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If you have unmanageable credit card debt, you might consider credit card debt settlement, a process where you negotiate with your credit card company or a debt collector to pay off less than the total amount owed. The creditor agrees to forgive a portion of the debt in exchange for a lump-sum payment or a payment plan.

This guide provides more information about negotiating a credit card debt settlement.

The Difference Between Secured and Unsecured Debt

First, take a closer look at the type of debt a credit card typically is. When a credit card company issues a credit card, it’s offering you credit. It’s taking a chance on getting its money back, plus interest. It’s more than likely that the credit card you have is considered unsecured.

Unsecured debt isn’t connected to any of your assets that a credit card company can seize in the event that you default on your payments. Essentially, the credit card company is taking your word for it that you are going to come through with the monthly payments.

Secured debt works a bit differently. They’re backed by an asset, like your car or home. If you default on a secured debt, your lender could seize the asset and sell it to pay off your debt. Mortgages and auto loans are two common types of secured debt.

Recommended: What Is a Credit Card Interest Cap?

Credit Card Debt Negotiation Steps

The process of negotiating credit card debt usually begins when you have multiple late or skipped payments — not just one. A good first step is to find out exactly how much you owe, and then research the different options that may be available to you. Examples include a payment plan, an increase in loan terms or lowered interest rates.

Once you have that information, you’re ready to negotiate. You can start by calling your credit card company and asking for the debt settlement department. Or, you can send a note by email or regular mail.

You may have to go through a number of customer service reps and managers before striking a deal, but taking the initiative can show creditors that you are handling the situation honestly and doing what you need to do.

When you do reach an agreement, be sure to get the agreed-upon terms in writing.

Types of Credit Card Debt Settlements

Here are some options when it comes to credit card debt settlement.

Lump Sum Settlement

This type of agreement is perhaps the most obvious option. Essentially, it involves paying cash and instantly getting out of credit card debt. With a lump sum settlement, you pay an agreed-upon amount, and then get forgiveness for the rest of the debt you owe.

There is no guarantee as to what lump sum the credit card company might go for, but being open and upfront about your situation could help your cause.

Workout Agreement

This type of debt settlement offers a degree of flexibility. You may be able negotiate a lower interest rate or waive interest for a certain period of time. Or, you can talk to your credit card issuer about reducing your minimum payment or waiving late fees.

Hardship Agreement

Also known as a forbearance program, this type of agreement could be a good option to pursue if your financial issues are temporary, such as the loss of a job.

Different options are usually offered in a hardship agreement. Examples include lowering interest rate, removing late fees, reducing minimum payment, or even skipping a few payments.

Why a Credit Card Settlement May Not Be Your Best Option

Watching your credit card balance grow each month can be scary. Depending on your circumstances, a settlement may be the best solution for you.

However, it’s not without its drawbacks. For starters, a settlement may result in your credit card privileges being cut off and your account frozen until a settlement agreement is reached between you and the credit card company.

Your credit score could take a hit, too. This is because your debt obligations are reported to the credit bureaus on a monthly basis. If you aren’t making your payments in full, this will be noted by the credit bureaus.

That said, by negotiating a credit card settlement, you may be able to avoid bankruptcy and give the credit card company a chance to recoup some of its losses. This could stand in your favor when it comes to rebuilding your credit and getting solvent again.

💡 Quick Tip: Wherever you stand on the proposed Trump credit card interest cap, one of the best strategies to pay down high-interest credit card debt is to secure a lower interest rate. A SoFi personal loan for credit card debt can provide a cheaper, faster, and predictable way to pay off debt.

Solutions Beyond Credit Card Debt Settlements

Personal Loan

Consolidating all of your high-interest credit cards into one low-interest unsecured personal loan with a fixed monthly payment can help you get on a path to pay off the credit card debt. Keep in mind that getting this kind of loan, often called a credit card consolidation loan, still means managing monthly debt payments. It requires the borrower to diligently pay off the loan without missing payments on a set schedule, with a firm end date.

For this reason, a personal loan is known as closed-end credit. A credit card, on the other hand, is considered open-end credit, because it allows you to continue to charge debt (up to the credit limit) on a rolling basis, with no payoff date to work towards.

Recommended: Guide to Unsecured Personal Loans

Transferring Balances

Essentially, a balance transfer is paying one credit card off with another. Most credit cards won’t let you use another card to make your payments, especially if it’s from the same lender. If your credit is in good shape, you can apply for a balance transfer credit card to pay down debt without high interest charges.

Many balance transfer credit cards offer an introductory 0% APR, but keep in mind that a sweet deal like that usually only lasts about six to 18 months. After that introductory rate expires, the interest rate can jump back to a scary level — and other terms, conditions, and balance transfer fees may also apply.

