The Problems with Online Payday Loans and Fast Cash Lending

The Problems with Online Payday Loans and Fast Cash Lending

Life happens, which means sometimes you need cash fast, and you just don’t have it. Whether you need to pay for an emergency root canal or have unexpected home repairs, sometimes life just doesn’t wait for your next paycheck.

If you’ve spent some time researching how to access cash quickly, you might think that online payday loans are the answer. Lenders that offer payday loans typically promise you things like quick applications, no credit checks, and expedited approvals. They say you’ll get the cold hard cash you need the very next day. It’s an easy solution, and hey, what could possibly go wrong?

How Do Payday Loans Work?

Payday loans are so called because they’re meant to be paid back the next time you get a paycheck. They’re generally for small amounts, and don’t require collateral — or even necessarily a credit check — to get them.

The catch? Payday loans come at a price—and a high one, at that. They can have interest rates of more than 600%, depending on the lender you choose and which state you’re in. (Some states have stronger protective laws, including rate caps, than others.)

Such high interest rates, not to mention other associated fees, can quickly lead to situations where you end up getting behind on the loan and have to borrow more and more in order to pay it back — especially since each loan might come due in only two weeks or a month. Soon you’re in a hole so deep you might not know how to get out. It can be costly, greatly damage your credit, or even lead to bankruptcy.

How Much Does a Payday Loan Cost?

The short answer: a lot. But let’s look at an example.

Say you take out a $500 payday loan at an annual percentage rate (APR) of 300%. You would only pay that full 300% if you took a whole year to pay the loan off, because the APR is what you would be charged in interest over 12 months.

However, even if you only borrow money for one month, you’d have to pay 1/12 of 300%, which translates to 25%. Here’s where the math gets ugly: 25% of $500 is $125, which means that when your loan comes due at the end of its very short term, you’ll owe $625 — which might be pretty tough to meet, especially if you’re in a situation where you needed a payday loan in the first place.

What Is a Direct Payday Loan?

Payday loans are offered by a wide variety of vendors, but mainly, they all break down into two categories: direct payday loans and those offered through a broker.

Direct payday loans are those wherein the entire loan process, from application to funding to repayment, is all managed by the same company. Although these can be slightly better than indirect loans — which may involve multiple fees, longer funding wait times and harder-to-pin-down communication — they’re still a bad idea in general.

Why Is it Best To Avoid Payday Lending?

Other than the possibility that you can get money quickly if you have bad credit, there aren’t many benefits associated with payday loans. You’ll end up paying a significant amount in interest, and you’re usually expected to pay the money back in a very short period of time — usually not more than 90 days, but two weeks on average.

The interest on your loan can also compound daily, weekly, or monthly. This means that interest charges will start accumulating on the interest you already owe, which will inflate your loan balance even more.

Depending on how much you borrowed and your financial situation, compounding interest can make it incredibly difficult for you to pay back the loan. Many times borrowers end up taking out additional loans to pay off the payday loan, which can lock them into a seemingly endless cycle of debt.

You’re also unlikely to be able to borrow a large amount of money because payday and fast cash loan lenders typically have low maximum borrowing amounts.

Just to twist the knife, you won’t even be building your credit if you do manage to pay the loan back on time, because most of these lenders don’t report your behavior back to credit bureaus. In contrast, above-board lenders will report back to credit bureaus when you’re paying your bills on time and in full, and that can boost your credit score.

What Are Some Alternatives to Payday Loans?

While in an ideal world, you’d avoid any kind of consumer debt, sometimes it’s simply unavoidable. Still, there are financially favorable alternatives to consider before you sign up for a dangerous payday loan.

Paycheck Advance

The best kind of money to borrow is money you’ve already earned. While not every employer offers it, a paycheck advance can be a relatively low-risk way to fund last-minute emergencies. An advance on your paycheck basically means getting paid earlier than you normally would, with the balance deducted from your future paycheck.

But tread carefully: many employers offer paycheck advances through apps and platforms that may assess a one-time fee, or even charge interest. While the rates may not be as astronomical as payday loan rates, it’s still worth taking a second look at the paperwork to ensure you understand what you’re signing up for ahead of time.

Debt Settlement

Another option is debt settlement, which is where you offer a creditor a lump sum payment on a delinquent debt — a lump sum that often ends up being far less than the original amount you owed.

However, doing this does require some negotiating, and sometimes even some legal know-how, which is why many people seek the help of professional debt settlement companies. This, too, is tricky, because scams abound, and some debt settlement companies may try to charge exorbitant fees to “eliminate your debt,” all without actually doing any work on your behalf. The FTC has more information on debt settlement and how to look for a reliable firm, if you choose to go this route.

Personal Loans

Many personal loans are unsecured loans — meaning no collateral is involved — that can be used to pay for just about anything. And although they tend to have higher interest rates than secured loans, like mortgages or auto loans, those rates are still much lower than payday loans.

