. But if the economy enters a downturn, that same stock might decline as well.

Examples of Cyclical Industry Stocks

Cyclical stocks most often represent companies that make or provide things that consumers spend money on when they have more discretionary income.

For example, that includes things like:

•   Entertainment companies

•   Travel websites

•   Airlines

•   Retail stores

•   Concert promoters

•   Technology companies

•   Car manufacturers

•   Restaurants

The industries range from travel and tourism to consumer goods. But they share a common thread, in terms of how their stocks tend to perform during economic highs and lows.

Examples of Non-Cyclical Industry Stocks

Non-cyclical industry stocks would be shares of companies that are more insulated from economic downturns than their cyclical counterparts. It may be easier to think of them as companies that are probably going to see sales no matter what is happening in the overall economy. That might include:

•   Food producers and grocers

•   Consumer staples

•   Gasoline and energy companies

Cyclical Stock Sectors

The stock market is divided into 11 sectors, each of which represents a variety of industries and sub-industries. Some are cyclical sectors, while others are non-cyclical. The cyclical sectors include:

Consumer Discretionary

The consumer discretionary sector includes stocks that are related to “non-essential” goods and services. So some of the companies you might find in this sector include those in the hospitality or tourism industries, retailers, media companies and apparel companies. This sector is cyclical because consumers tend to spend less in these areas when the economy contracts.

Financials

The financial sector spans companies that are related to financial services in some way. That includes banking, financial advisory services and insurance. Financials can take a hit during an economic downturn if interest rates fall, since that can reduce profits from loans or lines of credit.

Industrials

The industrial sector covers companies that are involved in the production, manufacture or distribution of goods. Construction companies and auto-makers fall into this category and generally do well during periods of growth when consumers spend more on homes or cars.

Information Technology

The tech stock sector is one of the largest cyclical sectors, covering companies that are involved in everything from the development of new technology to the manufacture and sale of computer hardware and software. This sector can decline during economic slowdowns if consumers cut back spending on electronics or tech.

Materials

The materials sector includes industries and companies that are involved in the sourcing, development or distribution of raw materials. That can include things like lumber and chemicals, as well as investing in precious metals. Stocks in this sector can also be referred to as commodities.

Cyclical Investing Strategies

Investing in cyclical stocks or non-cyclical stocks requires some knowledge about how each one works, depending on what’s happening with the economy. While timing the market is virtually impossible, it’s possible to invest cyclically so that one is potentially making gains while minimizing losses as the economy changes.

For investors interested in cyclical investing, it helps to consider things like:

•   Which cyclical and non-cyclical sectors you want to gain exposure to

•   How individual stocks within those sectors tend to perform when the economy is growing or contracting

•   How long you plan to hold on to individual stocks

•   Your risk tolerance and risk capacity (i.e. the amount of risk you’re comfortable with versus the amount of risk you need to take to realize your target returns)

•   Where the economy is, in terms of expansion, peak, contraction, or trough

For example, swing trading is one strategy an experienced investor might employ to try and capitalize on market movements. With swing trading, you’re investing over shorter time periods to attempt to see gains from swings in stock prices. Short-term trading, however, is considered high risk given the potential for seeing losses, and requires investors to be familiar with risk mitigation strategies. Swing trading relies on technical analysis to help identify trends in stock pricing, though you may also choose to consider a company’s fundamentals if you’re interested in investing for the longer term.

How to Invest in Cyclical Stocks

Investors can invest in cyclical stocks the same way they do any other type of stock: Purchasing them through a brokerage account, or from an exchange.

One way to simplify cyclical investing is to choose one or more cyclical and non-cyclical exchange-traded funds (ETFs). Investing in ETFs can simplify diversification and may help to mitigate some of the risk of owning stocks through various economic cycles.

Recommended: How to Trade ETFs: A Guide for Retail Investors

The Takeaway

Cyclical stocks tend to follow the economic cycle, rising in value when the economy is booming, then dropping when the economy hits a downturn. Non-cyclical stocks, on the other hand, tend to behave the opposite way, and aren’t necessarily as affected by the overall economy.

Investing around economic cycles can be a viable strategy, but it has its potential pitfalls. Investors who do their homework may be able to successfully invest around economic cycles, but it’s important to consider the risks involved.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

What are indicators of cyclical stocks?

A few examples of indicators of cyclical stocks include the earnings per share data reported by public companies, which can give insight into the health of the economy, along with beta (a measure of volatility of returns) and price-to-earnings ratios.