Credit Consumer Counseling Services

Credit consumer counseling services often take a more holistic approach to debt management. You’ll work with a trained credit counselor to develop a plan to manage your debt. Typically, the counselor doesn’t negotiate a reduction in debts owed. However, they may be able to have your loan terms extended or interest rates lowered, which would lower your monthly payments. (Note that extending a loan term typically results in more interest paid over the life of the loan.)

A credit counselor can also help you create a budget, offer guidance on your money and debts, provide workshops or educational materials, and more.

Many credit counseling agencies are nonprofit and offer counseling services for free or at a low cost. You can search this list of nonprofit agencies that have been certified by the Justice Department.

The Takeaway

When credit card debt starts to become unmanageable, negotiating a credit card debt settlement may be an option to consider. There are different types of settlement options to consider. Understanding what’s available to you — and what makes sense for your financial situation and needs — can help you make an informed decision. If a settlement isn’t right for you, there are other solutions, such as a personal loan or credit counseling services, that may be a better fit.

Credit cards have an average APR of 20%–25%, and your balance can sit for years with almost no principal reduction. Personal loan interest rates average 12%, with a guaranteed payoff date in 2 to 7 years. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. See your rate in minutes.

FAQ

What percentage of debt will credit card companies settle for?

Credit card companies may settle for repayment of a reduced amount of the total debt, often between 20% and 80% of the outstanding balance. The exact percentage varies based on factors like the age and amount of the debt and the account holder’s ability to demonstrate financial hardship.

Can I negotiate a credit card settlement?

To negotiate credit card debt settlement yourself, decide what you can afford to pay and offer to settle with the creditor in a lump sum or installment plan. The creditor is not obligated to negotiate, but you may be successful.

Will creditors accept a 50% settlement?

Some creditors may accept 50% of the amount owed as part of a debt settlement. Others may want 75%–80% of what you owe. It can make sense to start low with your first offer and negotiate from there.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q325-025

Nondischargeable debt are debts that cannot be eliminated by bankruptcy. Typically, this kind of debt includes child support, alimony, student loans, and some tax bills, among others.

Though on the surface bankruptcy may appear to produce an opportunity for a fresh start, nondischargeable debts prevent it from being a true end-all solution to funds owed. Learn the details here.

What Does Nondischargeable Debt Include?

Nondischargeable debts can include home mortgages, certain taxes, child support, and student loans, and can vary based on the chapter of bankruptcy filed.

A debt may also be considered nondischargeable if a creditor formally objects to a discharge in court and wins.

When a debt is discharged through bankruptcy, the debtor is relieved of any legal obligation to pay it back, and the creditor is prevented from taking any further action to collect that debt. This includes contacting the debtor or filing a lawsuit.

Personal loans, credit card debt, and medical bills are types of debt generally considered dischargeable.

Nondischargeable debt, on the other hand, does not dissolve in a bankruptcy filing. The debtor remains liable for payment even after the filing is complete. These are types of debt that Congress has deemed unforgivable due to public policy.

Recommended: What Is the 10 Percent Credit Card Interest Rate Cap Act?

Types of Nondischargeable Debt

Nineteen categories of nondischargeable debt apply for Chapters 7, 11, and 12 of the Bankruptcy Code. (A more limited list of exceptions applies to cases under Chapter 13.)

Except in unique circumstances, if a debt falls under one of these categories, it is not considered dischargeable.

1. Debt incurred from U.S. taxes or a customs duty.

2. Debt for money, property, or services obtained fraudulently or under false pretenses.

3. Any debt excluded from bankruptcy filing paperwork (unless the missing creditor received prior notice and had ample time to respond to the filing).

4. Debt acquired due to fraud, larceny, or embezzlement while working as a fiduciary.

5. Debt contracted for a domestic support obligation, including child support and alimony.

6. Debt from intentionally harming another person or their property.

7. Tax debt as a result of a fine, penalty or forfeiture that is, at minimum, 3 years old.

8. Student loan debt (unless not discharging the debt would impose an “undue hardship”).

9. Debt incurred due to the death or injury of someone caused by the debtor while operating a vehicle, vessel, or aircraft while intoxicated.

10. Any debts that were or could have been listed in a prior bankruptcy filing, and the debtor waived or was denied a discharge.

11. Debt obtained by committing fraud or misappropriating funds while acting as a fiduciary at a bank or credit union.

12. Debt incurred for the malicious or reckless failure of a debtor to fulfill any commitment to a federal depository.

13. Debts for any orders of restitution.

14. Debt incurred by penalty in relation to U.S. taxes.

15. Any debt to a spouse, former spouse, or child that is incurred through a separation or divorce.

16. Debts incurred due to condominium ownership or homeowners association fees.

17. Legal fees imposed on a prisoner by a court for costs and expenses related to a filing.

18. Debts owed to a pension, profit-sharing, stock bonus, or another retirement plan, as well as any loans taken from an individual retirement annuity.