With its lower interest rate and longer term, a personal loan will likely cost you less money than a payday loan in the long run. And some online personal loan lenders can process your application quickly and even get you the money you need in a matter of days.

Unlike payday loans, you have to go through a credit check to qualify for a personal loan. However, if you have a steady income and meet the lender’s eligibility requirements, you’re likely to qualify for a lower interest rate than you would if you used an online payday loan.

Your repayment timeline may probably be much less stressful if you opt for a personal loan rather than a payday loan. Personal loans come with the option of longer terms — a few years instead of a few months.

And because you can pay your loan off over a longer term, your monthly payments might be more manageable than a payday loan. There also tend to be fewer fees attached to personal loans, and you might be able to borrow more because personal loans have higher loan maximums.

Personal loans aren’t much more difficult to apply for than payday or fast cash loans. You can typically get pre-qualified online by answering a few questions about your income, financial history, and occupation.

The Takeaway

Of course, it’s always important to repay debts on time and in full to avoid late fees and exorbitant interest charges, but a personal loan is generally more manageable than a payday loan would be.

If you need cash fast, but you want to borrow money from a reputable lender without risking out-of-control interest payments, a SoFi personal loan might be right for you. Learn more today.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
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 in pool

Swimming Pool Installation: Costs, Ideas, and Tips

If, as they say, the American Dream is to own your own home, then the sensational sequel, for many people, is to have your own swimming pool installed.

Few other home improvements have the same potential to turn a property into an oasis for parties, playtime for the kids, or simply hanging out and spoiling yourself.

But paying someone to build that backyard paradise could become a nightmare without the right swimming pool financing in place. (Unless you happen to have $30,000 to $60,000 lying around, of course. That’s the average cost of adding an inground pool.)

How to Finance a Swimming Pool

If you don’t have enough saved to pay upfront for a pool — or even if you do — you might be wondering what types of loans or other options are appropriate for this type of backyard remodel.

There are several pool financing choices available to homeowners — including personal loans and cash-out refinancing; home equity loans and home equity lines of credit; or credit cards and options offered through a pool company.

Before you take the plunge into financing a pool, you may want to consider the pros and cons of each type, including the overall costs of borrowing and whether you might qualify for a particular type of loan. Understanding some of the different ways you can finance a pool can help you decide what’s right for you. So, take a deep breath — we’re diving in.

Using a Cash-Out Refinance to Pay for a Pool

Homeowners who have enough equity built up in their house may want to check into doing a cash-out refinance.

With this strategy, borrowers replace their existing mortgage with a new mortgage for a larger amount. Then, they can use the lump-sum of cash they get back to pay for a pool (or pretty much anything they want).

Pros of a Cash-Out Refinance

When interest rates are low (as they are now), a cash-out refinance can have a few benefits.

•   Eligible homeowners typically can borrow up to 80% of their home’s equity, which could be enough to cover the cost of putting in a pool — and maybe even some extras, like a new barbecue or lounge chairs.

•   Borrowers with good or improved credit, or those who bought their home when interest rates were higher, may be able to refinance to a lower interest rate.

•   A mortgage interest tax deduction may be available on a cash-out refinance if the money is used for capital improvements on your property. (Consult with a tax professional for more details as they apply to your situation.)

Cons of a Cash-Out Refinance

There are some downsides to going the refi route, including:

•   Borrowers must go through the mortgage application process all over again to get a new loan, which usually means submitting updated information, getting an appraisal, and waiting for approval.

•   If your credit isn’t great (maybe your credit cards are maxed out from other improvements), you may not be able to get the new loan.

•   Borrowers may have to pay closing costs, generally from 2% to 6% of the total loan amount. (That’s the old loan plus the lump sum that’s being added.)

•   If the term on the new mortgage is longer than the remaining term on the original loan, it could mean more years of making payments (and paying more in interest overall).

•   Your mortgage is a secured loan, which means if you can’t make your payments, you could risk foreclosure.

Using a Home Equity Line of Credit to Finance a Pool

Another way borrowers can use their home’s equity to finance a pool is to take out a home equity line of credit (HELOC).

A HELOC is a revolving line of credit that uses your home as collateral. It works much like a credit card in that:

•   The lender gives you a credit limit to draw from, and you only repay what you borrow, plus interest.

•   As you pay back the money you owe, those funds become available to you again for a predetermined “draw” period. (Usually 10 years.)

Pros of a HELOC

Here’s why a HELOC can be a popular way to pay for home improvements:

•   Borrowers only pay interest based on the amount they actually borrow, not the entire amount for which they were approved, as you would with a regular loan.

•   The interest rates are generally lower than credit cards and unsecured personal loans.

•   The interest on HELOC payments might be tax deductible, according to IRS rules , if the funds were used to “buy, build, or substantially improve your home.”

•   A HELOC may be easier to obtain than some other types of loans, and the costs might be lower.