What is the difference between cyclicality vs seasonality?

While similar, cyclicality and seasonality differ in their frequency. Seasonality refers to events or trends that are observed annually, or every year, whereas cyclicality, or cyclical variations, can occur much less often than that.

How do you mitigate the risk of investing in cyclical stocks?

Investors can use numerous strategies to help mitigate the risk of investing in cyclical stocks, such as sector rotation and dollar-cost averaging.

Photo credit: iStock/Eoneren

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Dollar Cost Averaging (DCA): Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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11
2025
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Dollar Cost Averaging: Definition, Formula, Examples

By | Growing Wealth, invest, Investing | No Comments

Dollar cost averaging (DCA) is a way to help manage volatility as you continue to save and build wealth. Volatility is a natural part of investing, and nearly every investor must contend with the inevitable price fluctuations it can cause. One method for doing this is dollar cost averaging.

With this strategy, you decide on the securities you want to purchase and the dollar amount you want to invest each month (or whatever timeframe you choose), and then you automate that amount to be invested on a regular basis.

Read on to learn more about the DCA meaning, how this investment strategy works, and the pros and cons to be aware of.

Key Points

•  Dollar cost averaging (DCA) is an investment strategy that helps manage volatility by investing a fixed dollar amount regularly.

•  DCA involves buying securities at regular intervals, regardless of market prices, to avoid trying to time the market.

•  Dollar cost averaging works by investing the same amount consistently, resulting in buying more shares when prices are low and fewer when prices are high.

•  The strategy can help investors stay the course and avoid emotional decision-making based on market fluctuations.

•  While dollar cost averaging has benefits like consistency and automation, it may not maximize returns compared to lump-sum investing and may not address the need for portfolio rebalancing.

What Is Dollar Cost Averaging (DCA)?

If you’ve been hearing about DCA and wondering, what is DCA exactly? This is what you need to know: Dollar cost averaging is an investment strategy where you buy a fixed dollar amount of an investment on a regular basis, such as monthly. The goal is not to invest when prices are high or low, but rather to keep your investment steady and repeatable, and thereby avoid the temptation to time the market.

With dollar cost averaging, you invest the same dollar amount each time so that when prices are lower, you buy more; when prices are higher, you buy less. Otherwise, according to behavioral finance theories, you might be tempted to follow your emotions and buy less when prices drop (investors can become more conservative in down markets), and more when prices are increasing (investors can be more optimistic and aggressive when the market goes up). These can be common tendencies among some investors.

How Dollar Cost Averaging Works

Dollar cost averaging works by making more or less the same investment over and over on a repeating basis. For an investor, it may be as simple as investing $5 in Fund A every other week (some investors might even think of Fund A as their DCA Fund), or something similar, no matter what’s going on in the market.

That way, you’re investing the same amount whether the market goes up, down, or sideways. For example, if you invest $100 in Fund A at $20 per share, you get 5 shares. The following month, say, the price has dropped to $10 per share, but you stay the course and invest $100 in Fund A — and you get 10 shares.

Over time, the average cost of your investments — the dollar amount you’ve paid — may end up being a little lower, which can benefit the overall value of your portfolio.

Dollar Cost Averaging Formula

When using a dollar cost averaging strategy, the formula for determining the average price paid per share of an investment over a certain period of time is simple:

Total Amount Invested / Total Number of Shares Owned = Average Price Paid Per Share

DCA investing is based on the assumption that prices may naturally rise and fall over time, allowing investors, as mentioned above, to buy more shares when prices fall and fewer shares when they rise.

As a result, a dollar cost averaging strategy may help investors reduce the average price they pay per share over time, potentially lowering their cost basis in investments. A common example of dollar cost averaging in practice is the regular investments made through 401(k) retirement plans, which are designed to help investors build their wealth in increments over several years.

That said, dollar cost averaging may not always reduce the average price paid, such as when the price of an investment rises steadily. Dollar cost averaging may also be risky when investing in fewer stocks as opposed to a well-diversified portfolio, for example, since an investor may not be aware when prices are falling steadily and they should potentially stop buying.

Example of Dollar Cost Averaging

Here’s an example of how dollar cost averaging might look in practice.

Investor A might buy 20 shares of an exchange-traded fund (ETF) at $50 per share, for $1,000 total. This would be investing a lump-sum, rather than using a dollar cost averaging strategy.

Investor B, however, decides to use a dollar cost averaging strategy.

