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A statute of limitations is a state law that limits the period during which a creditor or debt collector can bring action in court to enforce a contract, such as a loan agreement or note. This means a creditor may not be allowed to sue a borrower in court to force them to pay a debt after the period has expired.

However, the statute of limitations on debt isn’t a wait-it-out solution that simply erases debt once it’s been owed for a few years. There may still be consequences to failing to pay back debts once the statute of limitations for debts has expired — and statutes of limitations don’t apply to some debts, including federal student loans. Here’s what you should know about statutes of limitations on debt.

What Is The Statute of Limitations on Debt?

Essentially, a statute of limitations on debt puts a time restriction on how long a creditor or debt collector is able to sue a borrower in state court to enforce the loan agreement and force them to repay the outstanding debts. In practice, this means that if a borrower chooses not to pay a debt, after the statute of limitation runs out, the creditor or debt collector doesn’t have a legal remedy to force them to pay.

To be clear, just because the statute of limitations has expired, it doesn’t mean that the borrower no longer owes the money, even though it does mean that the lender may not be able to take them to court for non-payment. The borrower will continue to owe the money borrowed, and their non-payment could be reported to the credit bureaus. It would then remain on their credit report for as long as allowed under the applicable credit reporting time limit. (For further evidence of how long debt can stick around, you might consider what happens to credit card debt when you die.)

Statutes of limitations don’t apply to all debts. They don’t, for example, apply to federal student loans. Federal student loans that are in default may be collected through wage or tax refund garnishment without a court order.

How Long Until a Debt Expires?

The length of the statute of limitations is determined by state law. State statutes of limitations on debt typically vary from three years to more than 10 years, depending on the type of debt and when the contract was entered into.

Figuring out exactly which state’s laws your debt falls under isn’t always as simple as you might imagine. The applicable statute of limitations may be determined by the state you live in, the state you lived in when you first took on the debt, or even the state where the lender or debt collector is located. The lender may even have included a clause in the contract you signed mandating that the debt is governed by a specific state’s laws.

One commonality in every state’s statutes of limitations on debt is that the “clock” does not start ticking until the borrower’s last activity on the relevant account. Say, for example, that you made a payment on a credit card two years ago and then entered into a payment plan with the debt collector last year but never made any subsequent payments. In that case, the statute of limitations clock would start on the date that you entered into the payment plan.

In this example, simply entering into a payment plan counts as “activity” on the account. This can make it confusing to determine if the statute of limitations has expired on your old debts, especially if you haven’t made a payment in a long time.

It may be possible to find out what the statute of limitations is by contacting the lender or debt collector and asking for verification of the debt. Remember that agreeing to make a payment, entering a payment plan, or otherwise taking any action on the account — including simply acknowledging the debt — may restart the statute of limitations.

After the statute of limitations on the debt has expired, the debt is considered time-barred.

Types of Debt

As mentioned, the length of the statute of limitations on debt can vary depending on the type of debt it is. To know which timeline applies, it helps to understand the different types of debt.

Written Contract

A written contract is an agreement that is signed in writing by both you and the creditor. This contract must include the terms of the loan, such as how much the loan is for and how much monthly payments are.

Oral Contract

An oral contract is bound by verbal agreement — there is no written contract involved. In other words, you said you would pay back the money, but did not sign any paperwork.

Promissory Notes

Promissory notes are written agreements in which you agree to pay back the amount of money by a certain date, in agreed upon installments and at a set interest rate. Examples of promissory notes are student loan agreements and mortgages.

Open-Ended Accounts

Open-ended accounts include credit cards and lines of credit. With an open-ended account, you can repeatedly borrow funds up to the agreed upon credit limit. Upon repayment, you can then borrow money again.

Statute of Limitations on Debt Collection

Each state has its own statute of limitations on debt collection. Here’s a breakdown of the varying timelines by state:

Statutes of limitations on certain old debts may prevent creditors or debt collectors from suing you to recover what you owe. However, it’s important to realize that debt statutes of limitations don’t protect you from creditors or debt collectors continuing to attempt to collect payments on the time-barred debt, such as in the case of credit card default. Remember, you still owe that money, whether or not the debt is time-barred. The statute of limitations merely prevents a lender or debt collector from pursuing legal action against you indefinitely.

Debt collectors may continue to contact you about your debt. But under the Fair Debt Collection Practices Act, debt collectors cannot sue or threaten to sue you for a time-barred debt. (Note that this act applies only to debt collectors and not to the original lenders.)

Some debt collectors, however, may still try to take you to court on a time-barred debt. If you receive notice of a lawsuit about a debt you believe is time-barred, you may wish to consult an attorney about your legal rights and resolution strategies.