Cons of a HELOC

Just as with a credit card, if borrowers aren’t careful, a HELOC can become problematic. Here’s why:

•   HELOCs generally come with a variable interest rate, which means when interest rates increase, the monthly payments could go up. Although there may be a cap on how much the rate can increase, some borrowers might find it difficult to plan around those fluctuating payments.

•   HELOCs are easy to use — and overuse. Some of the same things that can make a HELOC appealing (easy access to cash, lower interest rates, and tax-deductible interest) could lead to overspending if borrowers aren’t disciplined.

•   Adding a HELOC could affect your ability to take out other loans in the future. When lenders are deciding whether to offer a loan, they look at a borrower’s existing debt load. If you add a HELOC to a mortgage, car loans, and maybe some credit cards and other debt, it could appear to increase the risk that you won’t be able to make payments.

•   Just as with a cash-out refinance, the borrowers’ home is used as collateral, which means the lender could foreclose if something happens and you can’t make your mortgage payments.

Using a Home Equity Loan for Pool Financing

A home equity loan is yet another way to tap into the money you’ve already put into your home. But unlike a HELOC, borrowers receive a lump sum of money.

Pros of a Home Equity Loan

Home equity loans have a few positives that make them worth considering for financing a swimming pool.

•   Unlike HELOCs, which typically come with a variable interest rate, home equity loans usually have a fixed interest rate. The borrower can expect a reliable repayment schedule for the duration of the loan.

•   Because it’s a secured loan, the lender may consider it a lower risk, so the loan may be easier to get and the interest rate may be lower than other options.

•   And, once again, there is a potential tax break. If the loan is used for capital improvements to the home, the interest may be deductible.

Cons of a Home Equity Loan

There are two main downsides to a home equity loan.

•   Borrowers may run into a long list of fees when closing on a home equity loan. Some aren’t that high, but they can add up.

•   Borrowers might put their home at risk for foreclosure if they can’t make their loan payments.

Using a Personal Loan

You don’t necessarily have to tap into your home’s equity to finance a swimming pool. Financial institutions offer unsecured personal loans that can be used for this purpose.

If you haven’t owned your home for long, or if your home hasn’t gone up much in value while you’ve owned it, a personal loan may be an option. Here are some pros and cons:

Pros of a Personal Loan for Pool Financing

Applying for an unsecured personal loan can be a much more straightforward process than getting a secured loan.

•   With a personal loan, borrowers don’t have to wait for a home appraisal or wade through the other paperwork necessary for a loan that’s tied to their home’s equity. There generally are fewer fees. And if the loan is approved, you may get your money faster.

•   Because your home isn’t being used as collateral, the lender can’t foreclose if you don’t make payments. (That doesn’t mean the lender won’t look for other ways to collect, however.)

Cons of a Personal Loan for Pool Financing

Cost is the big factor when comparing personal loans to other borrowing options.

While it may be easier and less expensive upfront to get an unsecured personal loan, interest rates may be higher for this type of loan than a loan that requires collateral. However, borrowers who have good credit and don’t appear to be a risk to lenders still may be able to obtain loan terms that work for their needs.

Should You Finance a Pool?

Installing a pool is an expensive home improvement, so you may want to (or have to) borrow some money to pay for all or part of the project.

If you do decide to borrow, it’s pretty easy to go online and research multiple lenders to find the best loan terms for you. Once you’ve estimated how much money you may need, you can shop lenders to find the best interest rate and loan length, and to get an idea of how much your monthly payments will be. You also can check on all the upfront costs of getting the loan. If timing is important, you also can ask how quickly you’ll find out if you qualify and how long it might take to get your money.

The Takeaway

If you’re considering using a loan or line of credit to pay for your pool project, there are several financing options.

Applying for a personal loan tends to be a simpler process than what might be required for other types of loans — and you won’t have to use your home as collateral. Another plus: Online personal loans, like those available through SoFi, can be ready in just a few days. But each type of financing has some pros and cons, so it can be useful to shop around and see what would work best for you.

Pool Financing FAQs

Q: What credit score is needed for pool financing?

A: Every lender has its own process for evaluating a borrower’s creditworthiness — and different types of loans can have varying requirements. If your credit score is in the fair range (below 670) you still may qualify for a personal loan with some lenders. But the better your credit, the better the chances are that you can qualify for more types of loans, lower interest rates and/or a higher loan amount.

Q: Is it smart to finance a pool?

A: Borrowers who have enough cash saved to pay upfront for a pool may still want to consider financing all or a part of their purchase if they want to keep that cash accessible for emergencies and other needs. Financing with a low-interest loan (when you can afford the payments) can make paying for a pool manageable. But before you borrow a large sum, you may want to consider how long you plan to live in your current home, how much pool maintenance might cost each month, if you’ll actually use the pool enough to make it a worthwhile purchase, and if the value added to your home is worth the investment.