19. Debt obtained for violating federal or state securities laws, common law, or deceit and manipulation in connection with the purchase or sale of any security.

Recommended: Paying Tax on Personal Loans

How Will Nondischargeable Debt Affect Me?

Nondischargeable debt is just like any other debt in the sense that it must be paid off on time to avoid negative consequences.

If a debt is left unpaid for too long, the creditor may sell the debt to a collection agency, which then may result in any number of the following repercussions:

•   Significantly lowering a credit score

•   Flagging a borrower as “high risk” to future lenders

•   Decreasing the odds of approval for future credit offerings

•   Increasing high-interest rate offers with less favorable terms

•   Adding negative remarks to your credit history

•   Activating a lien against a property or asset

•   Prompting creditors to pursue legal action

•   Enacting wage or asset garnishment

How Can I Resolve Nondischargeable Debts?

Making plans to resolve any outstanding debts as soon as possible is key to managing a credit history and salvaging future credit opportunities. Here are strategies for paying off debts to consider.

Stop Using Credit

The first step toward debt resolution is to stop accruing it. Many people rely on credit cards, with the average American having almost $6,500 in debt as of February 2025, according to TransUnion®, one of the major credit bureaus.

Making a point not to purchase anything that can’t be bought with cash outright can help curb unnecessary expenses. This includes larger purchases that may require financing. Leaving credit cards at home and removing their information from online payment systems can also help remove the temptation of using them.

Create a Budget

According to a 2024 Debt.com survey, 89% of Americans said making a budget helped them get out of or stay out of debt.

A monthly plan including income and expenses can help reveal where extra money might be coming in and where you can cut back on unnecessary spending. A plan will provide a holistic view of spending habits, allowing for larger decisions to be made about how to change habits in order to fit new, debt-focused priorities.

Cutting back on expenses and carefully tracking spending can help reveal extra dollars and cents needed to pay down debts.

Start a Part-Time Job

When paying down debt is a top priority, taking on another job or picking up additional hours at your current one can be extremely helpful.

An extra check here and there can provide funds to make additional payments on debts, helping to dissolve them more quickly. Consider options such as working weekends at a local coffee shop, picking up a temporary gig in food delivery, or freelancing for additional income.

Recommended: 19 Jobs That Pay Daily

Consolidate Debt

Applying for a personal loan is a strategy for managing several debts simultaneously. Though it may seem counterintuitive to take on another loan, a personal loan can be used to pay off multiple existing lines of credit, such as credit cards, and consolidate them into one loan with a single monthly payment and, possibly, a lower interest rate.

In addition to comparing rates, it’s important to make sure you understand how a new loan could benefit you in the long run. For instance, if your monthly payment is lower because the loan term is longer, it might not be a good strategy, because it means you may be making more interest payments and therefore paying more over the life of the loan.

However, a debt consolidation loan could help streamline payments and ease the anxiety that comes with being responsible for managing numerous lines of credit.

💡 Quick Tip: Credit card interest rates average 20%-25%, versus 12% for a personal loan. And with loan repayment terms of 2 to 7 years, you’ll pay down your debt faster. With a SoFi personal loan for credit card debt, who needs credit card rate caps?

The Takeaway

Nondischargeable debts cannot be eliminated by bankruptcy, and without proper management, they could worsen your current financial situation. Like any other debt, nondischargeable debt must be paid off on time in order to avoid negative repercussions. Creating a plan to handle outstanding debts as soon as possible is a smart choice. A personal loan is one option to consider in this situation.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

FAQ

What does it mean if a debt is non-dischargeable?

Non-dischargeable debt is debt that cannot be eliminated by bankruptcy.

What type of debt cannot be discharged?

Debts that cannot be discharged in bankruptcy include alimony, child support, most types of taxes, most student loans, and debt resulting from fraud and other criminal activity.

How do I remove discharged debt from my credit report?

If discharged debt is still on your credit report, you will have to contact each of the big three credit reporting bureaus and file a dispute, giving information to verify that the item(s) should be removed.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q225-050

Personal loans and credit cards both allow you to borrow money and repay it over time, but they aren’t the same. A personal loan is a type of installment debt that typically has a fixed interest rate. Credit cards are revolving debt and usually have variable interest rates that can change over time.

Understanding the key differences between a personal loan vs. credit card debt is critical when you need to borrow. Your decision affects how much you can borrow, the amount of interest you pay, your monthly debt repayment budget, and your credit scores.