Disputing Time-Barred Debt With Debt Collectors

If a debt collector is contacting you to attempt to collect on a debt that you know is time-barred and you don’t intend to pay the debt, you can request that the debt collector stop contacting you.

One option is to write a letter stating that the debt is time-barred and you no longer wish to be contacted about the money owed. If you’re unsure, it may be possible to state that you would like to dispute the debt and want verification that the debt is not time-barred. If the debt is sold to another debt collector, it may be necessary to repeat this process with the new collection agency.

Remember, even though a collector can’t force you to pay the debt once the statute of limitations expires, there may still be consequences for non-payment. For one, your original creditor may continue to contact you through the mail and by phone.

Additionally, most unpaid debts can be listed on your credit report for seven years, which may negatively affect your credit score. That means that failing to pay a debt may impact your ability to buy a car, rent a house, or take out new credit cards, even if that debt is time-barred.

Statute of Limitations on Student Loan Debt

Statutes of limitations don’t apply to federal student loan debt. If you default on your federal student loan, your wages or tax refunds may be garnished.

If you have federal student loan debt, you may consider managing your student loans through consolidating or refinancing. This can help you decrease your loan term or secure a lower interest rate.

Borrowers who hold only federal student loans may be able to consolidate their student loans with the federal government to simplify their payments.

Those with a combination of both private and federal student loans might consider student loan refinancing to get a new interest rate and/or loan term. Depending on an individual’s financial circumstances, refinancing can potentially result in a lower monthly payment (though it may also mean paying more in interest over the life of the loan).

All borrowers with federal loans should keep in mind that refinancing federal loans can mean relinquishing certain federal benefits, like forbearance and income-based repayment options.

Statute of Limitations on Credit Card Debt

The statute of limitations on credit card debts can generally range anywhere from three years to 10 years, depending on the state. However, the laws in the state in which you live aren’t necessarily what dictates your credit card statute of limitations. Many of the top credit card issuers name a specific state whose laws apply in the credit card agreement.

How Long Does the Statute of Limitations on Credit Card Debt Last?

Here’s a look at how long can credit card debt be collected through court proceedings for each state in the U.S.:

Effects of the Statute of Limitations on Your Credit Report

The statute of limitations on credit card debt doesn’t have an impact on what appears on your credit report. Even if the credit card statute of limitations has passed, your debt can still appear on your credit report, underscoring the importance of using a credit card responsibly.

Unpaid debts typically remain on your credit report for seven years, during which time they’ll negatively impact your credit (though its effect can wane over time). So, for instance, if the state laws of Delaware apply to your credit card debt, your statute of limitations would be three years. Your unpaid debt would remain on your credit report for another four years after that period elapsed.

This is why it’s important to consider solutions, such as negotiating credit card debt settlement or credit card debt forgiveness, rather than just waiting for the clock to run out.

How to Know If a Debt Is Time-Barred

To determine if a debt is time-barred — meaning the statute of limitations has passed — the first step is figuring out the last date of activity on the account. This generally means your last payment on the account, though in some cases it can even include a promise to make a payment, such as saying you’d soon work on paying off $10,000 in credit card debt.

You can find out when you made your last payment on the account by pulling your credit report, which you can access at no cost weekly at AnnualCreditReport.com.

Once you have that information in hand, you can take a look at state statutes of limitation laws. Keep in mind that it might not be your state’s laws that apply. If you’re looking for the statute of limitations for credit card debt, for instance, check your credit card’s terms and conditions to see which state’s laws apply.

Figuring out all of the relevant information isn’t always easy. If you’re unsure or have any questions, consider contacting a debt collections lawyer, who should be able to assist with answers to all your credit card debt questions.

What to Do If You Are Sued Over a Time-Barred Debt

Even if you know a debt is time-barred, it’s important to take action if you’re sued over it. You’ll need to verify that the statute of limitations has indeed passed, and you’ll need to come forward with that information. It may be helpful to work with an attorney to help you respond appropriately and avoid any missteps.

If you do end up going to court, it’s critical to show up. The judge will dismiss your case as long as you can prove that the debt is indeed time-barred. However, if you don’t show up, you will lose the case.

How to Verify Whether You Owe the Debt

If you’re not sure whether a debt you’ve been contacted about is yours, you can ask the debt collector for verification. Request the debt collector’s name, the company’s name, address and phone number, and a professional license number. Also ask that the company mail you a debt validation notice, which will include the name of the creditor seeking payment and the amount you owe. This notice must be sent within five days of when the debt collector contacted you.

If, upon receiving the validation notice, you do not recognize the debt is yours, you can send the debt collector a letter of dispute. You must do so within 30 days.