Q: How hard is it to get pool financing?

A: A lot depends on your credit and how much you hope to borrow. Lenders want to be certain borrowers can pay their loans. If you have a track record of making late payments, or if you already have a high debt-to-income ratio, it may be difficult to qualify for a pool loan. You may choose to wait until your financial situation improves before you apply for a loan.

Q: Don’t pool companies usually offer financing?

A: Yes, but that financing likely will come from a financial institution the pool company works with — not the pool company itself. If you get a loan offer through a pool company, compare the rates and other terms to those offered by a few lenders before signing on the dotted line.

Q: What about using a credit card?

A: If you’re only financing a portion of the pool’s cost, you could consider using a card with a low- or zero-interest introductory rate. But if you can’t pay off the balance during the introductory period and the rate flips to a higher rate, financing the entire amount or even a chunk of the cost could get expensive.

Q: How long is the typical pool loan?

A: The length will depend on the type of loan you choose and could range from a few years (for a personal loan) to decades. Borrowers can shop for a repayment pace that suits their needs when they research pool loans.

Ready to dive in? Explore SoFi’s personal loans and see if we can help you build the pool of your dreams.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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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6 Strategies for Becoming Debt Free

It isn’t just the $5 cups of coffee. Or the $50 a month for the gym.

It isn’t just that new smartphone, or your shoe addiction, or even that pricey cable subscription. These are common things everyone likes to waggle their finger at when they talk about overspending. But it isn’t necessarily any one of those expenses that really gets people into debt. It’s usually all of them. And then some.

Though frivolous or impulsive spending can be part of the problem, the slide sometimes starts with the best of intentions — with the desire to get a college education, perhaps, or to own one’s own home. Although mortgages and student loans are among the leading sources of debt in the U.S., the number-one culprit, outside of homeownership, is credit card debt. In fact, almost a third of the average American’s monthly income goes toward paying off debts other than their mortgage — which is why it’s so important to have a plan for how to become debt free.

Getting Out of Debt With Frugal Living

The key to how to be debt free sounds simple in theory, but it’s not always easy to put into practice: finding ways to spend less than we earn, thus avoiding the necessity of borrowing money that isn’t ours in the first place.

Of course, once you’re already in debt, getting out of it involves concerted effort by finding ways to chip away at your existing debt while avoiding taking on even more — which can be difficult in a world where so many people struggle to make ends meet.

6 Ways to Climb Out of Debt

Fortunately, difficult doesn’t mean impossible. Here are some tried-and-true ways to become debt free.

1. Creating a Workable Budget

If you have a significant amount of debt to pay off and are looking at how to become debt free, you’ll likely be looking to cut costs in a meaningful way. A budget can help with that. You have to know where your money is going in the first place to know how to create a plan for where you’d like it to go instead, and getting familiar with your budget can help you decide which expenses are worth prioritizing.

Your budget can also help create a feedback loop, as you (and your partner, spouse, or other family members) compare real-world spending to the numbers in the budget and consider whether to take corrective action to stay on track.

Over time, your budget can help you uncover the behaviors that have been holding you back: those areas of excess spending you didn’t even realize were adding up.

If the idea of tracking every penny has been a barrier to budgeting, or if you’ve tried and failed in the past, it may help to keep the process simple. The 50/30/20 rule is a simplified budgeting strategy that’s gained traction because it limits the number of spending categories a budgeter must establish and then follow.

After determining net take-home pay (what’s left after paying taxes), it breaks down the spending money that’s left into three buckets: needs, wants, and savings.

•   50% of the money goes toward needs, including housing costs, utilities, groceries, transportation, medical expenses, and any regular debt payments that have to be made (e.g., credit card bills or loans). From there, it’s up to whoever is creating the budget to determine what the true necessities are and what belongs in the wants bucket.

•   30% goes to those wants. That’s everything from grabbing takeout or keeping your Netflix subscription, to getting your car washed and detailed for date night. Logically, this is the portion of the budget that has the most potential for trimming, but emotionally it might require some real effort to get everything to fit the allocated funds.

•   20% goes to savings. This money might go into an emergency fund, some sort of savings account for short- and long-term goals, and/or an investment savings/retirement account. If you decide to pay extra toward your credit card or student loan debt, that expense also would go in this category.

The percentages are meant as a guideline, and they can be tweaked to fit individual needs. The key is to make a budget that’s strict but doable when figuring out how to become debt free.

2. Making More Money

Yes, this is easier said than done. But before rolling your eyes and moving on, consider the possibilities.

Is it time for a pay raise? If a bump is overdue, it might be time to have a talk with the boss.

Is there side-gig potential? Do you always have nights or weekends off, and would your employer be OK with you taking on a part-time or occasional job for extra money? Maybe a friend does catering, landscaping, house-painting, or some other work and could use an extra hand from time to time.