Read on to learn how personal loans and credit cards measure up, and what proposed credit card interest rate caps could mean for you.

What Is a Personal Loan?

A personal loan, also referred to as an installment loan, is a type of loan that lets you borrow a fixed sum of money and repay it over a set period. Personal loans may be secured, which means they’re tied to some type of collateral, but it’s more common for them to be unsecured.

Here are some key characteristics of personal loans:

•  Interest rates are most often fixed, which means you don’t have to worry about the rate changing during the loan term.

•  Fixed-rate personal loans make it easy to calculate your monthly payment for the entire loan term, as well as the amount of interest you’ll pay.

•  Traditional banks, credit unions, and online lenders can all offer personal loans, but there may be differences in loan amounts, interest rates, and fees.

•  Loan amounts can range from $500 to $100,000, depending on the lender.

•  A typical loan repayment term may be anywhere from 1 to 7 years.

Personal loans allow for flexibility, since you can use them for just about anything. For example, you could get a personal loan to consolidate credit card debt, make home improvements, pay for a wedding, or cover an emergency expense.

Your ability to qualify for a personal loan is most often based on your credit scores, income, and debt-to-income (DTI) ratio. Your DTI measures the percentage of your gross income that goes to debt repayment each month. The lender may also ask about the loan purpose, since some lenders have restrictions on things like using a loan to pay college tuition.

Recommended: What Is Debt Consolidation and How Does It Work?

What Is Credit Card Debt?

Credit card debt reflects the amount someone owes to one or more credit card companies. When you open a credit card account, you have a credit limit, which represents how much you can spend. As you charge purchases to the card, you create debt. Americans collectively owe $1.23 trillion in credit card debt, according to the Federal Reserve’s Household Debt and Credit Report for the third quarter of 2025.

Here are some key characteristics of credit card debt:

•  When you charge a purchase, your credit limit shrinks; when you make a payment to your balance, it increases.

•  The annual percentage rate (APR) measures the cost of carrying a balance on your card, including interest and fees, over one year. In terms of what is a good APR, lower is always better.

•  While it’s possible to find fixed-rate credit cards, rates are usually variable and are tied to a benchmark rate, like the Prime Rate.

•  If the benchmark rate increases, your credit card rate can go up.

•  Paying only the minimum amount due each month can make it difficult to chip away at your credit card debt.

The average credit card interest rate was 20.97%, as of November 2025, according to Federal Reserve data. High interest rates mean higher costs for borrowers who carry a balance.

In February 2025, Senator Bernie Sanders (D-VT) introduced the 10 Percent Credit Card Interest Rate Cap Act. The proposed legislation would temporarily cap credit card interest rates at 10% and impose penalties on creditors that violate rate cap restrictions. If passed, rate changes would sunset on January 1, 2031.

The bill did not move forward in 2025 and was largely opposed by the banking industry, which argued that it would limit opportunities to provide credit to consumers. In January 2026, President Trump expressed interest in implementing a 10% rate cap on credit card rates nationwide, to last for one year.

What would a 10% rate cap on credit card rates mean for you? Assume you have $10,000 in credit card debt that you want to pay off in 12 months. Here’s how the math compares with and without an interest rate cap.

At the time of writing, it’s unclear whether a rate cap will become a reality or how credit card companies would comply. But it’s a reminder of how impactful your APR can be when it comes to just how much credit card debt can cost you.

Recommended: What Is APR on a Credit Card?

What Is the Difference Between Personal Loan vs Credit Card Debt

A personal loan is a lump sum of money you get all at once and repay in fixed installments. Credit cards let you borrow, pay down the balance, and borrow again. Aside from that, the main differences between personal loan vs. credit card debt are how repayment is structured, how interest is calculated, and the impact to your credit.

Repayment:

•  Personal loans have a set repayment term. You make one payment each month on the due date established by your lender. Part of the payment goes toward the principal amount you borrowed, and part of it goes to the interest. Each payment reduces the balance you owe.

•  Credit cards require only a minimum payment. When you get your credit card statement each month you’ll see a minimum amount due you need to pay. Just paying the minimums could make it hard to reach your goal of becoming debt-free if you have a high APR, or you’re adding to what you owe with new purchases.

Interest Calculation:

•  Personal loans typically use a so-called “simple interest” formula to calculate what you owe in interest. A fixed-rate loan means you never have to guess about what you’ll pay.

•  Credit cards more often use a daily periodic rate. What you pay in interest depends on your APR, how much you pay monthly, and whether you continue adding to the balance.