•   The first month, Investor B buys shares of the same ETF at $50/share, but spends $300 and gets six shares.

•   The next month the ETF price drops to $30 per share. So Investor B once again invests $300 and now gets 10 shares.

•   By the third month, the ETF is worth $50 per share again, and Investor B’s regular $300 investment gets them six shares.

Investor B now owns 22 shares of the ETF, at an average price of $40.90 per share and a total cost of $899.80.

Or, to use the DCA formula: $899.80 / 22 = $49.90

By comparison, Investor A, paid $1,000 ($50 per share for 20 shares) in one lump sum.

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Benefits and Disadvantages of DCA

Of course, every strategy has its pros and cons to consider. Here are some of the advantages and disadvantages of DCA.

Dollar Cost Averaging Benefits

One main benefit of DCA is that it requires you to stay the course, regardless of volatility. It keeps you from trying to time the market and trying to figure out how to know when to buy a stock. By investing the same amount of money every month, you will buy more shares if the market is down and fewer shares if the market is up. You’re not investing with your emotions, which can lead to impulsive choices.

DCA allows you to “set it and forget it.” Investing the same dollar amount every month is a straightforward strategy, and technology makes it easy to practice DCA as well as other types of automated investing. Though it’s always wise to review the performance of investments at regular intervals, with DCA, you don’t have to always keep your eye on different investments or even market volatility. Just stick to the plan.

You also don’t have to be wealthy in order to use the dollar cost averaging method. You can start small, but all the while, you will be contributing to and potentially growing an investment portfolio.

Dollar Cost Averaging Disadvantages

But there are some drawbacks to dollar cost averaging. In some cases, investing a lump sum may net you a higher return over time. Although DCA works well in terms of helping to manage the impact of volatility, the reality is that over the course of many years, the market trends upward, as the average market return shows.

Although there are many factors to consider when it comes to investing returns, the market’s upward trajectory is something to bear in mind.

When you use any kind of “set it and forget it” strategy, you run the risk of missing out on certain market opportunities. You can also miss out on any red flags. Although the upside of dollar cost averaging is its consistency, the potential downside is that you may be less aware if there are new opportunities — or the need to avoid losses.

In addition, if the price of the asset keeps rising, you’ll end up buying fewer shares than you would have if you’d purchase it at the lower price with a lump sum.

Last, dollar cost averaging doesn’t solve the problem of rebalancing a portfolio — which any investors might consider doing regularly to ensure their portfolio aligns with their risk tolerance.

💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

When to Use Dollar Cost Averaging

There are certain times when dollar cost averaging makes sense, and certain investments that are suited to this strategy.

•   Small and steady approach: For example, many people believe they need to invest large sums of money to invest successfully and they may have questions about buying and selling strategies, such as how long should you hold stocks. With DCA, an investor can invest small amounts steadily over time, and reap the potential benefits of market growth.

•   Purchasing mutual funds: Mutual funds allow you to purchase a share that represents a very small allocation of the underlying investment portfolio. This means that you can diversify with much smaller dollar amounts than if you purchased the securities on your own.

•   Investing in ETFs: (exchange-traded funds): Similar to mutual funds, ETFs provide an opportunity to diversify with smaller dollar amounts. Additionally, ETFs are available to trade throughout the day, generally have low expenses, no investment minimums, and may offer greater tax-efficiency.

Comparing Dollar Cost Averaging vs. Lump-Sum Investing

Both dollar cost averaging and lump sum investing have pros and cons. To help decide which option is best for you, consider your investment strategy and tolerance for risk.

New and experienced investors alike could potentially benefit from a dollar cost averaging strategy when investing in a diversified portfolio that experiences natural shorter-term volatility, while hopefully rising over time. A DCA investor may end up paying a lower price per share over the course of an investment.

Also, if market volatility makes you anxious and stresses you out, DCA could allow you to purchase assets and participate in the market in a small and consistent way that may make you feel more comfortable, while avoiding the risk of investing a large sum before a market downturn.

However, you may alternatively consider lump-sum investing if you have the funds available and can stomach some market ups and downs. Lump sum investing may give you a higher net reward over time, since the entire investment would have more time to potentially compound and grow than if the same amount were invested gradually over a longer time period. Depending on the brokerage you use, you may also reduce potential trading fees compared to DCA investing.

Keep in mind that the price you pay for the lump sum investment could potentially be higher (or lower) than if you used a DCA strategy since it’s extremely challenging to try to time the market.

