Debt Consolidation Programs: How They Work

If you’re trying to pay off debt, you’ve probably looked into the variety of options that could help. If so, you’ve likely come across debt consolidation programs—and may be wondering what they are.

Debt consolidation programs can help borrowers who may be overwhelmed by debt payments by combining multiple loans into a single payment. Typically these programs are offered by credit counseling organizations. These organizations may offer guidance and financial planning in addition to helping consolidate debt.

A reputable credit counseling organization will likely incorporate guidance to help with managing debts, along with providing educational material, workshops, and other ways to help borrowers work to develop a realistic budget.

A legitimate debt consolidation program should feature counselors who are certified and trained in offering advice on consumer finance issues in order to create a personalized plan, whether it’s to address credit card debt, bad credit, or other needs.

Consolidating debt typically results in a refinanced loan, with a lower or more manageable interest rate and modified repayment terms.

According to the Federal Trade Commission , it is recommended to find a local debt consolidation program offering credit counseling in person.

You may find these accredited, nonprofit programs are offered through channels like credit unions, universities, religious organizations, military bases, and U.S. Cooperative Extension Service branches .

(It’s important to note that everyone’s debt payoff needs differ, so your mileage may vary.)

What Is a Debt Consolidation Program?

Debt consolidation programs can play two roles. For one, they help borrowers combine multiple loans into a single payment, which can make repayment less overwhelming. For another, they act as credit counselors.

With tools for loan repayment strategies and debt management, they can help lower and/or simplify monthly debt payments. These types of programs are usually managed by credit counseling companies.

It’s good to note the difference between debt consolidation programs and an actual loan opened to consolidate debt.

Qualifying consumers can use a debt consolidation loan (typically an unsecured personal loan) to combine multiple debts into a new single loan as well, possibly with a lower interest rate. But there is no counseling offered during the loan application process, and paying down the debt remains entirely the burden of the borrower.

The services outlined above can make a debt consolidation program different from other methods of consolidation or interest reduction, such as a balance transfer for a credit card, or a personal installment loan from a banking institution or lender.

Keep in mind that debt consolidation is also different from debt settlement, which is a process used to settle debts for less than what is owed.

When enrolled in a debt management program, which is one part of a debt consolidation program, a single monthly payment is sent to the credit counseling agency, which then distributes an agreed-upon amount to each credit card or loan company. The goal of the program is to act as an interlocutor for the debt between the borrower and creditor.

While most debt consolidation program companies are nonprofit organizations, nonprofit status does not guarantee services are free, or even affordable.

These organizations can, however, reach out to the lenders on behalf of the borrower to find an affordable repayment plan, which could take shape in the form of waived fees or penalties, lowering interest rates, in exchange for a specific timeline of usually three to five years for the debt(s) to be repaid.

These programs are not loans, which would come from financial institutions. Perhaps most importantly, debt consolidation programs do not make any promises to reduce the amount of debt owed.

Those are debt settlement programs, run by outside companies who negotiate payments with creditors, and can be for-profit, predatory, or may not act in the best interest of the borrower.

A debt management program, on the other hand, could help set borrowers up for future success, when it comes to how to budget and manage money, educating consumers about cutting expenses or ways to increase income in order to gradually eliminate debt.

Pros and Cons of Debt Consolidation Programs

Debt consolidation is typically most beneficial to those struggling with high monthly debt payments. Paying just the minimum balance on debts every month means it could take a long time to pay off the debt, and interest costs could continue to add to the balance. Getting rid of high-interest debts can help make it easier to pay off the principal amount of the loan.

While having a lot of debt is certainly stressful, it’s worth weighing the pros and cons of any debt consolidation program before signing up. Here are some pros and cons to ponder:

•   Multiple payments are combined into one payment, likely making it easier to pay on time.
•   Credit counseling could help a borrower get back on track with tools like budgeting and other financial advice.
•   Some programs can help negotiate lower interest rates, fees, possibly creating a more affordable payback plan. (Note: Because lowering interest rates may extend the amount of time borrowers would pay their debt off, they may end up spending more on interest in the long run.)

•   Debt consolidation programs do not reduce the principal amount of debt owed.
•   Can easily be confused for more predatory programs offered by some debt consolidation settlement companies.
•   Some programs might charge fees.

Many of the legitimate counseling companies tend to follow a similar setup process, which typically includes an interview with a counselor to go over things like income, expenses, and current bills and loans. The counselor might suggest areas where spending could be reduced and offer educational materials.

The program may also help set up a budget and will send the proposal out to creditors to agree to any new monthly payments, fees, payment schedules, interest rates or other factors, Reputable programs should only charge for set-up and a monthly fee.

It is generally recommended to take extra care with any for-profit organizations requiring a lot of upfront fees, memberships, or fees for each creditor they work with on negotiation.