Could a hobby become a money maker? Crafty folks can look into selling their wares online or at craft fairs and flea markets. History buffs could inquire about giving lectures or teaching classes. Animal lovers may want to offer dog-walking or cat-sitting services. Where there’s a passion, there’s often a way to earn income to help you become debt free.

3. Applying Extra Money Towards Debt

If that raise comes through, or you earn a bonus at work, or you get a tax refund from Uncle Sam, instead of living it up while the money lasts, consider using it to pay down some debt.

A few hundred dollars might not feel like it’s making much of a dent, but every dollar you pay over the minimum can help reduce the interest you owe on a credit card or student loan.

To get some idea of how paying even a little extra toward a bill can help, consider playing around with the numbers using a credit card interest calculator. It might be scary to see how much money you’ll pay in interest if you keep on paying only the monthly minimum, but it can also be motivating to dump as much extra money as you can toward getting that debt paid off once and for all.

4. Consolidating Separate Debts Into One Payment

One way to consolidate debt is with an unsecured personal loan. You may be able to consolidate all or some of your debts at better terms, such as a lower or fixed interest rate and possibly pay them off in less time than you expected.

This strategy could be useful for those who don’t want to keep tabs on several bills every month. A personal loan can be used to consolidate multiple debts together into one manageable payment, which could help make it easier to keep tabs on what you’ve paid and what you still owe.

And because the interest rates offered for personal loans can sometimes be lower than the interest rates on credit cards, you could potentially end up paying less in interest over the life of the loan than you would have if you just kept plugging away at those individual revolving credit card balances.

Typically, the better your financial and credit history, the better the loan terms are likely to be, so it can be a good idea to check your credit record and make sure the information listed on credit reports is accurate.

Then look for a lender who offers the best terms to fit your needs. Keep the length of the loan in mind, as well as the interest rate and other terms to help you on the road of becoming debt free.

5. Controlling Credit Card Dependence

It could be difficult (okay, next to impossible) to stop using credit cards completely, since they’re commonly used for things like booking or holding flights, checking into a hotel, or making online purchases. But making a commitment to reduce credit card utilization could help you cut spending and reduce the amount of money that’s only going toward interest on those cards.

A credit card is a convenient way to pay, but if you can’t afford to erase the balance each month with a full payment, the interest can start piling up.

And though many credit cards make limited-time “no interest” offers, it’s good to review the terms in detail.

For instance, some cards may have terms stating if consumers don’t pay off the entire balance by the end of the promotional period, they may be charged all of the interest accrued since the date of purchase. Yikes.

To better the chances of staying in check, one option may be to consider recording all credit card purchases with a budgeting app or pen and paper and to try and face the costs in real-time, instead of weeks later when the bill arrives.

6. Focusing on One Debt at a Time

Seeing progress is inspiring for many people. Think about how good you feel when you lose a little weight from dieting or gain some muscle from working out. Even small wins can be motivating.

How does that apply to downsizing your debt?

Two of the commonly recommended approaches to debt repayment are the Debt Snowball and Debt Avalanche methods. These strategies vary, but primarily focus on paying extra toward just one balance at a time instead of trying to put a little extra money toward all your balances at once.

The Debt Snowball

The Debt Snowball method directs any excess free cash you might have to the debt with the smallest outstanding balance. Here’s how it can work:

•   Start by listing outstanding debts based on what you owe, from the smallest balance to the largest. (Disregard interest rates.)

•   Make the minimum payment on all other debts and pay as much as possible each month toward eliminating the smallest balance on your Debt Snowball list.

•   After you pay off the smallest debt, turn your attention to the next-lowest balance.

•   Keep going until you are debt-free.

The Debt Avalanche

The Debt Avalanche method targets the highest interest rates rather than the balance that’s owed on each bill. It’s more about math than motivation — you can save money as you eliminate each of those high-interest loans and credit cards, which should allow you to pay off all your bills sooner. Here’s how it can work:

•   Disregard minimum payment amounts and balances, and list balances in order, starting with the highest interest rate.

•   Make the minimum payment on all other debts and pay as much as you can each month to get rid of the bill with the highest interest rate.

•   Move through the list one debt at a time until you pay off all the balances on your list.

Though the methods are different, both plans provide focus, and as each balance disappears, momentum grows. A newer approach, the Debt Fireball method, may be a better fit for modern-day debt, which could include a large amount of low-interest student loan debt.

The Debt Fireball

The Fireball method takes a hybrid approach to the traditional Snowball and Avalanche strategies. It’s called the Fireball because it can help blaze through bad debt faster by making it a priority. Here’s how it can work:

•   Categorize all debts as either “good” or “bad.” “Good” debt generally refers to things that can increase your net worth, such as student loans or mortgages. (Interest rates under 7% could be considered good debt — rates above 7% would likely fall into the “bad” category.)

•   List all those “bad” debts from smallest to largest based on each bill’s outstanding balance.

