How Much Does it Cost to Remodel a House?

In the world of HGTV renovation shows, remodeling a home might look like a breeze. Interior design pros tackle a home in 30 minutes (including commercial breaks) and finish on time—miraculously under budget.

But, real life is rarely like reality TV. Home remodels can sometimes be complicated, and costly. Coming up with a budget beforehand could help avoid the headaches and hard choices that can crop up down the line.

Ready to start calculating a potential dream home remodel? Turn off the home renovation show, grab a calculator, and read on.

There’s no one “magic number” a person can bank on when it comes to the cost of a home renovation.
However, there are several factors that a homeowner can take into account when budgeting for a home remodel: high-end vs low-end, type of home, and rooms renovated.

Factors of a Home Remodel Cost

High-end Versus Low-end Renovation

A renovation of a 2,500 square foot home could cost anywhere between $25,000 and $150,000 on average . The variation in price stems mostly from the scale of the projects. According to HomeAdvisor , a homeowner can expect to generally complete the following within each budget range:

•   Low-end ($15,000-$45,000). A renovation of this size would include small changes, such as new paint and fresh landscaping. It might also include inexpensive finishes, such as new counters and flooring.
•   Middle-end ($46,000-$70,000). In addition to the low-end projects, a middle-end home renovation includes full room remodels, like a bathroom and kitchen, as well as a higher quality flooring than the low-end renovation.
•   High-end ($71,000-$200,000). A high-end budget would include the low- and middle-end projects, as well as high-quality finishes including custom cabinetry and new appliances. It might also include improvements to the foundation, HVAC, plumbing, and electrical.

As a homeowner begins to identify what rooms they want to upgrade and to what extent, they will begin to customize their renovation budget. Just one in five homeowners finish renovations under budget, so it’s recommended to pad estimates in the event of unexpected costs.

Type and Age of Home

Older homes will typically need more TLC during the renovation process. Once walls and floors are opened up, a homeowner might realize the wiring and plumbing is outdated and should be brought up to code.

While a person’s home won’t be unsellable if everything isn’t up to code, there could be issues with financing because generally lenders will not close on a home where health and safety issues are identified.

People may decide that adhering to building standards ensures the work is up to code and that it’s a safe renovation. That can involve time, money, and work. That is why sometimes older homes can involve more work than the average renovation.

If a person’s home is old enough to be considered “historic” in their town or community, they’ll want to be careful about the changes they make. Depending on where a person lives, they’ll likely need to adhere to their city’s guidelines to make sure their home still falls into the “historic“ categorization, even after a remodel.

Designated historic properties in states like Connecticut could boost a home’s value between 4% and 19% , on average.

Depending upon the condition of the home and any past upgrades, a home’s age can have an impact on the cost of renovation, but so too can the type of home, regardless of age.

HomeAdvisor estimates that Victorian homes generally cost the most to renovate per square foot, up to $200 and that farmhouses and townhouses tend to have the lowest cost per square foot, between $10-$35 .

Use SoFi’s Home Improvement Cost Calculator
to estimate the price of your next remodel.


Typical Renovation Costs by Room

For many homeowners, a dream renovation would cover every inch of the home, but for the budget-conscious, that might not be possible.

When it comes to renovation expenses, generally, not every room is created equally. Rooms with cabinets and appliances tend to be the priciest—think bathrooms and kitchens.

Kitchen Remodel

The typical range for the cost of remodeling a kitchen comes in between $13,052-$37,026 , but kitchens can have the most variation when it comes to cost, depending on finishes, appliances, and projects.

Here’s what a homeowner could expect to overhaul in a kitchen based on the budget range :

•   Low-end ($5,000-$30,000). New lighting, faucet, coat of paint, refreshed trim, and a new but budget-friendly sink backsplash. This also might include knocking down walls or a counter extension project.
•   Middle-end ($30,000-$60,000). This budget could include new appliances, floors, and tiled backsplash to the sink. It might also include new cabinets and mid-range priced countertops.
•   High-end ($65,000+). When the budget expands for a kitchen, the projects start to take on custom finishes. A high-end budget would likely include custom cabinets, high-end countertops like stone or granite, and expensive appliances. Other projects might include new lighting, hardwood flooring, and new faucet fixtures.

Because a kitchen can be so customizable and include so many levels of finishes, the budget could fluctuate greatly.

Bathroom Remodel

Bathrooms take on a similar budgeting structure. The typical range for the cost of a bathroom remodel is between $5,989-$14,964 , but that includes a range of projects and features.

For example, new cabinets in a bathroom can account for up to 30% of the budget . Other big-ticket items come in a range of prices based on low-end versus high-end finishes.

On the low-end, a new bathtub might cost just $400 , but if a homeowner is looking for a high-end tub, they could pay upwards of $8,000 . The final cost will likely hinge on the homeowner’s decision on budget range.

Bedroom and Living Room Remodel

Budgeting a bedroom remodel can be a little more cut and dry since it generally doesn’t include as many costly fixtures as a person might find in the bathroom or kitchen. A homeowner can expect to tackle a bedroom for about $7,880, on average .

This typically includes new carpet, windows, door, and refreshed molding. It might also include new heating, insulation, and updated wiring and lighting. But this budget doesn’t account for new furnishings in the bedroom, like a bed or wardrobe.