There is no magic pill to reduce debt, so spending less and budgeting more have been key pillars of a healthy financial foundation.

No company should promise a quick turnaround for becoming debt-free overnight. Historically, credit repair has been a market tainted by fraud, so it’s recommended to tread carefully and do the research before signing on to any program.

Selecting a Debt Consolidation Program

One common and simple way to sign up for this type of debt management program is to contact a reputable nonprofit credit counseling agency. The U.S. Department of Justice offers a list of approved credit counseling agencies by state.

Along with ensuring the agency you’re considering is on this list, you may want to consider doing further research by asking your state attorney general and checking local consumer protection agency websites.

Debt settlement companies often try to sell themselves as the same service, so be wary and check to be sure the organization is offering financial counseling and not making promises to reduce the amount of debt owed.

Based on the interview and assessment of current income and debt, the counselor could either recommend a debt management program, or another solution which could be a personal loan, bankruptcy, or some other form of settlement.

The company should not promise any sort of quick fix or short-term solutions.

The National Foundation for Credit Counseling is responsible for certifying many of these counselors, who must complete a comprehensive training program certifying them to help and educate consumers regarding their finances.

Because most nonprofits are certified, it helps to read consumer reviews of these programs as well, to see how the company operates.

The next step is to check what services are offered and what fees will be charged, such as an initial sign-up fee and recurring monthly fee. Understanding the costs upfront is important, and can help someone avoid a possibly predatory, for-profit business.

Something else you may think to look out for: A settlement company may charge more fees initially on the promise to arrange a reduced lump sum payment of debts.

These companies often instruct consumers to stop making payments entirely on their debt, which could affect credit rating and even may cause the creditor to send the debt to a collection agency. A legitimate program should offer financial advice and counseling on ways to help reduce debt.

Paying Off Debt Independently

Rather than looking into a debt consolidation program to alleviate unwieldy monthly payments, one alternative worth considering is an unsecured personal loan, which could help reduce the overall amount of interest payments and possibly save money on interest in the long run.

While a personal loan doesn’t normally come with the counseling services offered by some consolidation programs, SoFi members also get access to complimentary appointments with SoFi Financial Planners.

This service for SoFi members can cover some of the ground offered by the certified debt counselors under the debt consolidation programs, with an initial call to talk about goals and personal finances.

The SoFi Financial Planner may cover things with members like take-home pay, monthly budgets and spending, loans and debt, and savings, and come up with some next steps.

By consolidating high-interest debt into one lower-interest personal loan, borrowers might find having a fixed monthly payment is a simpler way for them to manage debt. For someone interested in debt consolidation, SoFi personal loans offer various term lengths, and come without fees—unlike many debt consolidation programs.

Consolidating your debt with a personal loan can potentially allow you to pay off your debt at a lower interest rate. An unsecured personal loan could make it easier to focus on just paying down the one loan, with a single monthly payment at a fixed rate and payment amount.

Financial wellness can start with having a plan to be debt-free, and debt consolidation, whether through a certified program or a personal loan, can be one place to start.

Taking out a personal loan with SoFi means complimentary access to SoFi Financial Planners, and no fees to worry about.

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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


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Can I Pay off a Personal Loan Early?

Perhaps you’ve gotten a raise or a bonus, and you want to pay off the remaining balance on a personal loan. Is that possible? The short answer is “yes” and, in many cases, it can be a wise decision.

After all, when you get extra cash, it can often be beneficial to pay off debt. But, if there’s a prepayment penalty, then this loan payoff may be more costly than what you’d expect.

A prepayment penalty is a provision in a loan agreement that states a penalty will be charged if the loan is paid off within a predetermined time frame, say two years.

This post will review ways to find out if your loan has a prepayment penalty, and how the presence of this penalty could affect your decision about whether or not to pay off the personal loan early.

Also included, is information on avoiding a prepayment penalty in the first place, and suggestions for steps you can consider if you want to pay off a loan that has one.

Overview of Prepayment Penalties

It may sound strange that a lender would include this kind of penalty in a loan agreement in the first place.

The reason why it sometimes happens, though, is because the lender may want to ensure you’ll pay a certain amount of interest before the loan is paid off. It is an extra fee that, when charged, helps lenders recoup more money from borrowers.

You can find out if you’d be charged with a prepayment penalty by looking at the loan agreement you signed with the lender.

If you have one, the penalty could be in effect for the entire loan term or for a portion of it, depending upon how it’s defined in the loan agreement.