The Takeaway

Statutes of limitations on debt create limits for how long debt collectors are able to sue borrowers in a court of law. These limits vary by state but are often between three to 10 or more years. Once the statute of limitations on a debt has expired, the debt is considered time-barred. However, any action the borrower takes on the account has the potential to restart the statute of limitations clock.

While borrowing money can leave you in a stressful situation where you’re waiting for the clock to run out, it can also help you build your credit profile and access new financial opportunities.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

Do I still owe a debt after the statute of limitations has passed?

Yes. The statute of limitations passing simply means that the creditor cannot take legal action to recoup the debt. Your debt will still remain, and it can continue to affect your credit.

Can a debt collector contact me after the statute of limitations has passed?

Yes, a debt collector can still contact you after the statute of limitations on debt passes as there isn’t a statute of limitations on debt collection. However, you do have the right to request that they stop contacting you. You can make this request by sending a cease communications letter.

Additionally, if you believe the contact is in violation of provisions in the Fair Debt Collection Practices Act — such as if they are harassing or threatening you — then you can file a complaint by contacting your local attorney general’s office, the Federal Trade Commission, or the Consumer Financial Protection Bureau.

When does the statute of limitations commence?

The clock starts ticking on the statute of limitations on the last date of activity on the account. This generally means your last payment on the account, but it also could be when you last used the account, entered into a payment agreement, or made a promise to make a payment.

After the statute of limitations has passed, how do I remove debt from my credit report?

Even if the statute of limitations has already passed, debt will remain on your credit report for seven years. At this point, it should automatically drop off your report. If, for some reason, it does not, then you can dispute the information with the credit bureau.

What state’s laws on statute of limitations apply if I incur credit card debt in one state, then move to another state?

If you’re unsure of what the statute of limitations on credit card debt is, the first thing to do is to check your credit card agreement. Which state you live in may not have an impact, as many credit card companies dictate in the credit card agreement which state court will preside.

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.

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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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SOCC-Q126-046

Though the terms “charge card” and “credit card” may be used interchangeably, there are major differences: With a credit card, you can either pay your full monthly bill or a portion of it. With a charge card, no matter how much you owe, you’re expected to repay the full amount that you owe each month.

That’s not the only thing that sets these cards apart. The two also vary in their accessibility, flexibility, spending limits, and costs. If you’re wondering if a charge card vs. a credit card is a better fit for you, read on to understand their key differences, which can help you decide.

How Charge Cards Work

In some ways, a charge card is much like a regular credit card. When you use it to make a purchase, you’re borrowing money from the card issuer. And when you pay your bill, you’re paying the card issuer back.

But there are several things about the way charge cards work that make them very different from traditional credit cards. And because of the way they work, there are benefits and risks of charge cards to consider.

As mentioned above, a charge card holder’s obligation to pay the bill in full each month is probably the most important distinction. Because you typically don’t have the option of carrying forward a balance, you won’t pay interest. But if you don’t pay the balance in full by the due date, you could be subject to a late fee and restrictions on your future card use.

Another thing that makes a charge card unique is that there’s no pre-set credit limit. This offers charge card holders some added flexibility, but it doesn’t mean you can go out and spend as much as you want any time you want — even if you’ve stayed current with your charge card payments.

A transaction still may be declined if it exceeds the amount the card issuer determines you can manage based on your spending habits, account history, credit record, and other financial factors. To avoid any confusion, card holders can contact their charge card issuer before making a major purchase to ask if the amount will be approved.

Recommended: When Are Credit Card Payments Due?

How Credit Cards Work

Because they’re more common, you may be more familiar with how credit cards work than you are with charge cards. With a traditional credit card, card holders are given a preset credit limit that’s based on their income, debt-to-income ratio, credit history, and other factors.

Once your account application is approved and you receive a card with a unique credit card number, you can use your card as much or as little as you like — as long as you stay within that limit.

Each month when you receive your billing statement, you can decide if you want to repay the full amount you owe or make a partial payment, but you must make at least the minimum payment that’s due. And if you carry forward a balance, you can be charged interest on that amount. (Similar to your spending limit, interest rates are typically based on a cardholder’s creditworthiness.)

A credit card is classified as “revolving credit” because there’s no set date for when all the money you’ve borrowed must be repaid. As long as you make at least your minimum payments on time and stay within your credit limit, the account remains open, and you can use the available credit over and over again.

Differences Between a Charge Card and Credit Card

Here’s a side-by-side look at some key differences between charge cards and credit cards:

Payment Obligations

With a charge card, you’re required to pay what you owe in full when you receive your monthly billing statement. With a credit card, on the other hand, you can make a full or partial payment, but you’re only required to make a minimum monthly payment.