Credit Impact:

•  Credit cards usually have a greater impact on credit scores than personal loans. That’s because the balance on a personal loan always goes down over time. That’s not necessarily the case with a credit card, which means your credit utilization — how much or your credit limit you’re using — can rise or fall from month to month. Those fluctuations in credit utilization, along with your payment history, directly impact your credit scores.

The key to how to use a credit card responsibly (or a loan) is to have a plan to repay what you borrow. Having a strategy and a budget that allows you to pay down debt at a steady pace can save you interest and stress in the long run.

Is It Better to Have a Personal Loan vs Credit Card Debt?

For credit scoring, it’s better to have both a personal loan and credit card debt, since it shows lenders that you can use different types of credit responsibly. When it comes to individual features, there are situations where you might prefer a personal loan vs. credit card debt, or vice versa.

You could get a personal loan to consolidate credit card debt. In that case, you use the loan proceeds to pay off your credit card balances, then make one payment to the loan until it’s paid off. Debt consolidation with a personal loan can make sense if your new rate is lower than the average APR across all the cards you plan to pay off.

Recommended: Cash-Back vs. Low Interest Credit Card: Key Differences

Pros and Cons of Personal Loans

Personal loans have advantages and disadvantages, just like any other type of debt. If you’re thinking of applying for a personal loan for any reason, it helps to weigh both sides.

Personal Loan Pros:

Pros and Cons of Credit Card Debt

Credit card debt can be manageable if you’re keeping track of purchases and paying more than the minimum due. There can be drawbacks, however, to using credit to cover expenses. Here are the main pros and cons to know.

Credit Card Pros:

Recommended: Guide to Lowering Your Credit Card Interest Rate (APR)

Example Scenarios for Personal Loans vs Credit Cards

How you use personal loans or credit cards can influence the kind of impact each one has on your financial situation. Let’s consider a few example scenarios.

•  You want to finish your basement and make it a usable living space, so you take out a $25,000 personal loan at 12.99%. Over a five-year term, you pay $9,122 in interest but the upgrade adds $17,000 in value to the home.

•  Your cat needs emergency surgery and you charge the $5,000 vet bill to a credit card that offers a 0% APR for 12 months. To clear the balance before the introductory rate ends, you’ll need to come up with $417 a month in your budget.

•  Your credit card debt has reached $20,000, and you’re worried about how much your 18% APR is costing you. You pay off the card with a five-year personal loan at 12%, saving yourself $4,000 in interest and trimming $55 per month off your monthly payment.

Using a personal loan calculator and credit card interest calculator can help you understand the true cost of borrowing with each financial tool. You can also explore ways to pay off your debt faster by increasing monthly payments, or learn how to lower credit card debt with a consolidation loan.

Recommended: 15/3 Credit Card Payment Method: What It Is & How It Works

The Takeaway

Credit cards can be attractive because they’re often easy to get, and you’re not locked into a set repayment term. Earning rewards on purchases or unlocking travel benefits is also appealing. But it’s important to consider what you’ll pay in interest if you carry a balance. A personal loan is still debt, but it may be less expensive to manage if you’re able to qualify for a low interest rate. Before you apply for any loan or credit card, it’s helpful to compare rates and fees, as well as what you can expect to pay monthly to make sure it fits your budget.

Credit cards have an average APR of 20%–25%, and your balance can sit for years with almost no principal reduction. Personal loan interest rates average 12%, with a guaranteed payoff date in 2 to 7 years. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. See your rate in minutes.

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FAQ

Which is better, a loan against a credit card or a personal loan?

Borrowing with a credit card may be preferable in emergency situations where you need to cover an expense quickly and don’t have time to wait for loan approval or funding. In terms of cost and predictability, personal loans beat credit cards on both counts when you get a low, fixed interest rate.

How much would a $5000 personal loan cost a month?

The amount you’d pay monthly toward a $5,000 personal loan depends on your loan term and interest rate. For example, say you get a 12-month loan at 10%. Your monthly payment would be $440 and you’d pay around $275 in interest total.

Is it better to take a loan or use a credit card?

It’s often better to get a personal loan if you’re able to qualify for a low interest rate. A low, fixed rate makes it easier to estimate your total cost of borrowing and plan for monthly payments in your budget. Credit cards have variable rates that can increase over time if the underlying benchmark rate changes.

How many Americans have $20,000 in credit card debt?

The exact number of Americans with $20,000 in credit card debt is difficult to pinpoint. According to one survey, 1 in 10 households have credit card balances totaling $20,000 or more. TransUnion’s November 2025 Credit Industry Snapshot put the average credit card balance per consumer at $6,555.

Do personal loans affect credit score?

Personal loans affect your credit scores in a few ways. A new hard inquiry can show up on your credit report when you apply for a loan, which can cost you a few points. Your payment history also counts, with on-time payments helping your score and late payments hurting them.