Consider all the pros and cons carefully to decide which strategy makes the most sense for you.

The Takeaway

Dollar cost averaging is a fairly straightforward strategy that could help mitigate the impact of volatility on your portfolio, and may also help you avoid giving into emotional impulses when it comes to buying or selling. Thus, dollar cost averaging might help you stay in the market, even when it’s fluctuating, with the potential result that you could buy more when prices are low and less when prices are high. Overall, you may end up paying less on average.

But dollar cost averaging isn’t an excuse for literally “setting and forgetting” your portfolio. It’s still important to check on your investments in case there are any new opportunities or bona fide laggards. And once a year (or at whatever interval makes sense for you), you may want to rebalance your portfolio to help stay on track to meet your financial goals.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

Is dollar cost averaging a good idea?

Dollar cost averaging may be a good strategy for some investors to employ, particularly beginner investors or those with a low tolerance for risk. That’s because it allows an investor to regularly participate in the market by taking a small and steady approach, it’s automatic and eliminates the need to try to “time the market,” and it helps take the emotion out of investing, which can prevent panic buying and selling.

But it’s important to consider the downsides of DCA, too. For example, lump sum investing may result in a higher return than dollar cost averaging over time.

When is the best time to do dollar cost averaging?

There isn’t necessarily a best time to use a dollar cost averaging strategy, but it can be a useful technique for those who want to consistently invest without spending a lot of time and effort on it.

How often should you do dollar cost averaging?

When using a dollar cost averaging strategy, investors can choose a cadence that is best suited to their overall financial goals. For some, it may involve biweekly investments; for others, it may involve monthly investments. Think about your financial goals and then choose an investment interval that makes sense.

Where is dollar cost averaging most commonly done?

Dollar cost averaging is a strategy commonly used in retirement plans, such as 401(k)s, in which money is automatically deducted from your paycheck and invested in assets you’ve selected. However, individual investors can use dollar cost averaging any time in their own individual investment accounts, such as a brokerage account.

What are the risks of dollar cost averaging?

The risks of dollar cost averaging may include a potentially lower return compared to lump sum investing since the latter essentially puts more money into the market sooner, giving it a longer runway to potentially grow should the investment rise over time. Overall, with dollar cost averaging, you may also be less aware of certain market opportunities or losses to avoid.

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SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Dollar Cost Averaging (DCA): Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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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SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

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

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Pros and Cons of Using Personal Loans to Pay Off Student Debt

Is it Smart to Use a Personal Loan to Pay Off Student Loans?

By | Debt Payoff, Fresh Out of School, Student Loans, student_loan | No Comments

Student loan debt can be overwhelming, especially as interest builds and payments drag on for years after graduation. For borrowers seeking relief, one strategy that sometimes comes up is using a personal loan to pay off student loans. On the surface, it may seem like a simple debt-swap — replace one loan with another and, ideally, secure better terms. But is it a smart idea?

While personal loans can be used for many things, they are generally not the best option for paying off student loans. Many lenders prohibit using personal loans for educational costs (including SoFi), which includes paying off student loans. Even if you can find a lender that does allow it, there are pros and cons to using a personal loan to pay off your student loan balance. Here’s what you need to know.

Key Points

•   Many lenders do not allow you to use a personal loan for paying off student loans.

•   Personal loans often have higher interest rates and shorter terms than student loans.

•   A lower interest rate can sometimes be secured, potentially reducing overall debt costs.

•   Federal protections like deferment and forgiveness are lost when using a personal loan.

•   Other repayment options, such as federal consolidation loans, student loan refinancing, and income-driven repayment plans, may be a better fit.

Personal Loans vs. Student Loans

At first glance, personal loans and student loans might seem similar. Both provide a lump sum of money up front, require you to pay it back in monthly payments, and charge interest. But the structure, purpose, and protections of each are different.

Student loans are specifically designed to help finance education. They often feature relatively low interest rates and deferred repayment while in school. In the case of federal student loans, they also offer unique benefits like income-driven repayment (IDR) plans, forbearance during hardship, and potential forgiveness programs.

Personal loans, by contrast, are loans that can be used for virtually any legal purpose. Common uses for personal loans include home renovations, unexpected emergencies, medical expenses, major events like weddings, and debt consolidation (when you combine multiple high-interest debts into a single loan with a potentially lower interest rate).

Personal loans tend to carry shorter repayment terms (often two to seven years), and their interest rates can vary widely based on your credit score. Importantly, they don’t offer any of the protections or flexible repayment options that federal student loans provide.