Even if you’re waiting for a refund that hasn’t yet shown up as a credit on your statement, you’ll be expected to pay the full amount of your charge card bill. With a credit card refund, you’ll just have to make sure you pay at least the minimum amount on your current bill.

Availability

If you’re looking for a new card, you’ll find there are far more credit cards available than true charge cards these days. Even American Express, the only major card issuer that still offers charge cards, has gone with a more hybrid approach.

American Express still offers cards that don’t have a preset spending limit. But those cards now come with a feature that — for a fixed fee — allows a card holder to split up eligible large purchases into monthly installments.

There also are fuel cards, typically geared toward businesses, that are true charge cards.

Credit cards are generally easier to qualify for than the charge cards that are available. Even if you have a poor or limited credit history, you may be able to find a secured or unsecured credit card that suits your needs.

Acceptance

Whether you shop local most of the time or hope to use your card as you travel the world, you may want to look at the acceptance rates of charge cards vs. credit cards.

Your card may not do you much good if you can’t use it where you like. American Express says its cards are accepted by 99% of the vendors in the U.S. that accept credit cards. If you aren’t sure your favorite local boutique or grocer will accept a particular card, you may want to ask or look for the card’s network logo in the store window.

If you plan to use your card overseas, you may want to check ahead on the acceptance rate in that country and also find out if you’ll have to pay a foreign transaction fee. Charge cards tend to have a lower rate of acceptance than credit cards overseas.

Costs

If you’re trying to decide between a charge card vs. a credit card, how much a credit card costs compared to a charge card — both in interest charges and fees — could be an important consideration.

Interest

You can find a full explanation of how your card issuer calculates interest in your card’s terms and conditions. But as noted above, if you carry forward a balance on your credit card, you can expect to pay interest on the outstanding amount.

According to the Federal Reserve, the average credit card’s annual percentage rate (APR) is around 21%. Your rate may be higher or lower, depending on your creditworthiness.

You may not have just one interest rate associated with your account either. Your account may have a different APR for purchases, for example, than for credit card cash advances or balance transfers. Or you might have a lower, introductory APR for the first few months after you get a new card. If, over time, you miss payments or make late payments, the card issuer also could decide to raise your APR.

Because you don’t carry a balance with a traditional charge card, you don’t pay interest. But if you pay off your credit card balance by the due date every month, you also won’t have to worry about accruing interest on a credit card account.

Annual Fees

You typically won’t pay interest with a charge card, but you may end up paying a significant annual fee just to own the card. (The annual membership fee for an American Express Plum Card, for example, is currently $250.) Some credit cards also charge annual fees, but you can find many that don’t.

Rewards and Perks

You may decide it’s worth paying a higher annual fee to enjoy the extra benefits some charge cards offer. American Express, for example, has a reputation for offering its card holders prestigious perks, including travel and retail purchase protections, early access to tickets for concerts and other entertainment events, and special offers from partner merchants.

However, plenty of credit cards also come with special benefits, such as cash back rewards, travel rewards, retail discounts, and more. And many of those card issuers don’t charge an annual fee.

Both charge card and credit card issuers also occasionally offer generous welcome or sign-up bonuses to new card holders, so that might be another benefit worth looking at when you’re searching for a new card.

Before you sign up for any card to get the perks it offers, though, it can be a good idea to step back and assess whether it’s worth paying a higher annual fee (or accruing interest on a balance you can’t pay off) to reap those rewards.

Spending Limit

With a credit card vs. a charge card, you’ll know exactly how much you can spend, because your credit card will come with a pre-set limit. You can go online or use an app to check your credit card account at any time to see how much available credit you have.

Charge cards don’t have hard spending limits. But that doesn’t necessarily mean you can use your card to buy a car or take a trip around the world. As noted above, your card issuer may decline a charge if you’re spending more than it thinks you can afford.

How Card Choice Can Impact Your Credit Score

When it comes to what a charge vs. credit card can do for (or to) your credit score, there are few things you should know.

Inquiries

Whether you’re applying for a charge card or credit card, you can expect the card company to run a hard inquiry on your credit. This could temporarily lower your credit score, but usually only by about five points.

Payments

Whether you use a charge card or a credit card, paying your monthly bill on time is critical to building and maintaining a good credit record.

Payment history makes up 35% of your FICO® credit score, so consistency is key. If your payment is 30 days or more past due and your card issuer reports it to the credit bureaus, that negative news could remain on your credit report for up to seven years. And it could come back to haunt you when you try to borrow money to buy a car or house.

Utilization

Credit utilization (the percentage of your available credit that you’re currently using) makes up 30% of your FICO score, so it’s important to keep your credit card balances well under the assigned limit.