When is it better to have a personal loan over credit card debt?

It’s better to have personal loan debt vs. credit card debt if your loan has a low interest rate and the payments are manageable for your budget. You may also prefer a personal loan over a credit card if you’d like to know what your payment will be month to month.

Photo credit: iStock/PeopleImages

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOPL-Q126-020

President Donald Trump made news in January 2026 by declaring a planned 10% interest rate cap on credit cards. But he was hardly the only one to propose such a regulation. Trump’s announcement came almost one year after the 10% Credit Card Interest Rate Cap Act was introduced in Congress by Sen. Bernie Sanders (I-VT). Sanders’ cosponsor on the bipartisan proposal was Sen. John Hawley (R-MO), a longtime Trump supporter.

The act proposed a 10% cap on credit card rates for five years. Two other Democrats, Sen. Jeff Merkley (OR) and Sen. Kirsten Gillibrand (NY) later signed on as additional cosponsors of the legislation.

Let’s take a look at the nitty gritty of the 10% Credit Card Interest Rate Cap Act, how it compares to the President’s proposal, and how likely it is that any rate cap will emerge from Washington and bring debt relief to Americans soon.

What Is the Proposed 10% Credit Card Interest Rate Cap Act?

The 10% Credit Card Interest Rate Cap Act proposed in February 2025 by Sens. Sanders and Hawley would amend Section 107 of the Truth in Lending Act to state that, “The annual percentage rate [APR] applicable to an extension of credit obtained by use of a credit card may not exceed 10 percentage points, inclusive of all finance charges.” Translation: The all-in cost of borrowing for a credit card user in good standing could not exceed 10%.

Current credit card rates at the time the act was proposed were routinely more than 20%. What is the APR on a credit card? The APR is not just the interest the lender is charging for borrowing money; it also includes any mandatory fees the lender charges. (So a card’s APR may be somewhat different from its interest rate.) “This legislation will provide working families struggling to pay their bills with desperately needed financial relief,” Sanders said when he proposed the act.

Recommended: Fixed vs. Variable Interest Rate Credit Cards

How Does the 10% Credit Card Interest Rate Cap Act Work?

The act, if passed, would bar credit card issuers from creating a schedule of interest and fees such that a customer’s APR would exceed 10%. But there’s more to it than that.

The act outlines a powerful penalty: Financial institutions that knowingly exceed the 10% cap could be subject to a “forfeiture of the entire interest” charged on the balance. Sanders, Hawley et al proposed to put in place a mechanism for consumers to be refunded their interest payments if they complained about the overcharge within two years.

Here’s the catch: The 10% Credit Card Interest Rate Cap Act is thus far, as they say in Washington, “stuck in committee.” To date, the legislation has not progressed beyond the Senate Committee on Banking, Housing, and Urban Affairs, and so has not been considered by the full Senate or the House of Representatives. Meanwhile, interest rates have continued to hang out at around the 20% mark.

Why Is the 10% Credit Card Interest Rate Cap Act Being Proposed?

To understand why the senators proposed the act, it helps to look at the history of credit card interest rates. Currently there is no federal law that caps the interest a bank or other lender can charge on a credit card, with one exception: Credit card interest rates are capped at 36% for active-duty military service members and their covered dependents under the Military Lending Act.

For much of the last three decades, rates ranged from roughly 11% to 16%. But starting in mid-2022, average credit card interest rates began a steady march upward, topping out (for now) at 21.76% in August 2024 and declining only modestly since then, according to data compiled by the Federal Reserve Bank of St. Louis. Keep in mind that this is an average rate, meaning that for some consumers, the rate could be more like 30%.

As interest rates have climbed, so has consumer credit card debt. Credit card balances rose by $24 billion between the second and third quarter of 2025, reaching $1.23 trillion by September 2025. This is a 5.75% year-over-year increase.

About one in eight credit card accounts are now 90 or more days delinquent, according to a November 2025 report by the Federal Reserve Bank of New York. So the proposed legislation and the President’s post come at a time when more Americans are struggling to become debt free. Many are exploring how debt consolidation works and looking at personal loans as a possible solution.

Recommended: Personal Loan vs. Credit Card

Pros and Cons of the 10% Credit Card Interest Rate Cap Act

The idea of a 10% APR ceiling has its supporters, as we’ve seen. But not everyone is enthusiastic. As you might imagine, companies that issue credit cards aren’t eager to have interest rates regulated. These are some pros and cons expressed by both sides and by independent researchers.