Types of Prepayment Penalties

Figuring out what your prepayment penalty assessment is can help you weigh the pros and cons of paying off your loan early. First, you can always call the number on your monthly billing statement and ask the servicer what the prepayment penalty assessment is. To confirm this information or to calculate the penalty, here are some suggestions:

•   Interest costs: In this case, the lender would base the fee on the interest you would have paid if you made payments over the total term. So, if you paid your loan off one year early, the penalty might be 12 months’ worth of interest.
•   Percentage of your remaining balance: This is a common way for prepayment penalties to work on mortgages, for example, and you’d be charged a percentage of what you still owe on your loan.
•   Flat fee: Under this scenario, you’d have to pay a predetermined flat fee for your penalty. So, whether you still owed $9,000 on your personal loan or $900, you’d have to pay the same penalty.

Avoiding Prepayment Penalties

If you don’t want to be saddled with this penalty—and you haven’t yet taken out your loan—then you should look at whether the lender you’re considering charges one or not.

If you’ve already taken out a loan and it does have a prepayment penalty, there are some options. First, you could simply decide not to pay the loan off early.

This means you’ll need to continue to make regular payments on the loan, rather than paying off the balance sooner, but this will allow you to avoid the penalty fee. You could also talk to the lender and ask if the penalty could be waived, but there is no guarantee that this strategy will succeed.

If your prepayment penalty may not be applicable throughout the entire term of the loan, you can determine when the penalty expires. If you’re certain that it already has expired, then you may be able to pay off your remaining balance without this fee.

Or, if the penalty will no longer be applicable in the near future, you could pay off the personal loan once there is no longer a prepayment penalty.

Here’s one more strategy—calculate how much you have remaining in interest payments on your personal loan and compare that to the prepayment penalty. You may find that you’ll still save more by paying the loan off early, even if you do have to pay the prepayment penalty.

If you’re in the market for a personal loan, or will be in the future, and you don’t want a loan with a prepayment penalty, ask your potential lender whether one will be included in the agreement. Thanks to the Truth in Lending Act , lenders must provide you with a document that lists all loan fees, and this includes any prepayment penalties.

Types of Personal Loans

In general, there are two types of personal loans—secured and unsecured. Secured loans are backed by “collateral,” which could be a car, a house, or an investment account, for example. Unsecured personal loans, on the other hand, are backed only by the borrower’s creditworthiness, with no asset attached to the loan.

You might hear unsecured personal loans referred to as “signature loans,” “good faith loans,” or “character loans.” In general, these are installment loans where you pay back the amount you borrowed at a certain interest rate over a predetermined period of time, called the term.

Personal Loan Uses

Personal loans can typically be used for a wide range of personal reasons, including:

•   consolidation of credit card balances into a lower-interest loan
•   debt consolidation, which can include credit card balances
•   medical expenses
•   home renovation or repair projects

Let’s say that you’re thinking about consolidating credit card debt into one personal loan. Typically, you’d first total up what you owe on credit cards, and borrow enough money on an unsecured personal loan to pay off all of those credit card balances.

This means you would now make payments on one single personal loan, ideally at a rate that would be lower than the combined rates on your credit cards.

To find out roughly how much you could save, you could use a Personal Loan Calculator. In general, the better credit history you have, the more likely that you’ll be able to get a competitive rate on a personal loan.

Possible benefits of consolidating your credit card debt may include:

•   It’s more convenient to make just one monthly payment, versus several of them, and this can make it less likely that you’ll miss making a payment.
•   Personal loans can have lower interest rates than credit cards, which can save you money in interest.

It can also make good sense to use a personal loan for home improvements, as just one more example. Benefits of doing so include that you can typically expect to pay less in fees and interest when compared to a credit card.
Another plus: if the personal loan is unsecured, your home is not on the line as collateral for the loan.

While there are benefits to borrowing a personal loan, it might not always be the right financial move for everyone. Personal loans offer a lot of flexibility, but if not borrowed wisely, it can tempt borrowers into a cycle of debt.

For example, when using a personal loan to consolidate credit card debt, it could be appealing to begin charging on the now open credit card limit. But doing so can lead to even more debt, as you’d be paying off the credit card and the personal loan.

The interest rates on personal loans may not be as competitive as other, secured loans. While personal loans can have lower interest rates than credit cards, those rates may still be higher than other secured installment loans like a home equity loan or home equity line of credit (HELOC).

Interest rates will likely vary from lender to lender, as well as based on a borrower’s personal financial history, so it’s important to shop around to find the best interest rate and terms for you.

There may also be fees in addition to prepayment penalties. Some personal loans also charge origination fees. This is the fee charged by the lender to compensate for the cost of processing the loan.

Depending on the lender, the fee is usually a percentage of the loan, either taken out of the amount borrowed, or charged on top of the borrowed amount. Policies will likely vary by lender, so be sure to thoroughly read the details of the loan.