To maintain or positively impact your credit score, the general rule is that you should try not to exceed a 30% credit card utilization rate. If you’re using up a big chunk of the pre-set limit on your credit card, it could have a negative effect on your score.

Because charge cards don’t have a pre-set credit limit, it can be difficult to determine if a card holder is at risk of overspending — so neither FICO nor VantageScore® include charge card information when calculating a person’s utilization rate.

This can have both pros and cons for charge card holders. The advantage, of course, is that you don’t have to worry about negative consequences for your credit score if you spend a lot in one month using your charge card. On the flip side, though, if you have a large amount of available credit that you aren’t using, it won’t do anything to help your score.

Choosing Between Credit Cards and Charge Cards

Deciding whether to apply for a credit card vs. a charge card may come down to evaluating the benefits you’re hoping to get from the card and assessing your own spending behavior. Here are some questions you might want to ask:

•  Does the card offer unique, valuable perks you think you’ll use?

•  If there’s a high annual fee for the card, does it fit your budget and are the card’s perks worth the cost?

•  Do you have enough money, discipline, and organization to ensure your bill is paid in full every month? Or could there be times when you’ll want to make a partial or minimum payment and carry forward a balance?

•  Is your credit score good or excellent? If not, you may have more options and a better chance of qualifying if you apply for a credit card instead of a charge card.

•  If you think you’ll pay off your card’s balance every month, would a credit card still be a better fit because of the rewards, low or no fees, and wider acceptance from vendors?

Also keep in mind that you don’t necessarily have to choose. In fact, you could benefit from having both a charge card and a credit card. You may find there are reasons to keep both types of cards in your wallet. You can learn more about credit cards by exploring this credit card guide.

Recommended: Charge Cards Advantages and Disadvantages

The Takeaway

The terms charge card and credit card are often used interchangeably, but they are not the same thing. A charge card must be paid off every month, so there’s no interest to worry about — but there may be a high annual fee to pay. A credit card allows the user to make a minimum monthly payment and carry forward a balance, but the interest on that balance can add up quickly.

Each individual user must decide which is the better fit for their needs. And a card’s benefits vs. its costs may be a deciding factor.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

Is a credit card easier to get than a charge card?

Because these days there are more companies issuing credit cards, it may be easier to find one that suits your needs and has qualifications you can meet — even if you have a poor or limited credit history. There are very few charge cards available anymore.

Does a charge card build credit better than a credit card?

Both a credit card and a charge card can help or hurt your credit score, depending on how you use it.

When do credit cards charge interest?

Most credit cards come with a grace period, which means the credit card issuer won’t charge you interest on purchases if you pay your entire balance by the due date each month. If you fail to pay the entire amount on your statement balance, however, or if you make your payment after the due date, interest charges will likely appear on your next monthly statement.

Photo credit: iStock/9dreamstudio

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.

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®

SOCC-Q126-010

Credit cards provide an easy way to pay for purchases, but their benefits go beyond convenience. Credit cards provide protections that cash and debit cards often lack and create opportunities to earn rewards on purchases you already plan to make. When used thoughtfully, credit cards can also support long-term financial goals such as building credit and improving financial flexibility.

Below, we take a closer look at the perks of using credit cards, along with guidance on using them wisely.

10 Benefits of Credit Cards

From rewards and welcome bonuses to payment protection and credit building, credit cards can be powerful financial tools when used responsibly. Here are some key advantages of using credit cards:

1. Cash Back Rewards

Many credit cards offer cash back on everyday purchases like groceries, gas, and dining. Cash back typically comes as a percentage of what you spend. Depending on the card, you may be able to:

•   Apply rewards as a statement credit

•   Deposit cash into a bank account

•   Redeem cash back for gift cards or purchases

Over time, these rewards can add up and effectively reduce the cost of your spending.

2. Welcome Bonuses

Some credit cards offer introductory bonuses if you spend a certain amount within the first few months of opening the account. For instance, you might earn a $200 statement credit after spending $500, or 75,000 bonus miles after a $4,000 spend — typically within the first three months of opening the card. These incentives can provide significant immediate value for new cardholders.

3. Reward Points

Points-based programs reward you for everyday spending by offering points for each dollar spent. These points can typically be redeemed for travel, gift cards, merchandise, charitable donations, or statement credits. Many cards also offer bonus points for spending in specific categories such as dining or travel.

4. Fraud Protection and Security

Credit cards generally include strong consumer protections, including zero-liability fraud policies that limit your responsibility for unauthorized charges. Additional safeguards often include chip technology, encryption for online purchase, and real-time fraud monitoring, which together provide a strong layer of security compared with many other payment methods.