Pros

Advocates of a credit card interest cap say it’s a way to lower credit card debt and ensure financial stability for more Americans. Researchers at Vanderbilt University computed savings and reported that a 10% APR cap would produce over $100 billion in annual savings. These savings would be concentrated among credit card users with FICO® scores in the 640 to 740 range, primarily because those borrowers are carrying the largest balances. But ultimately, the researchers wrote, “customers in every tier would save far more (at least 3x) in interest than they would lose in rewards.”

Cons

Credit card companies have argued against a rate cap in the wake of the Trump proposal, saying that a 10% cap would make some consumers (those with the lowest credit scores) ineligible for credit cards. From a lender’s standpoint, these are the riskiest customers, the theory goes. So curbing the amount a company might charge could make this part of the business unprofitable, thereby discouraging lending to this group.

(The Vanderbilt researchers estimate that cards held by consumers with a credit score of 600 would be unprofitable, but point out that this is a relatively small portion of the credit card market, and banks and lenders might find other ways to make up the profits.)

Banks have also argued that a 10% cap would make lending less profitable, reducing economic activity and forcing retailers, airlines, and other merchants to increase their prices to compensate for lost business.

Financial institutions will want to cut costs somehow in order to maintain profits in their credit card business. It is possible that rewards will be trimmed for some card users, with decisions being made according to usage levels and credit scores.

How to Reduce Credit Card Interest: Example Scenarios

A back and forth over a 10% APR cap is happening, but thus far there are no concrete changes coming for credit card consumers. Congress will need to get more deeply involved if a rate cap is to become real. In the meantime, as we wait for the dust to settle on the President’s proposal and for the 10% Credit Card Interest Rate Cap Act to perhaps make its way out of committee, there are steps consumers can take on their own to lower the APR on a credit card. Consider these scenarios:

The 0% APR offer. People interested in avoiding interest on credit cards can sometimes find cards with a 0% introductory APR and transfer their balance to the new card, thereby avoiding interest for 12 to 18 months while making payments against the principal. If this appeals to you, look for credit card promotional interest rates online.

The extra payment strategy. Trimming your balance can help reduce the amount of interest you pay each month. Some card users follow the 15/3 credit card payment schedule, making two payments each month — one 15 days before their payment is due and the other 3 days before the due date. This can help them pay down debt faster and thus reduce carrying costs.

The fine-print test. Cards with cushy perks might be appealing, but if you’re in the market for a new credit card, examine the specific details on cash back vs. low interest credit cards to ascertain which might cost you less over the long haul. Don’t just look at the APR, but also factor in the likelihood that you will (or won’t) see funds come your way thanks to the cash-back feature. What good is an airline card that gets you free checked bags, for example, if you hardly ever fly anywhere — or rarely fly that carrier?

Of course, using a credit card responsibly is another way to minimize additional charges beyond interest costs. Late fees can cost upward of $30. (Incidentally, in April 2025, the Trump Administration rolled back a Biden-era cap on credit card late fees of $8.)

The Takeaway

The 10% Credit Card Interest Rate Cap Act was introduced in Congress in early 2025 but has not yet progressed past the committee stage. So for now, consumers are still looking at credit card interest rates that are closer to 20% than to 10%. Fortunately, there are strategies consumers can use to lower interest costs as we await more news on the proposed act and on another, more recent, interest-rate cap proposed by President Trump.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

FAQ

Is Trump trying to reduce interest rates?

In early January 2026, President Donald Trump posted on social media that he was calling for a 10% cap on credit card interest rates for one year, effective January 20, 2026. However it would take an act of Congress to make this rate cap a reality.

What is the cap on credit card interest?

There is currently no cap on credit card interest, with one exception: Credit card interest rates are capped at 36% for active-duty military service members and their covered dependents under the Military Lending Act.

What is the maximum interest rate allowed on a credit card?

Technically, there is no maximum allowable interest rate for credit cards. A 10% Credit Card Interest Rate Cap Act was introduced in Congress by Sen. Bernie Sanders (I-VT) in early 2025 and cosponsored by Sen. John Hawley (R-MO), but this act has not yet made it out of committee. President Trump proposed a 10% cap on social media in early 2026, but thus far banks and other credit card issuers have resisted a ceiling.

What would 10% credit card rate cap mean for your wallet?

Research from Vanderbilt University suggests that a credit card interest cap of 10% would save consumers $100 billion in costs annually. It could mean that credit card rewards, particularly those to consumers with lower credit scores, would decline, but most customers would save more than they would lose in rewards. It remains to be seen, however, whether there would be downstream effects in other areas of the economy, such as increased merchant fees and/or increased costs that would be covered by consumers.

Is there going to be a cap on credit card interest rates?

Although capping interest rates on credit cards has been proposed by both President Trump and senators on both sides of the aisle, there is no definite change to credit card interest rates at present.