•   Make the minimum monthly payment on all other debts and funnel any extra cash available each month toward the smallest balance on the Fireball’s “bad” debt list.

•   Once that balance is paid in full, move on to the next smallest balance on that list. Keep blazing until all “bad” debt is repaid.

•   Pay off “good” debt on the normal schedule while investing for the future. Apply everything you were paying toward “bad” debt to investing in a financial goal.

The Fireball makes sense mathematically because it gets rid of typically expensive (or bad) debt first, but it also provides plenty of motivation because momentum can grow as you approach the finish. These two combined elements could provide an extra boost to your efforts.

Avoiding Potential Traps When You’re Getting Out of Debt

Even with the best of intentions, there are some hiccups that can happen on the road to debt freedom. Keep an eye out for these twists, turns, and tribulations.

1. Debt Consolidation

As mentioned above, debt consolidation can be a great way to get ahead of multiple debts at once, potentially save money on interest, and simplify your day-to-day life. Paying one bill a month can be easier to manage than paying (and keeping track of) five or six.

But debt consolidation still entails being in debt. If you choose to consolidate your debt, make sure you’re serious about keeping up with your repayment schedule and keeping your newly paid-down credit cards at a $0 balance. Otherwise, you might just end up right back where you started.

2. Credit Card Balance Transfers

A credit card balance transfer can feel like such a simple way to tackle multiple credit card debts, especially if you don’t have any money saved up to help get the ball rolling otherwise.

But it’s important to pay close attention to the terms and conditions of that new card. You really don’t want to end up on the hook for all the interest you would have been accruing during the 0% promotional period. And even if you do pay it all off in time, you may have to pay a balance transfer fee, usually a percentage of the transferred balance, which can add a significant amount to your transferred debt.

3. Filing for Bankruptcy

When things feel truly overwhelming, you may find yourself wanting to pull a Michael Scott, screaming to the world: “I. Declare. Bankruptcy!!!”

For one thing, it’s not that simple — there’s a lot more paperwork involved. And for another, filing for bankruptcy can have a serious impact on your credit score for a long, long time. It can be a helpful option in some cases, for sure, but it’s worth considering whether a different option might do the trick.

The Takeaway

The deeper the hole you’re in, the longer it may take to climb out. But having the right plan in place before you start could give you a better shot at sticking to a budget, minimizing your dependence on credit cards and methodically reducing your debt in a way that keeps you motivated and saves you money.

If you are looking for a way to help get a handle on your high-interest debt, one option is to look into an unsecured personal loan with SoFi. This option could allow you to consolidate your credit card and other debt into one unsecured personal loan with one fixed monthly payment.

Are you ready to dig in and work toward becoming debt free? Check out how an unsecured personal loan with SoFi could help.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products 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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Getting Approved for a Personal Loan After Bankruptcy

Your chances of qualifying for a personal loan after a bankruptcy depend in part on the type and date of your filing, your credit scores, and your income. If you are approved, you likely will pay a higher interest rate or fees.

A bankruptcy will remain on your credit reports for up to seven to 10 years, but with effort, your credit scores can become healthier during that time and beyond. While you should always consult with a qualified accountant or attorney regarding your finances post-bankruptcy, and never rely on a blog post like this one, here are a few tips to help you understand what to expect.

Two Main Types of Bankruptcy Filings

While bankruptcy can feel like an isolating experience, it’s not uncommon. Every year, hundreds of
thousands
of individuals file petitions, though it’s a figure dwarfed by the 1.6 million in late 2010, when a wave of filings spurred by the Great Recession crested.

There are two main types of bankruptcy available to individuals, Chapter 7 and Chapter 13. With both, typically a bankruptcy trustee reviews the bankruptcy petition, looks for any red flags, and tries to maximize the amount of money unsecured creditors will get.

About 70% of the petitions in 2020 were filed under Chapter 7, and 30% were filed under Chapter 13.

Chapter 7 Bankruptcy

This is often called liquidation bankruptcy because the trustee assigned to the case sells, or “liquidates,” nonexempt assets in order to repay creditors.

Many petitioners, though, can keep everything they own in what is known as a “no-asset case .” Most states let you keep clothing, furnishings, a car, money in qualified retirement accounts, and some equity in your home if you’re a homeowner. (Each state has a set of exemption laws, but federal exemptions exist as well, and you might be able to choose between them — definitely talk to a professional about this.)

After the bankruptcy process is complete, typically within three to six months, most unsecured debt is wiped away. The filer receives a discharge of debt that releases them from personal liability for certain dischargeable debts.

Chapter 13 Bankruptcy

This form, aka reorganization bankruptcy or a wage earner’s plan, allows petitioners whose debt falls under certain thresholds to keep all their assets if they agree to a repayment plan for three to five years. A trustee collects the money and pays unsecured creditors an amount equal to the value of nonexempt assets, according to Experian .