5. Interest-Free Grace Period

Credit cards typically provide a grace period between the end of the billing cycle and payment due date. By paying your statement balance in full by the due date, you avoid interest charges entirely. This strategy effectively creates an interest-free loan, allowing you to use the bank’s money for short-term expenses without the cost of borrowing.

6. Built-In Insurance and Protections

Many credit cards include travel and purchase protections that can add significant value. Depending on the card, benefits may include trip cancellation coverage, rental car insurance, extended warranties, purchase protection, and price protections. These features can provide peace of mind when making large purchases or booking travel.

7. Wide Acceptance Worldwide

Credit cards are accepted almost everywhere, whether you’re shopping in stores, paying bills online, or booking travel. Major card networks operate in hundreds of countries, making credit cards especially useful for international travel. Using a credit card abroad can also reduce the need to carry large amounts of cash or worry about currency exchange.

8. Building Credit History

Using a credit card responsibly can be a powerful way to build a robust credit profile. Since issuers report your activity to the three major bureaus — Transunion®, Equifax®, and Experian® — your habits can directly impact your score. You can add positive information to your credit profile by making consistent on-time payments, using less than 30% of your total available credit, and maintaining long-term accounts to increase the overall age of your credit accounts.

9. Increased Purchasing Power

A credit card provides access to a revolving line of credit, which can help you manage large or unexpected expenses. This flexibility can be helpful when clash flow is temporarily tight, though it’s important to pay balances quickly to avoid interest charges.

10. Dispute and Chargeback Protection

If a merchant fails to deliver goods or services as promised, credit card issuers allow you to dispute the charge. The issuer will typically provide you with a temporary credit for the disputed amount while they investigate. If the merchant can’t provide evidence that the service was rendered or goods provided, the refund becomes permanent. This added layer of protection is especially valuable for online purchases, travel bookings, and large transactions.

What to Look for in a Credit Card

Before applying for a credit card, it helps to compare cards based on your spending habits, financial goals, and how you plan to use the card. Ideally, the rewards structure should align with your lifestyle — whether that involves earning cash back on daily essentials, accruing travel miles, or securing a low interest rate.

The annual percentage rate (APR) is especially key if you expect to carry a balance at any point. It’s also important to consider whether the card charges an annual fee and whether the benefits are likely to outweigh the cost.

Finally, you’ll want to review the full list of potential fees, including late payment fees, foreign transaction fees, and balance transfer fees. Understanding the total cost of a card can help you choose one that fits your needs and avoids unnecessary expenses.

Using a Credit Card Responsibly

Using a credit card responsibly involves treating it as a financial tool rather than a source of extra cash. These strategies can help you reap all the perks of credit cards without racking up costly debt:

•   Pay in full whenever possible: Paying the full statement balance allows you to take advantage of the grace period, where no interest is charged on your purchases.

•   Pay on time: Even if you can’t pay your balance in full, it’s important to pay at least the minimum amount due on time. Late payments can trigger fees and negatively impact your credit.

•   Keep utilization low: Aim to use less than 30% of your total credit limit. For example, if your limit is $2,000, try to keep your balance below $600. Keeping this ratio low can have a positive impact on your credit profile.

•   Monitor statements regularly: Go over your credit card spending at least monthly to check for fraudulent charges, billing errors, and monitor your spending.

The Takeaway

Credit cards offer a host of advantages, from building credit history and providing increased purchasing power to offering valuable rewards and essential consumer protections like fraud and chargeback safeguards.

To maximize these benefits and avoid debt, it’s important to use your card responsibly by paying the full statement balance on time, keeping your credit utilization low, and selecting a card with features — such as rewards, low APR, and minimal fees — that align with your financial habits and goals.

Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.

FAQ

How secure are credit cards?

Credit cards offer robust security features. Major credit cards typically have zero-liability policies, meaning you aren’t responsible for unauthorized purchases. They also use chip technology, encryption, and real-time fraud monitoring to protect your account information and transactions. Unlike debit cards, credit card fraud doesn’t directly remove money from your bank account, offering an extra layer of protection while an issue is investigated.

How can I protect myself from credit card fraud?

To protect yourself from credit card fraud:

•   Monitor your accounts: Review statements and transactions frequently to spot unauthorized activity quickly.

•   Enable alerts: Set up real-time text or email alerts for every transaction via your bank’s app.

•   Use secure websites: Only shop on sites with “https://” in the URL and a padlock icon.

•   Never share your password or card details: Be wary of unsolicited calls or emails asking for this information.

•   Be careful with public Wi-Fi: Avoid making purchases or accessing financial accounts on unsecured networks.

Can credit cards allow you to save more?