Remodeling a master suite could cost a bit more since it typically includes a bathroom and bedroom renovation. If a homeowner wants to add or expand a closet in the master suite, they can estimate adding around $1,500 to $2,000 to the room’s budget, on top of the bathroom and bedroom.

A living room remodel can cost between $1,500-$5,500, on average . Like the bedroom, living rooms tend to lack the “wet” features, plumbing and appliances, that can drive up the cost of the bathroom and kitchen.

If a living room has a fireplace feature, homeowners can expect to spend a bit more. Looking to add a fireplace? That could add at least $2,000 to the room .

Exterior Remodel

Updating roofing and refreshing the exterior of a home is commonly part of a renovation. A new roof could cost $20,000 , on average, but will vary depending on materials.

Adding new siding to a home will typically cost around $14,000 , but will once again fluctuate based on the material used. Painting the exterior of a home will cost between $1,710 and $4,000 .

Of course, depending on the degree to which each room is remodeled, the estimates could vary. DIY-ing projects in various rooms could also help bring down the budget.

Other Remodel Considerations

A remodel isn’t just financial spreadsheets. There are other considerations a homeowner may want to consider before taking a sledgehammer to a room.

Timeline

A renovation could take anywhere from a few days to a few months, so a homeowner may want to plan their timeline accordingly. It might be tempting to duck out of town when big projects are underway, but staying around means the homeowner could monitor projects and provide answers if any unexpected issues arise.

Additionally, renovations can be stressful and might be best scheduled around other big life events. For example, homeowners might think twice about a full home remodel that coincides with nuptials, or a baby on the way. Of course, unexpected events could arise, but there may be no need to pile on projects when so much is going on.

Who Is the Renovation for?

Before diving deep into plans, homeowners may want to consider who the renovation is for. Is it for the homeowner to enjoy decades from now, or is it to make the house more marketable for a future sale? The renovation could take a different shape depending on a homeowner’s answer.

If the remodel is just for the homeowner, then they might choose fixtures based on personal taste, or might decide to splurge on high-end bathroom features that they’ll enjoy for years.

On the other hand, if the homeowner plans to sell within a few years, they may consider tackling projects that have the greatest return on investment (ROI). That could mean prioritizing projects like a kitchen update or bathroom remodel.

Not sure about a project’s resale value? SoFi’s home project value estimator can be a useful tool to help determine the approximate resale value of a home improvement project.

Delays and Unforeseen Expenses

Homeowners might expect the unexpected when undergoing a remodel. Unexpected delays could extend the timeline, or emergency expenses could drive a project over budget.

As a general rule of thumb, it is recommended for homeowners to pad their budget by at least 10% for emergencies or unexpected costs.

Financing a Remodel

Coming up with the capital to finance a remodel can be daunting enough to make some homeowners abandon the whole process. However, there are multiple avenues homeowners can explore to start the remodel of their dreams.

Out of Pocket

Homeowners who take on small renovations and have liquid savings might decide to pay for everything out of pocket. This means no debt or interest rates to contend with.

However, paying cash for a large project can be challenging for some, and might lead to cutting corners on important elements in an effort to keep costs down. Plus, unexpected emergency costs could drive the homeowner into unexpected debt.

Out of pocket is possible for some homeowners, but it’s not the only way to pay for a remodel.

From Friends or Family

Another alternative is to borrow money from family members or friends. While this saves homeowners from having to deal with loan applications and approvals, and potentially provides more flexible terms, it can come with its own share of issues, such as risking the relationship if the borrower is unable to pay back the lender (in this case, family or friends).

Homeowners may want to carefully consider the effect borrowing money for a remodel might have on a relationship, and make sure there are plans in place in case the money can’t be repaid.

Additionally, loans from family members may be considered gifts by the IRS (and may be taxable), so it’s best to discuss with a tax professional before proceeding.

HELOC

A HELOC, or Home Equity Line of Credit, allows homeowners to pull a certain amount of equity out of their home to finance things like renovations.

Qualifying for a HELOC depends on several factors, including the outstanding mortgage amount on the home, the market value of the home, and the owner’s financial profile.

HELOCs typically come with an initial low-interest rate, and a homeowner generally has the option to only pay interest on the amount they’ve actually withdrawn.

However, they could also have high upfront costs, and can come with a variable interest rate with annual and lifetime rate caps.

Personal Loan

If a homeowner doesn’t have the cash on hand or enough equity in their home for a HELOC, then a personal loan might be a consideration.

An unsecured personal loan is generally an unsecured installment loan that isn’t attached to a person’s home equity, and typically can be funded faster than secured loans and with fewer or no upfront fees.

Personal loans might be a good option for people who recently bought their homes, need capital quickly for unexpected personal reasons, or need a loan for their home improvement project.

SoFi’s personal loans are generally funded in as little as three days, with competitive rates, and no fees. Qualified borrowers may be eligible to borrow $5,000 to $100,000 for a home improvement or other personal needs, and can apply online in a few clicks.

Home remodels are stressful enough, but with a home improvement loan from SoFi, finding a way to pay for them doesn’t have to be.


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Paying Off Credit Card Debt with a Personal Loan

People talk all day long about their workouts, favorite apps, and their love lives, but bring up the subject of money, especially credit card debt, and suddenly everyone clams up.