Additionally, personal loans can be an entryway to scams . Be sure to fully vet the lenders to avoid any financial malice. Look for lenders who are registered in your state and have a secure website. Other signs of a scam can be a lender asking for upfront payment or guaranteeing approval without reviewing your credit history.

Personal Loans at SoFi

If you’re looking for an unsecured personal loan with no prepayment penalties, consider SoFi. There are no application fees, no origination fees, and no hidden fees.

You can use them to consolidate credit card debt, make home improvements, relocate, repair your vehicle, make a major personal purchase and more.

Ready to explore SoFi personal loans? Here’s how to get started!

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.
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

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SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see


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4 Tips for Paying Off a Large Credit Card Bill

You know which three little words no one wants to hear? Credit card debt. It can go from zero to thousands with one quick swipe or build at a slow creep—a nice dinner here, a trip to the mall there, a gas fill-up to get you through until payday—and before you know it you could be staring at a credit card balance that’s a lot higher than you thought it was.

For Alicia Hintz, a member of the SoFi community, the debt creep started in 2016 with a large and unexpected loss of income—the day before she and her husband were to leave on their honeymoon. (Thanks, universe.)

Prior to that, they’d been toying with the idea of selling their Minneapolis home and moving closer to family in Wisconsin. The income reduction sealed the deal. But their house needed some work to be market-ready. The total bill was more than their savings, and their income wasn’t enough to pay in cash, so to the plastic they went.

For them the improvements were worth the investment—in that they sold their house for more than they paid for it, but almost every penny of it went toward fees, commissions, closing costs, and other expenses.

Alicia’s financial journey is likely to resonate with the 41.2% of American households that carry an average of about $9,300 in credit card debt, according to data reported by the Federal Reserve for Outstanding Revolving Debt. The statistics are sobering to be sure, but here’s a spoiler alert—thanks to some smart planning and a lot of stick-to-it-iveness, Alicia’s story ends on a high note.

4 Debt Payoff Strategies

Fast forward a few months and Alicia and her husband live in Wisconsin but on a much-reduced budget. In fact, it would be six more months before they were able to get their finances back up and running—that’s a lot of time for savings to shrink and debt to grow.

1. Zero Interest Credit Card

To try and combat the loss of income, Alicia opened a 0% interest (also known as a deferred interest) credit card with plans to pay it off within the year. “Before I opened that card, I had always paid off my credit card balance each month in full,” she said in a written interview with SoFi.

But, as is life, things didn’t go as planned. “The first month I didn’t pay off my full balance made me panic,” said Alicia. And on top of day-to-day financial challenges, the couple was invited to a destination wedding in the summer of 2017. In order to get the discounted room rate, they had to pay upfront for the flight and resort—close to $5,000.

“That extra money added to our credit card debt was a steep mountain to climb,” Alicia said. “After we had to pay that, I knew it would be years to get everything paid off.”

A 0% interest promotional period on a new credit card can last as long as 18 billing cycles , which could be a long enough time to make a large dent in the card’s principal balance.

But once the promo period expires, the interest rate can climb to as much as 27% (or higher). A credit card interest calculator can give you an idea of how much that rate will affect your total balance, and it’s important to consider whether you can achieve your payoff goal before the rate rises.

2. Creating a Debt-Focused Budget

Tackling a large credit card bill isn’t likely to be easy, so an important part of the process could be a hard look at what putting extra money toward credit card bills means for the rest of your budget.

One way to approach a solid debt-payoff plan is to begin with an organized budget. You can start by taking a look at the big picture, including all of your monthly expenses as they currently stand, all your income, and all your debt.

One way to make this task easier on yourself is to download an app like SoFi Relay, which pulls all of your financial information into one place.

Your next step might be to focus on your spending. You may see obvious areas where you can cut back, or see if you can get creative to come up with some extra cash flow each month.

“We definitely tried to eat out less and cut back on shopping for clothes,” Alicia said. “But it seemed like every month there were more unexpected expenses that needed to be put on the credit card.”

From there, you can start to focus on a plan that makes credit card payments as equally important as the electric bill. And while you may not be able to pay more than the minimum on all your cards, it’s important to ensure that you pay at least that much if you want to avoid accumulating additional debt.

That’s because, while paying only the minimum can lead to compounded interest rates and larger overall balance over time, skipping payments can also lead to higher, penalty interest rates, late payment fees, and can even affect your credit.

3. The Snowball, The Avalanche and The Snowflake

The snowball and avalanche debt repayment strategies take slightly different approaches to pay down debt, and both involve maintaining the minimum payment on all but one card.

The debt snowball method focuses on the debt with the lowest balance first, regardless of interest rate, putting extra toward that payment each month until it’s paid off.

Then, that entire monthly payment is added to the next payment—on top of the minimum you were already paying. Rinse and repeat with the next card, and it’s easy to see how this method can quickly get the (snow)ball rolling.