Once the terms of the plan are met, most of the remaining qualifying debt is erased.

If the debtor’s monthly income is less than the state median, the plan will be for three years unless the court approves a longer period. If the debtor’s monthly income is greater than the state median, the plan generally must be for five years, according to uscourts.gov .

Certain debts can’t be discharged through a court order, even in bankruptcy. They include most student loans, most taxes, child support, alimony, and court fines. You also can’t discharge debts that come up after the date you filed for bankruptcy.

Will Bankruptcy Ruin My Credit?

A bankruptcy will be considered a “very negative event” on your FICO® Score, the folks at FICO say, but the severity depends on a person’s entire credit profile.

Someone with a super high credit score could expect a “huge” drop, but someone with negative items already on their credit reports might see only a modest drop, FICO says .

The good news is that the negative effect of the bankruptcy will lessen over time.

Lenders who check credit reports will learn about a bankruptcy filing for years afterward. Specifically:

•   For Chapter 7, up to 10 years after the filing

•   For Chapter 13, up to seven years

Still, filing for bankruptcy doesn’t mean you can’t ever get approved for a loan. Your credit scores can improve if you stay up to date on your repayment plan or your debts are discharged — among other steps that can be taken.

You may even be able to help your credit scores during bankruptcy by making the required payments on any outstanding debts, whether or not you have a repayment plan. Of course, everyone’s circumstances and goals are different so, again, always consult a professional with questions.

That said, realize that some lenders deny credit to any applicant with a bankruptcy on a credit report, according to VantageScore®, which, like FICO, calculates credit scores.

Should I Apply for a Loan After Bankruptcy?

Before applying for an unsecured personal loan, meaning a loan is not secured by collateral, it’s a good idea to get copies of your credit reports from the three major credit reporting agencies: Equifax, Experian, and TransUnion. Make sure that your reports represent your current financial situation and check for any errors.

If you filed for Chapter 7 bankruptcy and had your debts discharged, they should appear with a balance of $0. If you filed for Chapter 13, the credit report should accurately reflect payments that you’ve made as part of your repayment plan.

Next, you can consider getting prequalified for a personal loan and comparing offers from several lenders. They will likely ask you to supply contact and personal information as well as details about your employment and income.

If you see a loan offer that you like, you’ll complete an application and provide documentation about the information you provided. Most lenders will consider your credit history and debt-to-income ratio, among other personal financial factors.

A heads-up on “no credit check” loans: They usually have high fees or a high annual percentage rate (APR).

If You’re Approved for a Personal Loan

Before you sign on the dotted line, it’s smart to take the following steps:

Read the Fine Print

Since you have or had a bankruptcy on your record, the terms of your offer may be less than favorable, so consider whether you feel like you’re getting a reasonable deal.

People with “average” to bad credit scores might see APRs on personal loans ranging from nearly 18% to 32%. Make sure you are clear on your interest rate and fees, and compare offers from different lenders to make the choice that works for you.

Avoid Taking Out More Than You Need

You’re paying interest on the money you borrow, so it’s generally better to only borrow funds that you actually need. Further, it’s probably wise to only take out as much as you can afford to repay on time, because paying on time is an important key to rebuilding your credit.

If You’re Not Approved for a Personal Loan

If you are denied a personal loan, don’t despair. You may have options for moving forward:

Appealing to the Lender

You can try to explain the factors that led you to file for bankruptcy and how you have turned things around, whether that’s a record of on-time payments or improved savings. The lending institution may not change its mind, but there’s always a possibility the lender can adjust its decision case by case.

You likely have the best chance at an institution that you’ve worked with for years or one that is less bound to one-size-fits-all formulas — a local credit union, community bank, online lender, or peer-to-peer lender.

Looking Into Applying With a Co-signer

A co-signer who has a strong credit and income history may be able to help you qualify for a loan. But keep in mind that if you can’t pay, the co-signer may be responsible for paying back your loan.

Building Your Credit

It’s OK to take some time to try to improve your credit scores before reapplying for an unsecured personal loan. You still have a chance to work toward reducing your other debt.

The Takeaway

Getting approved for an unsecured personal loan after bankruptcy isn’t impossible, but it’s a good idea to compare offers, go in with eyes wide open about interest rates and fees, and gauge whether it’s the right time to borrow.

SoFi offers unsecured fixed-rate personal loans with no fees. Adding a co-borrower may help you qualify for a loan or a lower interest rate.

Find your rate in two minutes, with no commitment.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third Party Brand Mentions: No brands or products 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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How Much Does It Cost to Finish a Basement?

How Much Does It Cost to Finish a Basement?

There are many reasons you might want to refinish a basement: to add storage space for items not needed on a regular basis, to increase the living space of your home with another bedroom or a family room, or even to add an apartment to rent for extra income.

Whatever your reason, you will most likely increase the resale value of your home, and whichever route you take, the cost of finishing a basement will depend on a few main factors, which we’ll get into below.