But just because we don’t talk about debt doesn’t mean it’s not an issue. After all, the average American household carrying a credit card balance has over $9,300 in credit card debt as of March, 2020. And it can cause a great deal of stress.

In fact, according to the American Psychological Association’s latest “Stress In America” report , money is the number two cause of stress—ahead of family and health concerns—and second only to work. Over 50% of Americans with debt who were surveyed in a 2017 American Institute of Certified Public Accountants poll said it had negatively affected their lives.

If you’re a Millennial, the same poll found that you might be twice as likely to worry about debt than Baby Boomers. While the poll found that 56% of people with debt said that it had a negative effect, that figure jumps to almost seven in 10 for Millennials. The study also found that Boomers and Millennials are equally likely to have debt.

So unless you’re expecting a windfall from a long-lost relative (who probably didn’t talk about money either), it’s likely up to you to come up with a game plan to manage your finances.

But how do you pay off credit card debt? There are many methods to choose from—here are just a few.

Budgeting Debt Payoff

Before embarking on paying off credit card debt, a good first step might be putting together a budget—which can help you better manage your spending.

There are simple options like an online spreadsheet and more advanced ones like pay services to track your spending. And you might even find money in your budget to put towards that outstanding debt.

If you’ve got more than one type of debt, say a mortgage, student loan, and maybe a car loan, you may want to think strategically about how you’re going to tackle them.

Some finance gurus recommend taking on the most expensive debt first—then the debt with the highest balance. Another approach is to pay off the smallest debts first, meaning the debts with the smallest balances.

Then you can take next month’s debt-paying money and funnel it into the next smallest balance. This method gives you some small wins early and over time can give you some room to make larger payments on some of your other outstanding debts. (Of course, for either of these strategies, keeping current on payments for all debts is essential.)

Looking for a better way to get rid of
high-interest credit card debt?
Check out SoFi Personal Loans.


Refinancing or Consolidating

Refinancing or consolidating debt are other strategies, especially for those in the post-grad plateau—the early stages of a promising career—if, for example, there’s a raise waiting just around the corner. In simple terms, refinancing is taking one loan or line of credit and replacing it with another (for instance, balance transfers). Consolidating is similar to refinancing, as it combines all your debt into one loan that you then have to pay off.

There are lots of reasons to consider refinancing. You may want to lower your monthly payment. Maybe you want to pay over a different period of time. Or maybe you just want to work with a new lender or loan servicer.

With fixed-rate credit cards becoming more difficult to find, and the average annual percentage rate (APR) for variable-rate credit cards hovering around 17%, you could potentially save by refinancing credit card debt (depending on how much you owe, of course) with a credit card consolidation personal loan—which, as of late 2019, had an average rate of 9.41%.

Fortunately, applying online typically doesn’t take more than a few minutes. And there are more options than ever with innovative fintech startups doing what they can to make the process of refinancing your credit card debt, quick and easy.

Again, there’s also the potential for saving. Of course, everyone’s situation varies, but you can use SoFi’s credit card interest calculator and personal loan calculator to do the math on your own.

So You’ve Decided to Apply for a Personal Loan. Now What?

The steps for paying off a credit card with an unsecured personal loan aren’t particularly complicated, but having a plan in place is important.

1. Getting the whole picture.

It can be scary, but getting the hard numbers—how much debt you have overall, how much you owe on each specific card, and what the respective interest rates are—gives you a sense of how big of a personal loan you’re aiming for.

2. Searching personal loan options.

These days, you can do most—or all—of your personal loan research online. What you’re looking for is a personal loan with an interest rate lower than what you’re currently paying on your cards. You’ll also want to keep an eye out for origination fees, which can cost you more and could throw off your payoff plan.

3. Paying off the debt.

Once you’ve chosen, applied, and qualified for your personal loan, you’ll likely want to immediately take that money and pay off your credit card debt in full.

The process of receiving the personal loan may differ; some lenders will pay off your credit card companies directly, others will send you a check that you’ll then have to deposit and use to pay off your credit cards yourself.

4. Hiding those credit cards.

One potential risk of using a personal loan to pay off your credit cards is that it makes it easier to accumulate more debt—after all, a $0 balance on a credit card can be a temptation. The purpose of using a personal loan to pay off your credit card debt is to keep yourself from repeating the cycle.

If possible, you can take steps like hiding your credit cards in a drawer and trying to use them as little as possible. This is where creating a budget comes in handy!

5. Paying off your personal loan.

A benefit of using a personal loan to consolidate your credit card debt is that you only have one monthly payment to worry about—instead of several. You’ll want to make sure you don’t miss any of those payments, so you may want to set up a monthly reminder or alert.

More Details About Personal Loans

So why would you consolidate credit card debt with a personal loan?

Most unsecured personal loans come with a fixed APR. A fixed APR is a rate that won’t fluctuate or change based on an index.

This doesn’t mean that your rate will never change over the life of your loan (for example, it could change if you missed several payments). But if it does remain the same, it means you’ll be paying the same amount monthly over the life of the loan.

Another pro is the ease of online applications and access to live customer support from many lenders. With online applications, the process for getting a personal loan can be quick and easy, and you don’t have to trudge to a post office or send certified mail or print out complicated tax documents. You also may be able to access live customer support to help you out with any questions.