The debt avalanche is based on the same philosophy but targets the highest-interest payment first. Getting out from under the highest debt can save a lot of money in the long run, and just like the snowball method, applying that entire payment to the next-highest-interest debt can lead to quick results.

The third snow-related strategy, the debt snowflake, emphasizes putting every extra scrap of cash toward debt repayment. This method played an active role in Alicia’s debt-elimination strategy. “If you have extra money to throw at your loans, even $20, that can still make a difference in your overall amount owed,” she said.

4. Personal Loan

As Alicia’s credit card utilization went up, her credit score went down. She decided to research her options and was ultimately approved for a SoFi credit card consolidation loan at a considerably lower interest rate than her credit cards, which along with making extra payments, helped save her money in the long run.

Now facing one personal loan payment vs. multiple credit card bills, Alicia anticipated being able to pay down the debt sooner than the three-year term she selected. And once again, life happened.

Over the course of those years, her husband took a new job, and they both changed cars, bought a house, and had a baby. They also went to two more destination weddings. This time, though, the extra expenses didn’t derail the plan.

“The loan was paid off within two years,” she said, thanks in part to a conservative budget and using an annual work bonus as a snowflake to make a dent in the balance.

From Someone Who’s Been There

One of the biggest things to remember, Alicia said, is that debt elimination doesn’t happen overnight. “Paying off debt is hard work,” she said. “Take it one month at a time. Some months are easier on your wallet, and others are not—looking at you, December!”

She suggested using the time you’re working to pay off debt to develop good budgeting and spending habits so that your post-debt finances are about saving, not spending.

And another tip from Alicia? Celebrate even the little victories. “When I paid off half my SoFi loan, I celebrated by taking a nice long bath,” she said.

When they reached zero balance, she and her husband went out for ice cream. “You can celebrate by going to the park with your kids, reading an extra chapter in a book, or finding a new series to watch,” she said. “Always celebrate your loan payoffs, no matter how small!”

SoFi personal loans also have no fees and no surprises—just a helpful way to manage your money. Additionally, applying is all online. If you’re looking for ways to consolidate your credit card debt, you can check your rate at SoFi in just two minutes.

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.
Member Testimonials: The savings and experiences of members herein may not be representative of the experiences of all members. Savings are not guaranteed and will vary based on your unique situation and other factors.
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The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.


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Credit Card Statement Balance vs. Current Balance

Swiping a credit card to pay for everyday things is so easy and so frictionless. Swipe here for a smoothie, swipe there for a new pair of shoes.

When you buy on credit, it’s easy to forget that you’re paying for that item with money that doesn’t belong to you. In essence, it’s almost like taking out a short-term loan to make a purchase. Depending on how long you keep that “loan”, you may or may not be charged interest.

If you’re putting charges on your credit card throughout the month, you likely understand that the value of that short-term loan (your credit card balance) fluctuates.

You may also notice that there are other numbers that you see reflected on your credit card statement, particularly when you go to make a monthly payment.

One such number is your statement balance. But wait a minute, you may be asking, “What’s the difference between statement balance and current balance?”

Here is helpful information about the difference between the two, along with a few tips for managing your credit cards.

Statement Balance vs Current Balance

As you get familiar with your credit cards, you’ll notice that each issuer may have a slightly different method of presenting and even calculating the numbers that are presented to you on both your monthly statement and your online portal. Still, you will likely see one number called the statement balance and one called the current balance.

First, what does statement balance mean? The statement balance includes all transactions during a designated billing period, called a billing cycle.

For example, if a billing cycle covers one month and starts on the 15th of each month, this statement balance may include all of the activity on an account between, say, Jan. 15 and Feb. 15, in addition to any previously unpaid balances. Then, the next billing cycle would begin on Feb. 15 and end on March 15.

At the close of each billing cycle, the statement balance will reflect one figure—the total balance on the card at the close of that cycle. Until the close of the next billing cycle, this number—the statement balance—will remain unchanged.

But that doesn’t mean that your credit card’s current balance won’t change. Your current balance reflects the current total of all transactions that occur on your account. Did you swipe your credit card for some Chinese take-out three days ago? That purchase is added to your current balance.

Return a shirt that didn’t fit right yesterday? Your current balance will reflect that refund. You can think of the current balance as a running total of all transactions that occur on an account.

To understand the interplay between the statement balance and the current balance, take a look at the example from above. On Feb. 15, the statement balance reflects $1,000, meaning that the total charges between Jan. 15 and Feb. 15 add up to $1,000.

Two days later, say you make a $50 charge to the card. Hypothetically, your current balance would reflect $1,050 while the statement balance would remain the same. In this case, the current balance is higher than the statement balance.