Note: While SoFi personal loans cannot be used for post-secondary education expenses, we do offer private student loans with great interest rates.

Can You Use a Personal Loan to Pay Off Student Loans?

It depends. While it may technically be possible to use a personal loan to pay off your student loans, either federal or private, many lenders do not allow you to use the proceeds of a personal loan for this purpose.

This restriction exists largely due to regulatory and risk concerns. Education-related lending in the U.S. is heavily regulated, and lenders that want to offer student loan refinancing must meet specific legal and compliance standards. To avoid those complications, many personal loan providers choose not to allow their products to be used for anything related to student loans or education.

If you are unsure if a lender will allow you to use the funds to pay off your student debt, it’s a good idea to let them know this is your intent at the outset. This could be a reason why you would be denied for a personal loan. However, if you use the proceeds of a personal loan for a prohibited use, you’ll be violating the loan agreement and might face legal consequences or be required to repay the full amount of the loan immediately.

So while using a personal loan to pay off student debt is theoretically possible, finding a lender that allows it — and does so under favorable terms — could be a major challenge.

Private vs. Federal Student Loans

If you do happen to find a lender that permits this use, it’s crucial to consider what kind of student loans you’re dealing with.

Private student loans often come with fewer borrower protections and may carry higher interest rates than federal loans. If your credit is excellent and the new personal loan offers a better rate and shorter term, using it to pay off private loans could make financial sense — if permitted by the lender.

Federal student loans, however, come with significant advantages that you will lose if you switch to a personal loan. These include access to IDRs, deferment and forbearance options, and the possibility of forgiveness through Public Service Loan Forgiveness (PSLF). Giving up these benefits for a loan that’s less flexible could be risky.

Pros and Cons of Using a Personal Loan to Pay off Student Loans

If you can find a lender that allows it, here are some pros and cons of using a personal loan to pay off student debt.

Pros

•  Potentially lower interest rate: If you took out private student loans with a relatively high rate and currently have strong credit, you may be able to qualify for a personal loan with a lower rate than your student loans.

•  Predictable payments: If you have a private student loan with a variable interest rate, using a fixed-rate personal loan to pay it off will provide you with a fixed monthly payment, which can make budgeting simpler.

•  Faster repayment timeline: Because personal loans usually have shorter terms, using a personal loan to pay off your student debt could help you eliminate your student loan debt more quickly — provided you can afford the higher payments.

Cons

•  Loss of federal protections: If you’re paying off federal student loans, you’ll forfeit benefits like IDR plans, deferment, forbearance, and forgiveness opportunities, which can provide a valuable safety net.

•  Higher monthly payments: Because personal loans generally have shorter repayment terms than student loans, your monthly payments may be higher, even if the interest rate is lower.

•  No tax benefits: You can generally deduct student loan interest, up to $2,500, from your taxable income each year. Interest on personal loans, on the other hand, doesn’t qualify for a similar tax break.

Other Ways to Pay Off Student Loans

If using a personal loan to pay off your student loans isn’t feasible or cost-effective, here are some other student loan repayment options to consider.

Student Loan Refinancing

Student loan refinancing involves taking out a new student loan from a private lender to replace one or more existing loans, ideally at a lower interest rate. Unlike personal loans, there are numerous options available when it comes to finding a lender that will refinance your student loans.

Be aware, though: Refinancing federal loans with a private lender will still eliminate federal protections. Also keep in mind that refinancing student loans for a longer term can increase the overall cost of the loan, since you’ll be paying interest for a longer period of time.

Recommended: Online Personal Loan Calculator

Income-Driven Repayment Plans

If you have federal loans and your payments are unaffordable, you may qualify for an IDR plan. Generally, your payment amount under an IDR plan is a percentage of your discretionary income and remaining debt may be forgiven after decades of consistent repayment.

Keep in mind that under the new domestic policy bill, many existing federal IDR plans will close by July 1, 2028. After those plans are eliminated, borrowers whose loans were all disbursed before July 1, 2026, can choose between the Repayment Assistance Plan (RAP) and Income-Based Repayment (IBR) plan.

Federal Loan Consolidation

Federal loan consolidation allows you to combine multiple federal loans into a single loan with a weighted average interest rate. Consolidation can simplify repayment and may help you qualify for certain forgiveness programs, but you won’t necessarily save on interest.