Another possible benefit is pausing your payments in case of certain situations. Your loan(s) will typically have to be in good standing to be eligible for this benefit (among other requirements), but if you lose your job some lenders, like SoFi, may temporarily pause your payments and help you find a new job. (Note that interest accrues during the forbearance period and is added to principal when you resume repayment.)

SoFi’s Unemployment Protection Program is offered in three-month increments that can be renewed up to a maximum of 12 months over the life of the loan.

Borrowers looking to apply for this benefit may be eligible if they are (among other qualifications): a current SoFi member, have an eligible loan that is in good standing, certify that they have lost their job through no fault of their own (involuntarily), and actively work with Career Services to look for new employment.

Finally, there’s also the benefit of ending the vicious cycle of credit card debt, without resorting to a balance transfer card.

You may be among the 49% of Americans who know that balance transfer credit cards exist. Balance transfer credit cards are just credit cards that usually have an introductory offer of some sort to give you a lower rate (or a 0% rate) if you transfer your balance to the new card.

This might seem like an appealing offer. But if you don’t pay off the balance before the enticing offer is up, you could end up paying an even higher interest rate than you started with. You also may have to pay a transfer fee to the new cardholder.

Planning Debt Reduction

Armed with new information and a debt reduction plan, the next time the subject of money—specifically credit card debt—comes up, you’ll have plenty to talk about. You could now be able to confidently discuss APRs on personal loans compared to credit cards, the merits of no fees, and the plusses of a fast and easy user interface for a loan application.

And if you share this article with friends who want to cut up a few of their credit cards, they can join the conversation, too. Because chances are, based on the numbers, some of those friends might be among the 55% of Americans with credit cards who are also carrying other debt.

Maybe they’re as shy about their debt as you used to be and could use some handy advice from a friend or a solid five reasons why a personal loan might be worth investigating.

Remember, however, personal loans aren’t for everyone. While they typically have lower interest rates than credit cards, they are still debt and should be considered carefully and used responsibly.

Ready to get rid of your credit card debt? Look into a SoFi personal loan. You can check your rate in just a few minutes.


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.
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.
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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 SoFi.com/legal.

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Credit Card—and Credit Card Debt—FAQs

If you’re having trouble getting out of credit card debt, you’re not alone. According to the Federal Reserve Bank of New York’s Center for Microeconomic Data , household debt is higher than ever before. In the last quarter of 2019, household debt increased by $193 billion (1.4%). This marked the 22nd quarter in a row that household debt increased.

The current total is $1.5 trillion more than the country’s previous household debt peak in the third quarter of 2008. And credit card balances increased by $46 billion.

While these statistics provide a snapshot-view of what’s happening in many households across the United States, what probably matters most to you is finding ways to manage your own debt. To help, this post will provide some answers to frequently asked questions about credit cards and associated debt.

What Are (some of) the Benefits of Having a Credit Card?

There are a variety of advantages when it comes to credit cards, including that you:

•   don’t need to carry as much cash with you
•   can track your purchases
•   can make larger purchases
•   can benefit from reward programs and other discounts
•   can build your credit score with responsible use
•   have access to emergency funds when needed
•   can use your card to secure a hotel room, rental car, and so forth

Although this is not intended as a complete list of benefits, and credit cards are not for everyone, it does contain many of the significant advantages of having a credit card.

What Are (some of) the Disadvantages of Having a Credit Card?

Although the convenience of credit cards is significant, it’s possible for these cards to become a little bit too convenient. Some people believe that as long as they can make their minimum monthly payments on their credit card debt, they’re in good financial shape. In reality, though, making minimum payments isn’t usually enough. Typically, it can cause debt to increase because of compounding interest.

For example, let’s say you’ve got a balance of $5,000 on your credit card; the interest rate is fixed at 16.71%, and you’re paying $100 monthly. At that pace, it would take you five years-plus to pay off your original debt of $5,000, with an additional $3,616 in interest alone. That’s a simplified hypothetical, but if you’d like to get an idea of how much you may be paying back on your own credit card debt, you can use SoFi’s credit card interest calculator.

Another disadvantage of credit cards is that your account numbers can be stolen, leading to potentially serious identity theft problems. Plus, these thieves can use your account information to rack up charges and it can be a real hassle to address this issue.

Choosing the Right Credit Card for Your Situation?

Those who use a credit card responsibly might find it worthwhile to check around to find a card that offers the rewards they’d use and benefit from. These rewards can include frequent flyer miles, loyalty points, cash back, and so forth.

If you don’t typically pay off your balance in full each billing cycle, however, then credit card rewards might not be worth it since they typically have higher rates or annual percentage rates (APRs).

If you often carry a balance on your credit cards, then it could make sense to shop around for the best interest rate. These cards probably won’t have all of the extras that come with reward cards, but they could help you accrue less interest.

If you’re just building your credit or need to repair your credit score, a secured card may be worth considering. This functions like a typical credit card except that you’d need to put a deposit into the bank to serve as a backup.

If you close the account with your credit in good standing or you improve your credit to the degree that you’d qualify for an unsecured credit card, then the deposit is returned.

As another option, you can load a prepaid credit card with a certain amount of money, through cash, direct/check deposits, or online transfers from a checking account. You can use that card until the funds are used up.