The reverse can also be true, and the current balance could potentially reflect a smaller number than the statement balance. Using this example, say you received a refund on your card several days after your billing cycle closed. The current balance would reflect a number that is lower than the statement balance.

What to Know About Paying Off Your Credit Card

As each billing cycle closes, you will be provided with a statement balance. You will also likely be provided with a due date. At the time you make a payment, you may decide to pay off the statement balance, the current balance, the minimum payment, or some other amount of your choosing.

If you regularly pay your statement balance in full, before or by its due date, you may not be subject to any interest charges. Most credit card companies only charge interest on any amount of the statement balance that is not paid off in full.

The period in between your statement date and the due date is called the grace period. During this period, you may not accumulate interest on any balances.

It’s worth mentioning that not every credit card has a grace period, and it is possible to lose a grace period by missing or making late payments. If you have any questions about whether your card has a grace period, you may want to contact your credit card company.

If you’re using your credit card regularly, it is possible that you will use your card during the grace period. This would increase your current balance. At the time in which you make your payment, you will likely have the option to pay the full current balance.

If you have a grace period, paying the current balance is often not necessary in order to avoid interest payments. (This is generally true if you are consistently paying your statement balance each month.)

But, paying your current balance in full by the due date could have other benefits. For example, it is possible that this move could improve your credit utilization ratio, which is factored into credit scores.

Next, you could pay just the minimum monthly payment. Generally, this is the lowest possible amount that you can pay each month while remaining in good standing with your credit card company—it also can be the most expensive.
Typically, the minimum payment will be an amount that covers the interest accrued during the billing cycle and some of the principal balance.

Making only the minimum payments may be a slow and expensive way to pay down credit card debt. (Especially because you can continue to make charges to a card that exceed the minimum payment, ultimately growing the balance.)

To understand how much you’re paying in interest, you can use a credit card interest calculator. Although minimum monthly payments are not a fast way to get rid of credit card debt, making them is important. Otherwise, you probably risk being dinged with late fees. Also, missing or making a payment late can have a negative impact on your credit score.

So, if the minimum payment is all you can swing right now, it’s okay. But, you may want to consider avoiding additional charges on your card. Your last option is to make payments that are larger than the minimum monthly payment but are not equal to the statement balance or the current balance.

That’s okay, too—you’ll still potentially be charged interest on remaining balances, but you’re likely getting closer to paying them off. You can keep working on getting those balances lowered. A good goal is to get to a place where you are paying off your balance in full each month.

Your Credit Utilization Ratio

The balance you currently carry on your credit card could impact your credit utilization ratio. Credit utilization measures how much of your available credit you’re using at any given time.

Credit utilization is one of a handful of measures that are ultimately used to determine your credit score—and it has a big impact. Credit utilization can make up 30% of your overall score, according to MyFICO™.

Not every credit card will report account balances to the consumer credit bureaus in the same way or on the same day. Also, the reported number is not necessarily the statement balance. It very well could be the current balance on your card, pulled at some time throughout or after the billing cycle.

Again, it may be worth checking with your credit card issuer to find out more. If your issuer reports current balances instead of statement balances, asking them which day of the month they report on could be helpful.

Sometimes, the lower your credit card utilization, the better your credit score may be. While you may feel in more control to know which day of the month that your credit balance is reported to the credit bureaus, it may be an even better move for your general financial health to practice maintaining a low credit utilization all or most of the time.

If you are worried about your credit utilization rate being too high during any point throughout the month, you could make an additional payment. You don’t have to wait until your billing cycle due date to reduce the current balance on your card.

According to Experian , one of the credit reporting agencies, keeping your current balance below 30% of your total credit limit is ideal. For example, if you have two credit cards, each with a $5,000 limit, you have a total credit limit of $10,000. To keep your utilization below 30%, you’ll want to maintain a balance of less than $3,000.

3 Tips for Managing Credit Card Balance

If you’re struggling to juggle multiple credit cards and make all of your payments, here are some tips that may help.

1. Organizing Your Debt

A great first step to getting a handle on your debt is to organize it. Getting to know it—intimately—can also help. Consider listing out each source of debt, along with the monthly payments, interest rates, and due dates. It may be helpful to keep this list readily available and updated.

Another option is to use software that aggregates all of your finances, such as your credit card balances and payments, bank balances, and other monthly bills.

Whether you use existing software or your own calendar system, keep in mind that staying on top of your due dates and making all of your minimum payments on time is one of the best ways to stay on track.

(Bonus tip: Consider asking your credit card providers to change your due dates so that they’re all due on the same day. You can pick something easy to remember, such as the first of the month.)

2. Making All Minimum Payments, But Picking One Card to Focus On

While you’re making at least the minimum payments on all your cards, you might want to pick one—that you haven’t paid off—to focus on first. There are two versions of this debt repayment plan, known as the debt avalanche and the debt snowball, respectively.