Loan Rehabilitation

If your federal loans are in default, loan rehabilitation allows you to make a series of consecutive, agreed-upon payments (usually nine over ten months) to bring your loan current. This also removes the default status from your credit report and restores eligibility for federal benefits. To begin the loan rehabilitation process, you must contact your loan holder.

Currently, borrowers can only use a rehabilitation agreement to remove their loans from default once. Starting July 1, 2027, borrowers will be able to use rehabilitation to exit default twice.

The Takeaway

While the idea of using a personal loan to pay off student loans might seem appealing, it may not be a viable nor an advisable solution. Many lenders prohibit using personal loan funds for education-related expenses, including paying off student loans. Even if you find a lender that allows it, the trade-offs can be significant, especially if you’re dealing with federal student loans.

Instead, you might explore options designed specifically for managing student debt, such as student loan refinancing, consolidation, or enrolling in an income-driven repayment plan. These programs may offer benefits that are better fit to your situation.

Debt repayment strategies are not one-size-fits-all. It’s important to carefully evaluate your options — and read the fine print — before making a move that could impact your financial future for years to come.

While SoFi personal loans cannot be used for post-secondary education expenses, they can be used for a wide range of purposes, including credit card consolidation. SoFi offers competitive fixed rates and same-day funding for qualified borrowers. See your rate in minutes.

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


SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

Can you consolidate student loans with a personal loan?

Technically, you might be able to use a personal loan to pay off student loans, but it’s not true consolidation — and many lenders don’t allow it. Personal loan lenders will often explicitly prohibit using loan funds for education-related expenses, including paying off existing student loans. Even if permitted, this route eliminates federal protections like income-driven repayment and forgiveness programs. Alternatives such as federal consolidation or student loan refinancing can be safer and more effective ways to manage or streamline student loan repayment.

What are the risks of using a personal loan to pay off student debt?

Using a personal loan to pay off student debt carries several risks, starting with the fact that many lenders prohibit this use altogether. If you find a lender that allows it, keep in mind that using a personal loan to pay off federal student loans will mean losing federal benefits like income-driven repayment, deferment, forbearance, and loan forgiveness. Personal loans also typically have higher interest rates and shorter repayment terms than student loans, which could increase your monthly payments.

Does paying off student loans with a personal loan hurt your credit?

Many personal loan lenders don’t allow you to use a personal loan to pay off student loans. But if you can find one that does, paying off student loans with a personal loan may impact your credit in several ways.
Initially, your credit could dip temporarily due to the new account and hard inquiry. However, if you make regular, on-time payments, the loan could have a positive influence on your credit profile over time. On the other hand, missed payments could negatively affect your credit. It’s important to consider lender rules and your ability to manage repayment before using a personal loan to pay off student loans.

Are there better options than personal loans for student debt?

Yes, there are a number of options that may be better than personal loans for paying off student loans. Federal consolidation loans can combine multiple federal loans into one, simplifying repayment. Income-driven repayment plans for federal loans adjust payments to your earnings, making them more manageable. Refinancing with a private lender might reduce rates and monthly payments Additionally, some employers offer student loan repayment assistance, which can significantly ease the financial burden.

Can using a personal loan to pay student loans disqualify you from forgiveness programs?

Yes. If you pay off your federal student loans with a personal loan, you’ll forfeit federal benefits like income-driven repayment, deferment, forbearance, and loan forgiveness. The same is true if you refinance your federal student loans with a private student loan lender.

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.

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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woman on a bridge

Getting Out of Debt with No Money Saved

By | Debt Payoff, Financial Independence, personal_loan | No Comments

Getting out of debt can feel overwhelming — especially if you’re broke or living on a low income. When you’re struggling to cover everyday living expenses, finding extra money to pay down debt might seem impossible. Minimum payments barely make a dent, and the cycle of debt just keeps going.

The good news? No matter your financial situation, there are strategic steps you can take to reduce and eventually eliminate your debt. The key is persistence, planning, and making the most of the resources you have. Here’s a step-by-step guide to help you get out of debt, even if your income is limited.

Key Points

•   Creating a budget helps you understand and take control of your finances, essential for debt management.

•   Even small changes in spending habits can free up funds for debt repayment.

•   Negotiating with lenders can reduce interest rates, making your payments go further.

•   Some balance transfer credit cards offer 0% interest temporarily, which can help you pay off debt faster.

•   Debt consolidation with a personal loan can simplify payments and lower interest if you can qualify for a lower rate.