Although this can make sense in certain circumstances, perhaps because of a challenging credit history, this type of card doesn’t help you to build or repair credit, and can come with plenty of fees.

Fees for prepaid credit cards can include a monthly fee, individual transaction fees, ATM fees, reload fees, and more. If you go this route, compare options to get the best deal.

Here’s the bottom line on this FAQ. What’s most important is to find a credit card that dovetails with your needs and usage patterns.

Using a Balance Transfer Credit Card

Balance transfer cards can allow you to consolidate your credit card debt onto a card that, for an introductory period, comes with a low or zero-interest rate. Sometimes, these low-to-no-interest credit cards make good sense.

For example, if you have a balance on a high interest credit card and you are anticipating a bonus or tax return in a couple of months, then it can make sense to pay off the high interest card with a zero-interest one, and then pay off that credit card with your bonus or tax return before the introductory period is up.

Or, if you want to make a larger purchase and have planned your budget in a way that allows you to pay off the balance during your zero-interest period, that might also work out well.

Problems with no-interest credit cards can include that, if you don’t pay off the balance in your introductory period then the card reverts to its regular interest rate that can be quite high. Plus, in some cases, if you don’t pay off the entire balance within the introductory period, you’ll owe interest on the original balance transfer amount.

Sometimes, there are balance transfer fees that can make this strategy more expensive than if you hadn’t transferred a balance in the first place.

If you have outstanding credit card debt that you aren’t paying in full each month—and if a balance transfer credit card doesn’t seem like the right strategy for you—here’s another idea to consider: a credit card consolidation loan.

What Is a Credit Card Consolidation Loan?

A personal loan, sometimes referred to as a credit card consolidation loan, is an unsecured installment loan with fixed or variable interest rates. It is ideally repaid in the short term (e.g., three to five years), and it can be used to consolidate credit card debt and hopefully offers a lower interest rate than your current credit card(s)interest rate. Your loan payments include both principal and interest.

OK, a credit card loan’s correct name is a credit card consolidation loan, which is just another name for an unsecured personal loan. How is a personal loan different from other types of loans?

A personal loan is an unsecured loan. Unlike a mortgage, there is no collateral attached to or “secured” for a personal loan. For example, if you take out a mortgage loan, your home becomes the collateral for your mortgage. If you default on your mortgage, your lender can then own your home.

With most personal loans, there is no underlying collateral required. When a loan has no collateral, it means it’s unsecured. Since the lender assumes more risk with an unsecured loan (given there isn’t a home to repossess should a borrower default), the interest rate on a personal loan is usually higher than the interest rate on a secured loan.

Considering a Personal Loan?

If you have credit card debt and want to lower your monthly payments and get a better interest rate than you currently have, a personal loan can be worth considering, since it can enable you to consolidate your credit card debt. Instead of paying off multiple credit card balances, consolidating your credit card debt into a personal loan means you can just make one convenient monthly payment.

Over the last year, the average credit card interest rate has hovered around 10% is just a small bump, however, and taking on more debt is not typically ideal—especially if you start adding to the credit card(s) balance(s) you zeroed out with a personal loan. . Personal loans can come with lower rates, especially for borrowers with strong credit histories and income, among other factors that vary by lender.

Credit scores are typically one of the main factors considered by lenders when reviewing applications for personal loans. So, it can make sense to know your score before you apply; in general , a FICO® Score between 740-700 is considered “very good” while 800-850 is considered “exceptional.” .

To get a rough estimate of how much you might be able to save by consolidating your credit card debt with a personal loan, you can take a look at SoFi’s personal loan calculator.

In sum, a personal loan can help you by offering a lower interest rate than what you have for your existing credit card debt. The interest rates on personal loans are often much lower than the interest rates on credit cards.

This means that if you consolidate your credit cards into one lower-rate loan, for short and fixed term, you could reduce the total interest you’d pay on the debt and have an opportunity to pay off your debt more quickly.In some circumstances, adding a personal loan could also be beneficial for your credit score.

Why? Because having a mix of credit types can help your score; with the FICO® Score, for example, your “credit mix” accounts for 10% of your base score—and, if you consolidate your credit card debt (considered “revolving” credit) with a personal loan (“non-revolving” credit) and you keep your credit card open, you now have a mix of revolving and non-revolving forms of credit.

10% is just a small bump, however, and taking on more debt is not typically ideal—especially if you start adding to the credit card(s) balance(s) you zeroed out with a personal loan.

Borrowing a Personal Loan

Applying for a personal loan with SoFi is typically a simple and fast process. Loan eligibility takes into consideration a few different personal financial factors, including credit history and income . If you’re interested in applying for a personal loan with SoFi, you can review the eligibility requirements for more information—and see your rates in just two minutes, before you even apply.

SoFi offers loans up to $100,000 with low fixed interest rates, no prepayment penalties and no origination fees. SoFi also offers unemployment protection to qualifying members who lose their job through no fault of their own. If you have questions while applying for a loan online, you can contact SoFi’s live customer support 7 days a week.

Interested in exploring a credit card consolidation loan with SoFi? Learn more.


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.
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.
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 SoFi.com/legal.

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Your Guide to Handling High-Interest Debt

When a person takes on debt—whether it’s a student loan, mortgage, car loan, or credit card balance—they’re likely paying interest on that debt. This is a charge paid to the lender for the opportunity to borrow money. But interest rates aren’t all created equal.