With the debt avalanche method, you’d attack the card with the highest interest rate first. With the debt snowball method, you’d go after the card with the lowest balance. The former strategy likely makes the most sense from a mathematical standpoint, but the latter may give you a psychological boost.

If and when possible, you may want to apply extra payments to the card’s balance that you’re hoping to eliminate. Once you’ve eliminated one card, you could move to the next. (You’re trying to get your balances to a place where you’re paying them off in full each month.)

3. Cutting up Your Cards

Whether you do this literally or proverbially, as you get better at managing credit card debt, putting a moratorium on your credit card spending may be a great strategy.

If you are consistently running a balance that you cannot pay off in full, you may want to consider ways to avoid adding on more debt—like literally cutting up your cards.

Taking Out a Personal Loan

If you’re accumulating credit card debt and feel like there’s no end in sight, it may be time to look at other options to help crush your debt.

One option is to take out a personal loan to pay off your credit card debt. By taking out a personal loan you would consolidate all of your credit card debt.

That way you would only have to make one monthly payment moving forward instead of having to keep up with paying off multiple credit cards.

SoFi offers low rate personal loans with no fees. Plus, there is an easy online application and access to live customer support seven days a week.

See if a SoFi Personal Loan can help you get on top of your credit card debt—check your rate to get started.

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

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.
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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SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Business Oversight under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see


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Can You Pay a Credit Card with a Credit Card?

Your credit card payment is fast approaching. And this month? You’re freaking out. The problem isn’t just that you’re struggling to pay the total balance—it’s that you can’t even afford to make the minimum required payment.

We all have our own reasons for using a credit card. When we use them responsibly, they do offer benefits, such as helping us establish credit, cover the expenses of emergencies, rack up frequent flyer miles, or earn cash back. However, chances are that on at least one occasion, you’ve swiped your credit card because you couldn’t afford what you were buying at the time.

Sometimes when people don’t have the money to make a purchase, they put it on their cards and deal with it later. So if you don’t have the cash to make a credit card payment, wouldn’t it make sense to pay with another credit card?

Is that even an option? Can you pay a credit card with a credit card?

Well, yes and no.

Most credit card companies will not allow you to pay one credit card with another. At least not directly. It’s simply too expensive for them to process these transactions. They typically require you to pay directly from your checking account.

There are a couple of indirect ways you can pay one credit card with a second card, though. Even better, there are some long-term solutions that don’t involve a second credit card and can prevent this same problem from arising when it’s time to make another payment next month.

Indirect Ways to Pay a Credit Card with Another Credit Card

Taking a Cash Advance

You can’t pay a credit card with a credit card directly, but you might be able to pay a credit card with cash from another card. Let’s say you have two credit cards, Card A and Card B. You can’t afford to make your minimum payment on Card A, so you’re looking to Card B for a little help. You have the option to take a cash advance from Card B.

In this case, you’d insert Card B into an ATM and withdraw cash from your account. This is known as taking a cash advance. Then, you’d deposit that money into your checking account and make an online payment from your bank account or with a debit card.

The Pros of a Cash Advance

Taking out a cash advance may be the right option if your situation meets three criteria: you’re trying to pay a small amount on Card A, you already have a second credit card to use for this transaction, and Card B has a lower interest rate than Card A.

Completing a balance transfer, which is the second option we’ll cover below, involves applying for a brand new credit card. Taking a cash advance is the better option if you already have a second credit card.

Why is taking a cash advance ideal for making a small payment? Most credit card companies place limits on how much cash you can withdraw with your credit card per month.

If your withdrawal limit from Card B is $5,000 and you only want to make a payment of $500 on Card A, things shouldn’t get too sticky.

Also, the money you withdraw accrues interest. If Card B has a lower interest rate than Card A, then you could save money using Card B to pay off Card A, and then making more manageable payments on Card B.

The Cons of a Cash Advance

It doesn’t make much sense to take a cash advance to make a huge payment. First, your credit card company might not allow you to withdraw enough money per month to make that payment.

Your cash advance limit isn’t necessarily the same as your monthly spending limit. Before you take a cash advance, you may want to contact the company for Card B to inquire about your cash advance limit.

Second, interest usually starts accruing on the amount you withdraw from the moment you take the cash advance. This could make it easy to go even further into debt.

Also, you’ll likely pay a fee to take a cash advance. The amount will vary depending on the credit card company, but you can usually expect to pay around $10 or 5% of the amount you withdraw.

Furthermore, it’s important to note that the annual percentage rate (APR) for a cash advance will typically be higher than the purchasing APR on the card, so you’ll want to check on that as well.