Begin by Creating a Budget

The first step to getting out of debt with no money is building a basic budget. While budgeting might sound like a punishment, it’s really a tool for empowerment. It helps you understand where your money is going and gives you a plan to use it more effectively.

Evaluating Income vs. Expenses

Start by gathering the last few months of financial statements, then use them to calculate your average monthly income and average monthly spending. If you find that you tend to spend as much as (or more than) you earn each month, your budget needs adjusting. This could mean reducing expenses, increasing your income, or both.

Tracking Every Dollar

To find places to cut your spending, it helps to list out your typical spending categories and how much you’re spending on each, on average, each month. Another option is to track your spending for a month or two using a budgeting app that automatically tallies and categories your expenses in real time.

Once you see exactly where your money is going, you can identify areas to reduce spending and redirect that money toward your debt.



💡 Quick Tip: With average interest rates lower than credit cards, a personal loan for credit card debt can substantially decrease your monthly bills.

Categorizing Needs vs. Wants

Once you’ve tracked your expenses, you’ll want to separate them into two categories: needs and wants. Needs are essential expenses like rent, groceries, medications, and utilities. Wants are nonessentials like dining out, entertainment, and impulse purchases. Understanding this distinction helps you prioritize spending — and start making cuts in the right places.

Change Your Spending Habits

How you manage your day-to-day spending can make or break your journey out of debt. Small changes add up, and the sooner you adjust your habits, the faster you’ll see progress.

Cut Subscriptions and Reduce Discretionary Spending

An easy way to free up funds is to cut some line items out of your budget completely. For example, you might cancel streaming services you rarely watch or a membership to a gym you seldom use.

Also look for ways to chip away at discretionary spending. For example, you might brew your morning coffee at home rather than buy it at the local coffee bar, cook more meals and eat out less, and pause clothing or hobby shopping unless it’s essential. These changes don’t have to be forever — just until you get your debt under control.

Use Cash or Debit Only

If you’re trying to pay off debt with no money, it’s wise to avoid adding to that debt balance. One way to do that is to switch to paying cash or debit for all purchases. This adds a layer of accountability because you can’t spend more than you currently have in the bank. You can also try the envelope system — using actual cash and envelopes or digitally with an app — to help you stick to spending limits in each category.

Delay Gratification and Set Spending Rules

For nonessential purchases, consider adopting the 24-hour rule: This involves waiting a full day before you buy something you don’t truly need. This delay gives you time to evaluate the purchase, consider whether you really want it and can afford it, and potentially avoid regretful spending. You can also set monthly spending limits for categories like entertainment, eating out, or clothing — and stick to them.

Recommended: How to Avoid Using Savings to Pay Off Debt

Increase Your Income

If cutting expenses still doesn’t leave room for debt repayment, increasing your income becomes critical. Fortunately, there are ways to do this without needing a second full-time job.

Take on a Side Hustle or Gig Work

Today’s gig economy offers a range of opportunities to earn extra cash. Whether it’s walking dogs, babysitting, delivering food or groceries, assembling furniture, or merely standing in line, side hustles are more available than ever before. If you have professional skills — like writing, editing, web development, graphic design, marketing, social media, or tutoring — you might pick up extra income by freelancing.

Any extra earnings can be funneled right into paying down debt.

Sell Unused Items or Assets

Look around your home for things you no longer need, such as clothes, gadgets, furniture, or collectibles. Selling them on platforms like Facebook Marketplace, OfferUp, or eBay can generate quick cash to make an extra payment.

Use Windfalls or Refunds Strategically

If you receive a tax refund, work bonus, rebate, or cash gift, resist the urge to spend it. Instead, put it toward your highest-interest debt to speed up your payoff timeline.

Apply for a Lower Interest Rate

High interest rates can trap you in debt longer. Reducing them makes every dollar you pay go further.

Negotiate With Lenders

Don’t be afraid to call your lenders and ask for a lower interest rate. Be honest about your situation, especially if you’ve been making payments on time. Some creditors are willing to reduce rates or waive fees to help you stay on track.

You might also enlist the help of a nonprofit credit counseling organization. For a small fee, they will negotiate with your creditors on your behalf to lower rates and set up a payment plan you can afford. You then make a monthly payment to the organization and they distribute the payments to your lenders.

Use Balance Transfers

If you have a good credit score, you might qualify for a balance transfer credit card that offers 0% interest for an introductory period. This can give you breathing room to pay down your balance faster. Just make sure you pay it off before the promo period ends — or you could face high interest again.