In some cases, borrowers could find themselves stuck with high-interest debt, which can add up faster than they may realize. If you happen to be stuck with high-interest debt, don’t despair. The worst thing a borrower can do is ignore the situation and fail to make payments.

A borrower may have options for lowering interest rates and getting payments under control. Depending on the type of debt, that could mean consolidating debt, or perhaps even taking out a personal loan. Here’s what a borrower could do if they’re struggling with high-interest debt:

Identifying High-Interest Debt

The first step to tackling high interest debt is figuring out if you have it. Inputting every debt currently owed into a spreadsheet might be a good start. In the first column would be the current amount owed on each debt. In the next column could be the annual percentage rate (APR) for each debt. Then, the debts can be sorted from the one with the highest interest rate to the one with the lowest interest rate.

How High-Interest Debt Can Dent Finances

High interest rates can be sneaky. A borrower may have taken out a loan without paying close attention to the fine print. They may have signed up for a credit card with a 0% introductory interest rate, only to have the rate shoot up after the introductory period. Or they may have opted for a loan with a variable interest rate, which often starts out relatively low but can increase dramatically over time.

High-interest debt can seriously hurt finances. By sucking up any extra cash and increasing debt-to-income ratio, it can potentially prevent someone from achieving certain life goals, such as buying a home, saving for retirement, or traveling. If payments become unmanageable, a borrower may risk going into default, which could set them up for a hit to their credit score or even bankruptcy and garnished wages.

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Options for Handling High-Interest Rates

Depending on the type of loan, here are some options for tackling those high-interest rates:

Student Loans

Whether it’s federal or private student loans, a borrower might be able to get a better interest rate if they refinance those loans, especially if they have a good credit score and solid income (among other factors that will vary by lender). Refinancing means consolidating all student loans—both private and/or federal—into a new loan with a (hopefully lower) interest rate through a private lender.

Keep in mind that refinancing federal student loans with a private lender means they will no longer be eligible for federal loan protections and perks like deferment or forbearance and income-driven repayment plans. So student loan refinancing won’t be right for everyone.

Credit Cards

Credit cards usually have the highest interest rates of all unsecured debt types—as of March 2020, the average APR for credit cards is above 21% . Borrowers who are stuck with a high balance on a credit card plus a high rate might want to consider a personal loan to pay it off.

An excellent credit score and steady employment might help a borrower qualify for a low-rate personal loan. Choosing a lender that doesn’tabove 21%
t charge origination fees or prepayment penalties could help to avoid extra charges.

Fixed (hopefully much lower) interest rates compared to credit cards and set repayment terms typical to personal loans can be helpful when looking for relief from the high-interest credit card debt burden, too.

Mortgages

If average mortgage interest rates have fallen, it may be a good idea to look into refinancing a mortgage. If eligible for mortgage refinance, a borrower may be able to lower their interest rate or pay off a mortgage faster. Shopping around for the best rate and considering lenders with cash-out refinancing options might be a good start.

Common Debt Repayment Strategies

No matter the interest rate, it’s often in a borrower’s best interest (get it?) to pay down debts in an effort to lead a debt-free lifestyle. Of course, if multiple debts are looming, it can be an overwhelming challenge to tackle.

Instead of giving up and declaring debt unconquerable, a borrower can follow one of the common debt repayment strategies listed below.

The Avalanche Method

With the avalanche method, a borrower can review the debt spreadsheet mentioned above to identify high-interest debts. While making minimum payments on all debts as required, a borrower can funnel extra money toward the debt with the highest interest rate first until it’s paid off, and then allocate that extra money to other debts in subsequent order of interest rate until those are paid off.

The logic behind this method is that, by saving money on the high interest rates, it should be easier to pay off lower-interest debts (and meet other financial goals) more quickly, even though the highest-interest debt may not be the loan with the largest balance. And while that’s a solid strategy, there is another common method that might sound better. (Yes, it also has a snow-related metaphor.)

The Snowball Method

The debt snowball method is another popular debt repayment strategy, but this one takes a different tack than the avalanche method above. Whereas the avalanche starts with the highest-interest loan, the debt snowball starts with the loan with the lowest total balance.

For instance, if a borrower has a credit card with just a few hundred dollars on it, then they’d start with that before moving onto the bigger debts, like student loans or a mortgage.

The logic behind this method is all about internal motivation. Reaching a money-related goal might make it easier for borrowers to motivate themselves to stick to an overall debt repayment plan. Since a smaller debt is a more manageable goal in the short term, paying off the smallest debt first could be a good way to get the snowball rolling, so to speak.

It might also be a more realistic strategy if a borrower doesn’t have a lot of extra money to throw at making large payments toward the highest-interest debt (but will still make all required minimum payments, of course).

Debt Consolidation: How Does It Work?

In some ways, debt consolidation might sound counterintuitive, because it does involve taking out more debt when a borrower already has multiple existing loans.

Basically, debt consolidation is a debt repayment method in which a borrower takes out another line of credit or debt with the express purpose of paying off existing debts. For example, instead of paying separate credit card bills, a borrower could take out a personal loan that would cover the balances on all other debts and pay them in full, then the borrower would repay only the personal loan.