Yes, credit cards can allow you to save more money, provided they are used responsibly and the balance is paid in full each month. Savings can come through rewards programs, such as cash back or points, which effectively reduce the net cost of your purchases. The built-in insurance and purchase protections offered by many cards can also save you money by covering unexpected costs, such as rental car damage or an item that is lost or stolen shortly after purchase. If you carry a balance, however, high-interest charges will quickly negate any rewards or savings.

Should I use a credit card if I have a poor credit score?

If you have a poor credit score, you can still use a credit card, but you’ll want to look for options specifically designed for people building credit.

Secured credit cards are often the best starting point. Because these cards require a security deposit that acts as your credit limit, they pose less risk to lenders and are easier to qualify for. By making small purchases and consistently paying your balance in full, you can strengthen your credit profile and eventually transition to more competitive financial products.

Photo credit: iStock/Suphansa Subruayying
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.

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 .

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SOCC-Q126-001

In January 2026, the Education Department (ED) announced a temporary delay in implementing involuntary collections on federal student loans that are in default.

While the ED has not specified a date when involuntary collections will resume, borrowers can read on to learn more about the involuntary collection of student loans, how it may affect them, and ways to avoid it.

What Are Involuntary Student Loan Collections?

Involuntary student loan collections refers to a process in which the government collects on defaulted federal student loans by garnishing some of a borrower’s wages — known as student loan wage garnishment — or withholding their federal tax refunds or portions of other federal payments, such as Social Security. The government must notify the borrower in writing before it takes these actions.

The money the government seizes goes toward paying off your federal student loans. The wage garnishment or withholding will continue until the loan is paid in full or taken out of default.

When Student Loans Enter Involuntary Collections

A borrower may be at risk for entering into the involuntary collection of student loans when their student loan goes into default. Although the involuntary collection process for federal student loans has been temporarily put on hold, it’s helpful to know how it works.

Delinquency, Default, and Loan Type Differences

One day after missing a student loan payment, your loan goes into delinquency. After 90 days of delinquent student loan payments, your loan servicer will report the delinquency to the three national credit bureaus. Delinquent student loans are listed on your credit report, and they can remain there for up to seven years.

If you have Federal Direct Loans or Federal Family Education Loans (FFEL), and they are still delinquent after 270 days, the loans go into default. What happens if you default on student loans is that the loans are immediately due in full, along with accrued interest, fees, and penalties.

Private student loans, which are issued by private lenders rather than the federal government, have a different timeline for delinquency and default that varies by lender. But in general, private student loans are considered to be in default after 90 to 120 days of missed payments.

Common Involuntary Collection Actions

Once you default on federal student loans, your loan servicer can take action. They can have your employer withhold up to 15% of your disposable pay (the amount of your pay after deductions are taken) to collect on your defaulted debt. This garnishment continues until the loan is fully paid off or removed from default.

Additionally, through involuntary collections on your federal student loans, the government can also withhold your tax refunds and seize portions of certain federal benefits to apply toward repayment of your defaulted loan.

If you have private student loans, private lenders must sue to get a court’s permission to garnish your wages. They cannot take your tax refunds or federal benefits.

Wage Garnishment and Tax Refund Offsets

With wage garnishment, as discussed above, your federal loan servicer can garnish up to 15% of your disposable pay to apply to your defaulted loans.

The government can also withhold your tax refund and other federal benefits through the Treasury Offset Program, a tool to collect debt from individuals who owe money to the federal government. For borrowers with defaulted student loans, the Treasury Offset Program can withhold such funds as:

•  100% of federal tax refunds

•  Up to 15% of federal salaries

•  Up to 15% of Social Security and railroad retirement benefits

•  25% of federal retirement payments

To avoid an offset and work on escaping student loan default, you can establish a repayment plan for the loan, try to get out of default, or request a hearing. You can try to make a case for avoiding an offset or wage garnishment for any of the following reasons:

•  Entering into a repayment agreement

•  Misconduct by your school

•  Permanent disability

•  Extreme financial hardship

•  Eligibility for a discharge

How Involuntary Collections Affect Borrowers

Involuntary collection of student loans can negatively affect borrowers in several ways, including the following:

•  Loss of income due to garnishment: If a portion of your wages are garnished, you end up with lower take-home pay.

•  Loss of tax refunds: If your income tax refund is withheld, you’ll have less money to spend, which could result in financial challenges.

•  Credit scores may drop: Being delinquent or in default on student loan payments means your credit scores will drop, which could result in being unable to qualify for credit cards and loans, including a mortgage or car loan.

How to Stop or Avoid Involuntary Collections

There are several ways to prevent involuntary collections, including loan consolidation, rehabilitation, and repayment. Here’s what’s involved in each process.