Consider a Personal Loan

If you’re juggling multiple high-interest debts, consolidating them into a single loan may simplify repayment and reduce your costs — if you qualify for a lower interest rate.



💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

Pros and Cons of Consolidating Debt With a Loan

Using a personal loan to pay off debt comes with benefits as well as potential drawbacks. Here are some to consider.

Pros

•  Potentially lower interest rate: If you qualify for a consolidation loan with a lower interest rate than your current credit cards, you can save money on interest charges over time.

•  Simplified payments: Consolidating multiple bills into one makes it easier to manage and keep track of your payments.

•  Faster debt repayment: If you’re able to get a loan with a lower interest rate and potentially a shorter repayment period, you may be able to pay off your debt faster.

•  Can help you build credit. Paying down your balances lowers your credit utilization ratio (how much of your available credit you are currently using), which is factored into your credit scores. Also, making consistent, on-time payments on the consolidated debt can have a positive impact on your credit profile over time.

Cons

•  Short-term credit score impact: Applying for a new loan for consolidation can result in a hard inquiry on your credit report, which can temporarily lower your score.

•  Need good credit to qualify for favorable rates: If your credit is fair or poor, you may not qualify for consolidation loans with significantly lower interest rates than you’re paying on your credit cards. This can negate the primary benefit of consolidation.

•  Fees and add-on charges: Some debt consolidation loans may involve paying fees, such as origination fees, application fees, and late fees, which can add to your costs.

•  Risk of accumulating more debt: If your spending habits don’t change, you might accumulate new debt on the old credit cards once they’re paid off, leading to a worse financial situation than before consolidation.

Use a debt consolidation calculator to estimate whether this strategy could work in your favor.

The Takeaway

Getting out of debt with little to no money is a difficult journey — but it’s entirely possible with focus and the right strategy. Start by understanding your financial situation, cutting unnecessary spending, and creating a practical budget. From there, look for ways to boost your income, lower your interest rates, and be intentional with every financial decision.

Debt freedom generally doesn’t happen overnight. It typically takes small, consistent actions, a willingness to make sacrifices, and a commitment to changing long-term habits. But every step you take can build momentum and help you change your financial situation for the better.

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


SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

How do I pay off debt with no savings?

If you have no savings, start by creating a realistic budget and identifying nonessential expenses to cut. Focus on making minimum payments on all debts to avoid penalties, then direct any extra funds to the smallest balance (debt snowball) or highest interest rate (debt avalanche), ticking off debts one by one.
Other helpful steps include increasing income through side gigs or selling unused items and contacting creditors to see if they might lower your interest rate. Progress may be slow at first, but consistency is key.

Can I negotiate my debt if I have no money?

Yes, many creditors are willing to negotiate if you explain your financial hardship. Start by contacting them directly and asking about options like lower interest rates, reduced payments, or temporary forbearance. In some cases, you may be able to settle your debt for less than you owe, though this can impact your credit. Be honest and document all communication. If you’re overwhelmed, consider working with a nonprofit credit counseling agency to help you negotiate and manage your debts.

What’s the fastest way to get out of debt while broke?

When you’re broke, getting out of debt fast means combining aggressive budgeting with creative income strategies. You’ll want to cut unnecessary expenses, pause subscriptions, and track every dollar. At the same time, try to boost income through side gigs, freelance work, or selling unused items. Other key moves include tackling debt one by one and calling your creditors to request lower rates or payment plans. It won’t be easy, but focused effort can create real progress even with limited means.

Should I consider a personal loan if I have no savings?

A personal loan can consolidate high-interest debts and simplify payments, but it’s risky without savings. If you lose income or face an emergency, you might struggle to keep up with the new loan. Before applying, review your credit score and compare interest rates to ensure the loan actually lowers your costs. Consider this option only if you have a stable income and a clear repayment plan. Otherwise, explore budgeting, negotiating with creditors, or credit counseling as safer first steps.

How can I build an emergency fund while paying off debt?

Start small — you might aim for a $500 emergency fund before aggressively tackling debt. To get there, set aside $10 to $25 per week by cutting nonessentials like dining out or unused subscriptions. Automate your savings so it becomes a habit, and use windfalls like tax refunds, cash gifts, or side hustle income to grow your fund faster. Having even a modest cushion prevents you from relying on credit cards during emergencies, which helps you stay on track with debt repayment in the long run.

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.

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 .

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®


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Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ 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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