This could be a significant financial improvement for a number of reasons. For one thing, it’s simply easier on a logistical level: When you’re dealing with multiple debts that are all due at different times of the month, it’s all too easy to accidentally miss a payment and fall behind.

But aside from keeping stress at bay every few weeks, debt consolidation could actually save you money. Let’s take a closer look at the example we outlined above, in which three existing debts are consolidated.

One common way to go about debt consolidation is to take out an unsecured personal loan in an amount that will cover existing debts. (There are other methods, however; for instance, some people perform a balance transfer from existing high-interest credit cards to a new credit card offering a promotional 0% interest rate.)

SoFi offers personal loans with competitive rates and, unlike many other lenders, SoFi loans don’t come with a bevy of hidden fees. That said, debt consolidation isn’t the only option when it comes to finding a way to ease a debt burden. After all, an unsecured personal loan is still a debt, although ideally a debt with better rates and terms than a credit card.

Refinancing

Instead of taking out another line of credit to cover multiple existing loans, with refinancing a borrower is taking out a new loan to cover one specific debt, often a mortgage or a student loan.

The power behind this financial move is pretty simple: If a borrower’s credit score or other qualifying factors have improved since the time they took out the original loan(s), they could be eligible for a loan with a more reasonable monthly payment or a lower interest rate. That could make it easier and/or faster to go through the snowball or avalanche methods described above, or simply to save up more money for other financial goals.

SoFi offers student loan and mortgage refinancing, as well as a broad range of other financial products that could help money woes back on track.

Struggling with a high interest rate? Refinancing with SoFi could help you get your debt under control. Learn more!


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
website
.

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 SoFi.com/legal.

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Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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Soft vs Hard Credit Inquiry: What You Need to Know

Did you know that a company can pull your credit information with just your name, address, date of birth, and consent? Although it may seem like they would need your Social Security number, they don’t.

Credit checks are an uncomfortable fact of adulthood. Everything from buying a home or car, renting an apartment, taking out a personal loan, applying to certain jobs, and even having utilities turned on, can involve a credit check.

Yet one of the confusing aspects of having good credit is that even as credit checks are becoming more common, having too many done can possibly lower your credit score.

Although it may not seem like a big deal if your credit score goes down a little bit, it could possibly cost you money. When you apply for a credit card or loan, the interest rates and annual percentage rates you are offered are typically dependent in no small part on your credit score.

Not all credit checks are equal in terms of their impact on your credit score, however. There are two types of credit checks: a “soft” inquiry and a “hard” inquiry.

A lower score can sometimes cost you on a monthly basis, as in the case of your credit card companies, which may conduct a “soft” credit inquiry on your score every month. One good thing of note is that “hard” credit inquiries have only a small impact on credit scores (typically just up to five points) and are primarily utilized by lenders to evaluate risk. Excessive credit inquiries, however, can indicate to a lender that a potential borrower is having cash flow issues and may impact credit score more dramatically. Below is a more in-depth look at each type of inquiry.

(Before we dive in, however, it’s important to note here that we’re not tax or credit repair experts. For any tax-related or credit-related questions or advice, you’ll want to consult a credit repair organization and/or your trusted financial advisor—and not a blog post like this one.)

What Is a Soft Credit Inquiry?

Soft inquiries often take place during an employment background check, when you check your own credit, or sometimes when rate shopping. Soft inquiries don’t negatively affect credit scores, no matter how often they take place, and they can even occur without the individual knowing about them.

Potential employers might view a credit report to get an indication of whether you manage your finances responsibly. However, they can’t see information like marital status, or even your actual credit score. Insurance companies see a similar report, which doesn’t give them your credit score.

Soft inquiries are often used by companies that send out pre-approved financial offers by mail, for example. Soft credit inquiries may show up on your credit report but, as noted, they don’t affect your credit score.

You can review your own credit report without worrying that it will affect your credit score. In fact, Federal Law guarantees the right to access credit reports from each of the three major credit bureaus annually for free; however, this free annual credit report does not show credit scores, only credit history. However, many credit card companies, online financial companies, and banks have started to offer consumers access to at least one credit score for free.

You can usually see soft credit inquiries on your own credit report. You might see language like “inquiries that do not affect your credit rating” with the name of the requester and the date of the inquiry.

Here are some of the benefits that can be gained from soft credit inquiries:

•   You can get pre-qualified for various types of loans.
•   You can receive pre-screened credit card offers.
•   Checking your credit score regularly may help you keep track of it.
•   Landlords can use soft inquiries to help determine which applicants meet the criteria to rent their apartment.

It’s recommended to regularly (at least once a year) review your own credit to make sure you’re on track and that there aren’t errors in the credit report that need correcting.

Errors can be disputed by writing directly to the credit reporting agency whose report shows inaccurate information. Additional information about how to dispute errors can be found on the Federal Trade Commission’s website .

What Is a Hard Credit Inquiry?

A hard credit inquiry typically takes place when applying for credit such as a credit card, mortgage, or car loan.

Credit issuers “pull” your credit information from one or all three of the major credit bureaus when doing a hard credit inquiry.

The three major credit reporting bureaus are Equifax®, Experian, and TransUnion. There are also dozens of smaller credit reporting agencies that may track your financial behavior.