Rehabilitation, Consolidation, and Repayment Options

Rehabilitating your student loans removes them from default and involves entering into a loan rehabilitation agreement with your loan servicer. To rehabilitate a Direct or FFEL loan, you must make nine consecutive on-time monthly payments over 10 months. You can contact your loan servicer to pursue rehabilitation.

You can also consolidate your defaulted federal student loans into a Direct Consolidation Loan. In this case, you pay off your federal loans with a new consolidation loan. To consolidate a defaulted federal loan, you’ll need to either make three consecutive, on-time monthly payments or enroll in an income-driven repayment (IDR) plan to pay off the consolidation loan.

You can also choose to repay your loan. In this case, your loan will be in default but you’ll make payments based on your financial situation. Speak to your loan servicer about your options.

If you have private student loans, you can contact your lender. Many lenders will discuss and negotiate loan repayment terms.

Finally, in some cases, you may be able to refinance your loans. With refinancing, you pay off your old loans with a new private loan from a private lender with new rates and terms.

However, you generally need good credit and a stable income to qualify for refinancing defaulted student loans. That could be difficult because your credit score may have dropped significantly because your loans are in default. You could work to improve your credit before refinancing, or rehabilitate your loan first before you refinance it, which might improve your chances of approval by some lenders.

Otherwise, you could consider adding a creditworthy cosigner to refinance student loans. Just remember that your cosigner will be responsible for the loan if you can’t make the payments.

If you are exploring the idea of refinancing federal student loans, another factor to be aware of is that you’ll lose access to federal benefits and protections, including income-based repayment and forgiveness programs, if you refinance.

Borrower Rights During Collections

Even with student loans in collections, borrowers still have a number of rights to help protect them. It’s important to understand these rights, whether you’re facing private or federal student loan collections.

Notices, Garnishment Limits, and Disputes

When federal student loans are in collections, your rights include:

•  Being notified of wage garnishment or Treasury Offset

•  The chance to inspect all documents related to your debt

•  The option to object to and avoid offset

•  The opportunity to request a hearing to present and obtain a ruling on your objection to wage garnishment

•  The opportunity to enter into a written agreement to establish a voluntary repayment agreement.

•  To not have any information provided to your employer about the garnishment (except what they need to know to comply with the order)

•  To not be dismissed from employment because of the garnishment.

Borrowers with private student loans have similar rights when it comes to loans in collections:

•  You must receive proper notice of the garnishment.

•  You can file an objection challenging the garnishment, particularly if you weren’t properly notified.

•  Employers cannot fire you if you’re having your wages garnished for a single debt. Some states provide safeguards for those with multiple debt garnishments as well.

•  Private lenders cannot garnish your Social Security payments, child support, alimony, disability benefits, or retirement funds (including pensions, IRAs, 401(k)s).

The Takeaway

Involuntary student loan collection is temporarily on hold as of January 2026. However, it’s important to know how to handle possible involuntary collection if your student loans are in default — or you are in danger of defaulting. Contact your loan servicer to see if you can work out a payment agreement, consider student loan consolidation, or explore the idea of student loan refinance. Once you are aware of the available options, you can choose the path that’s best suited to your situation.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

Can involuntary student loan collections be paused for financial hardship?

You may be able to pause student loan collections for financial hardship if your income is less than or equal to your expenses. You will need to provide a financial disclosure with your expenses listed, including rent and utilities.

Do involuntary collections affect joint tax refunds or spousal income?

Delinquent student loan debt can affect your joint tax returns. Your joint tax refund could be withheld and applied to the loan debt. As for spousal income, generally speaking, your spouse’s income can’t be garnished for your loan debt unless they cosigned the loan or you live in certain community property states and the student loan debt was acquired during your marriage. You may want to consult with a tax professional about your specific situation and how to handle it.

Can Social Security or disability benefits be taken for student loan collections?

If you have federal student loans in collection, up to 15% of Social Security benefits can be taken through the Treasury Offset Program, as long as your remaining monthly payment is more than $750. If you have private student loans, private lenders cannot take your Social Security benefits. And neither private or federal lenders can take federal disability benefits.

How long do student loans stay in involuntary collections?

Federal student loans can stay in involuntary collections until the debt is fully repaid, rehabilitated, or otherwise resolved. There is no statute of limitations for collections, so the government can continue to collect on federal student loan debt indefinitely.

Will involuntary collections stop automatically once a payment plan is set up?

Not necessarily. For example, under loan rehabilitation, your federal student loan may remain in involuntary collections until you have made at least five rehabilitation payments. However, with federal student loan consolidation, involuntary collections typically stop once the consolidation loan is processed. And if you repay the loan in full, collections should stop once the loan is fully paid off.

Photo credit: iStock/Miljan Živković

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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).

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