Completing a Balance Transfer

With a balance transfer, you’ll transfer the balance on Card A to Card B, which ideally would have a lower interest rate or even none at all. You could potentially pay off your total balance more quickly because interest isn’t building on the original amount you owe.

In the case of a balance transfer, you’d transfer the amount to a designated balance transfer credit card.

The Pros of Completing a Balance Transfer

Certain credit card companies offer balance transfer credit cards with no interest rates for the first six months or more. When you shop around for a new card, you’ll typically hear this grace period referred to as an “introductory balance transfer APR period” or “promotional period.”

Balance transfers do have some perks over cash advances. When you take a cash advance, the money you withdraw automatically starts accruing interest, meaning you could owe more in the long run if you aren’t careful.

When you transfer the money you owe to a balance transfer card, the low-interest rate could mean you end up paying less; as a result, you might be able to pay off your debt more quickly.

The Cons of Completing a Balance Transfer

Yes, balance transfers may be godsends for paying off your total balance in a shorter amount of time. What if you can’t pay off the total balance quickly, though? Once the introductory balance transfer APR period ends, the interest rate will shoot up, and the balance transfer card won’t seem so magical anymore.

If you miss a payment, most companies will suspend the introductory APR period on Card B, and you’ll have to pay what’s known as a default rate, which could end up being even higher than the rate on Card A. Even if you consider yourself responsible enough to make all your payments on time, an unexpected financial emergency could throw you off track.

There are also generally fees associated with balance transfers. Granted, they’re often lower than cash advance fees. As you can see, indirect methods of paying a credit card with another card have the potential to become slippery slopes.

Before you rush to the ATM to take a cash advance or apply for a balance transfer credit card, you may want to explore other strategies for making this month’s credit card payment.

Taking out a Personal Loan

If you’re wondering, “Can I pay one credit card with another?” you may be asking the wrong question. The right question might be, “What’s a better way to pay off my credit card?” The potential answer: taking out a personal loan.

Yes, the word loan is a little scary. If you find yourself in over your head with credit card payments, though, a personal loan could be your best friend.

In this situation, you’d take out a personal loan from a lender such as SoFi, and use the loan money to make credit card payments.

The Pros of Taking out a Personal Loan

In America, many credit cards come with variable interest rates, meaning the rate can change over time. These rates often change along with the economy.

A big pro with taking out a personal loan is that lenders can issue fixed rates, so you’re unlikely to face any surprises. If you have a good credit score, your personal loan fixed interest rate could potentially be lower than your credit card rate.

If this is the case, you can take out a personal loan to pay off your credit card, then make payments on that personal loan at a lower interest rate. As a result, you’d likely end up paying less in interest overtime and might even be able to pay back the loan more quickly than you’d be able to pay off the credit card.

Taking out a personal loan could help improve your credit score in more ways than one. One factor that affects your credit score is your credit utilization, which is the relationship between your credit limit and the balance you are carrying against that credit.

For example, if your credit card spending limit is $10,000, it’s generally better to owe $1,500 on your credit card than $8,000. If you consolidate the credit card debt with your personal loan, your credit utilization ratio will go down, which could improve your credit score.

Your credit score may also improve as you consistently pay bills on time. If you use a personal loan to pay off your credit card, it could help increase your score. And the more monthly payments you make on time, the more likely your credit score is to increase—credit bureaus love responsible payment behavior.

A mix of credit accounts can also improve your credit score. If you have multiple credit types, such as a credit card, mortgage, and personal loan, it potentially bodes well for your credit score.

The Cons of Taking out a Personal Loan

Taking out a personal loan to pay off a card isn’t for everyone. Maybe you’ve realized you have trouble controlling your spending, and that’s why you have credit card debt to begin with. Having a personal loan to fall back on could tempt you to spend even more with your credit card and trap you in a vicious cycle.

The likelihood that your personal loan interest rate would be lower than your credit card annual percentage rate (APR) is pretty good. The average APR on credit cards is 22.84%, and unless your credit score falls to the lower end of average (640-679), there’s a good chance a personal loan will offer a lower rate.

However, a lower rate isn’t guaranteed. If you discover your loan rate could be higher than your card’s rate after talking with a lender, taking out a loan may not be the best choice.

No matter how low your personal loan interest rate, it will still be higher than the rate during an introductory APR period for a balance transfer. Although taking out a personal loan has several benefits over completing a balance transfer, the initial interest rate isn’t one of them.

Taking Control of Your Credit Card Debt

Sure, paying a credit card with another credit card indirectly may be a short-term solution. However, taking out a fixed-rate personal loan with a clearly defined payment schedule may be the better long-term option.

If you are thinking about this option, you can check out SoFi. SoFi offers personal loans with low rates and no fees.

Looking to get on top of your debt? Check out SoFi Personal Loans today.

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

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


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