•   Credit bureaus track much of your financial activity, including:
•   Credit card balances
•   Loan balances
•   History of credit payments for revolving, installment, and other loans
•   Number and type of credit accounts
•   Bankruptcy and other public record filings if they meet the minimum standards for reporting

Although it may seem like an invasion of privacy that these bureaus are constantly tracking your activity (especially considering data breaches ,) so far a better system hasn’t been invented or implemented to ensure that an accurate financial profile can be shared to inquiring parties. And there are laws, like the Fair Credit Reporting Act , that regulates how consumer credit information and credit reports are shared and with whom.

Some of the entities that credit bureaus can legally send your credit information to may include:

•   Employers
•   Lenders
•   Volunteer groups
•   Government agencies
•   Landlords
•   Banks and credit unions
•   Payment processors
•   Debt buyers and collectors
•   Retail stores
•   Utility providers
•   Insurance companies
•   Gaming casinos that extend credit

All hard inquiries will show up in your credit report and can factor into credit score calculations depending upon the type of inquiry and the time frame of the inquiries. Each hard inquiry outside the scope of “rate shopping” has the potential to lower your credit score up to five points.

Multiple inquiries can affect credit scores because they can indicate to lenders that a consumer is repeatedly trying to apply for new credit, potentially indicating that they might be having financial issues and are relying heavily on credit and loan accounts. Inquiries for rate shopping vs new/additional credit shopping are distinguished in part by the length of time in which the credit inquiries occurred.

For newer scoring models, this time frame is 30 days—for older scoring models, this time frame may be 14 days. Lenders may use different credit scoring models.

So, if those rate shopping (for a mortgage, for instance) apply for multiple loans within a short amount of time, those checks should only be counted as one hard inquiry.

It’s good to note that hard inquiries stay on a consumer’s credit report for two years and stop affecting the credit score after a year.

How Is Your Credit Score Calculated?

There are two common scoring models used to convert credit report information into a credit score. These are FICO® Score and VantageScore. However, different versions of these models are used by various lenders. And different models may produce different scoring results.

The primary FICO scoring algorithm is most commonly used by the credit bureaus, although there are different credit scoring versions used by lenders (and even FICO has multiple scoring models available). Each credit bureau may come up with a different credit score for an individual, because they each may collect slightly different consumer information that they then “feed”into the credit scoring algorithm.

FICO has five factors it considers when calculating its credit scores:

•   Payment history: 35% of this score is related to your history of payments on credit cards, student loans, mortgages, and other loans. The algorithm looks at the frequency and severity of missed and late payments.
•   Credit utilization: 30% of this score is based on how much of your available credit you are currently using. If you’re one of those people who always has their credit cards maxed out, it likely won’t look good on your credit score.
•   Length of credit history: The amount of time you’ve had each credit account open makes up 15% of this credit score. That’s why it’s nearly impossible to have perfect credit when you’re new to credit.
•   New credit: 10% of this credit score has to do with opening new credit. However, opening a bunch of new credit accounts at the same time isn’t typically a good way to bump up your score, because that can look like you’re in financial trouble.
•   Credit mix: The final 10% of this credit score is based on the different types of credit you have and how you’ve managed them.

VantageScore was created as a joint effort between Equifax, Experian, and TransUnion and has its own parameters you can read about here .

Credit scores can be negatively affected by late payments on anything from your gym membership to your cable bill. However, civil judgments and tax liens no longer affect credit scores because all three credit bureaus implemented a change in 2017 to remove tax liens from credit reports. One reason for the change: Too many cases of mistaken identity .

Avoiding Hard Credit Inquiries

While having a few credit and loan accounts is expected and can even boost a credit score, consumers should carefully consider if they need new credit before applying for an additional loan or account. It might not be a great idea, for example, to apply for a department store credit card just for a discount on a purchase. Also, applying for a credit card you know you won’t qualify for isn’t a great idea: The hard inquiry can hurt your credit score, and you wouldn’t have gained anything.

For those looking into multiple options for a mortgage or car loan, for example, it might be wise to do it within a short period of time, typically between 14 and 45 days, so that they have a greater chance of counting as one hard credit pull.

Another way to help reduce the number of hard inquiries is to ask which type of credit check a company will run before agreeing to the inquiry. You may want to ask if there’s a way to avoid a hard credit pull. An example would be a cable company that requires a hard credit inquiry prior to opening a new account.

To recap, here are a few tips to help mitigate credit inquiries:

•   Check your own credit frequently (and take advantage of your annual free credit report)
•   Apply for loans sporadically and thoughtfully
•   Focus on behaviors that may help improve your score

Soft credit checks are becoming more commonplace, and it may be difficult to reach your financial goals without the help of loans and credit. Being proactive about achieving a good credit score and reducing the number of hard inquiries reflected on your credit report can be done. A strong score not only makes it easier to qualify for credit or a loan, it can also help consumers qualify for better lending terms.

Starting the Loan Process Without Hurting Your Score

If you’re in the market for a home or are interested in taking out a personal loan, you can find out what interest rates you qualify for without hurting your credit score1. SoFi offers home loans and personal loans at competitive rates.

With loans from SoFi, you’ll have access to customer service seven days a week. The application process can be done entirely online, and SoFi offers a variety of loan terms.

Find out what your rate options are in two minutes or less, today and keep your credit score intact.


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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website
.

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.
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.
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.
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 SoFi.com/legal.

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Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

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