The Costs of Finishing a Basement

The cost of finishing a basement has a lot of variables, as most home upgrades do. Weighing what you can afford versus what you want is critical here. While it might be nice to have all the bells and whistles of a sky-is-the-limit home renovation, there are many things that will affect the bottom line during a reconstruction event like finishing a basement.

The national average cost of finishing a basement is $25 per square foot or $18,395 on average for a 400- to 1,500-square-foot basement. This number could rise based on where you live and whether you plan to add features such as custom cabinets or countertops.

Ultimately, the final cost to finish a basement depends on how extensive the work is, as well as the square footage in the planned remodel. You can estimate labor to run between 10 and 25 percent of the overall basement finishing budget, and general contractors could charge up to $34,000 to do the work.

How to Plan Your Basement Project

The first thing you need to think about when finishing a basement is how you primarily plan to use the space. If it’s mostly for storage, you’ll want to include closets, cabinetry, and a shelving system in your plans.

Or do you intend to use it as a bonus room or lounge? If your basement’s primary function is as a gathering space, you’ll want to wire it so that you have internet, cable, and plenty of lighting and outlets.

Due to their subterranean nature, basements also require waterproofing. The below-grade format of a basement demands special attention be paid to exterior drainage, interior surface materials, and air ventilation, in addition to ensuring a safe way to exit the space during an emergency, like an egress window.

With proper planning, it’s possible to mitigate some of the major expenses associated with building below ground, so do your homework before the rainy season comes. Local government code departments often have building standards to guide the process.

As part of your efforts to keep the finished basement dry, you’ll probably want to install a sump pump for extreme weather events. Built into the floor with an automatic pump, sump pumps give peace of mind for when you’re out of town or have an excess of rainfall.

If you’re finishing a basement to use as an apartment or in-law suite, you’ll need added features like a bathroom and kitchenette. Installing both a bathroom and kitchenette can quickly cause the price to mount with the added costs of cabinets, countertops, appliances, and fixtures, so weigh the decision to add those features carefully against how much use you think they will truly get. Or consider going the budget route, forgoing top-of-the-line furnishings and appliances, if cost is a concern but you need those spaces to complete your basement.

Budget

How much it costs to finish your basement will ultimately come down to the features you add. According to HomeAdvisor ,\average costs you might incur finishing a basement includes:

•   Sump pump: $575

•   Waterproofing: $4,500

•   Framing: $1,795

•   Insulation: $1,650

•   Drywall: $1,750

•   Paint: $1,800

•   Electrical: $1,325

•   Outlets: $1,100

•   Lighting: $2,880

•   Flooring: $2,950

•   Permit: $1,160

Adding a kitchenette can increase your basement costs substantially at $45,600 on average , with both cabinet and countertops factoring into the budget. Installing appliances is also pricey, accounting for anywhere from $1,675 to $23,600 of your cost to finish a basement. There’s also plumbing, wiring, cable/internet, and sink installation costs to factor in, too.

If you plan to use your basement as a bedroom, you can expect to pay around $22,200, which includes drywall, flooring, an egress window to make sure the space is compliant with codes, and other features like bedroom furniture.

Other areas where your basement costs may add up include if you opt for high-end materials, if you hire an interior designer to assist in the layout or furnishing plans, or if you add furniture to the space.

Recommended: What are the Most Common Home Repair Costs?

How to Save Money on Basement Remodeling

There are many ways to save money on basement remodeling, the first being doing the labor yourself. If you’re simply going for a basic basement remodel for storage, this is a project you likely can DIY even without a lot of prior home renovation experience.

You might, for example, want to add corner shelves, install a pegboard system for mounting your tools, or build a wire rack system to store your bulky items — all basement finishing tasks you can tackle yourself without hiring outside labor.

If finishing your basement requires extensive electrical work and/or plumbing, however, you’ll likely want to call in a licensed professional to do that work.

If you’re on a tight budget, you might rethink installing a kitchenette or a bathroom, which are where your basement refinishing costs often add up quickly. A budget-friendly option for cabinetry could be purchasing from a resale shop or using old cabinets from another part of your house that you can refresh with an inexpensive coat of paint.

Recommended: The Top Home Improvements to Increase Your Home’s Value

The Takeaway

A basement remodel could serve multiple purposes — adding living space or storage to your home; providing a common area for your family to use — while simultaneously improving your quality of life and the resale value of your home. There are a lot of considerations to take into account, including keeping an inherently moist environment dry and comfortable, and additional safety measures that you’ll need to factor into the overall budget.

Wondering how you’re going to fund the cost to finish a basement? You could consider taking out an unsecured personal loan. With SoFi, there are no origination fees or prepayment penalties.

Learn more about how a personal loan from SoFi can help you finance your basement project.

Photo credit: iStock/PC Photography


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products 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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