What does Trump’s credit card cap mean?

President Trump proposed a credit card interest rate cap of 10% in a social media post in January 2026, however at this time it is simply a proposal. An act of Congress would be required to get a mandatory rate cap off the ground.

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Credit card interest rates remain some of the highest in consumer finance, with national rates hovering around 22%. For borrowers with limited or damaged credit, rates can climb to 30% or even higher. At these levels, the snowball effect of daily compounding can make debt feel overwhelming and seemingly impossible to pay off — especially for consumers making only minimum payments.

This reality has fueled renewed debate around the idea of a credit card interest cap — a legal limit on how high credit card interest rates can go. On January 9, 2026, President Donald Trump proposed capping credit card interest rates at 10% for one year, prompting questions about how such a cap would function, who it would help, and what trade-offs it might involve.

What follows is a closer look at what a credit card interest cap is, how it works, existing limits, and the potential implications of imposing one in the U.S.

What Is an Interest Cap for a Credit Card?

An interest cap on credit cards is a regulatory limit that sets the highest allowable annual percentage rate (APR) a lender may charge borrowers. This restricts how expensive revolving credit can become, regardless of market conditions or a borrower’s individual risk profile.

Credit card rate caps are typically intended to prevent usury — the practice of charging excessively high interest rates — and to provide relief for borrowers carrying high-interest debt. Rate caps already exist in limited circumstances, such as at the federal level for military service members and for certain financial institutions.

An interest rate cap does not eliminate interest altogether. Instead it ensures rates remain below a predefined threshold.

💡 Quick Tip: A low-interest personal loan can consolidate your debts, lower your monthly payments, and help you get out of debt sooner.

How Does a Credit Card Interest Cap Work?

A credit card interest cap works by setting a maximum APR that issuers cannot exceed. If the cap is set at 15%, for example, no credit card — regardless of market conditions or borrower qualifications — could legally charge more than 15% interest on outstanding balances.

Implementation typically involves:

•   Legislative action: Congress or state legislatures pass laws defining the cap.

•   Regulatory oversight: Agencies monitor compliance and penalize violations.

•   Market adjustment: Issuers revise pricing models, eligibility criteria, and rewards structures.

By lowering the APR, a cap reduces the portion of a borrower’s monthly payment that goes toward interest, allowing more of the payment to be applied to the principal balance. This can help borrowers pay off debt faster.

However, credit card issuers generally price interest rates based on borrower risk, funding costs, expected defaults, and profitability. When a cap limits interest income, lenders may respond by:

•   Tightening approval standards

•   Reducing credit limits

•   Eliminating low-interest promotional offers

•   Increasing fees or annual charges

What Is the Current Cap on Credit Card Interest?

There is currently no general national credit card interest rate cap for all consumers. However, several specific legal caps are in place:

•   Federal credit unions: U.S. law states that federal credit unions cannot charge their members a rate higher than 18%, including all finance charges, on their unpaid balances.

•   Military personnel: The Military Lending Act caps interest at 36% for active-duty members and their covered dependents. The Servicemembers Civil Relief Act further reduces interest rates to 6% on debt incurred before entering active duty.

•   State level: Some states have usury laws that limit rates on certain types of loans, including credit cards. However, many issuers avoid these limits by basing their operations in states where the rate limits are high or unlimited (such as Delaware or South Dakota).

•   One-year protection from rate hikes: Under the Credit Card Accountability Responsibility and Disclosure Act, issuers cannot raise interest rates during the first year an account is open. After that, issuers must provide 45 days’ notice before increasing rates. Exceptions apply, such as expiration of a 0% introductory APR or if a payment is more than 60 days late.

Pros and Cons of a Credit Card Interest Cap

Like many financial regulations, credit card interest caps come with both benefits and trade-offs.

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Why Is the Trump Credit Card Interest Cap Being Proposed?

On January 9, 2026, President Donald Trump announced on his social media platform Truth Social that he will impose a one-year cap on credit card interest rates at 10%, effective January 20. He cited affordability concerns and criticized rates ranging from 20% to 30% during the previous administration. The proposal echoes his 2024 campaign pledge to cap credit card interest rates at 10%.

The idea of a federal credit card interest cap is not new. In February 2025, a bipartisan bill introduced by Sens. Josh Hawley of Missouri and Bernie Sanders of Vermont proposed capping card APRs at 10% for five years. That bill is currently stalled in Congress.

Recent rate-cap proposals are generally framed as a way to provide immediate financial relief after years of rising interest rates. They also carry political appeal as a clear, easy-to-understand consumer protection measure.

Pros and Cons of the Trump Credit Card Interest Cap

Trump’s specific proposal — a one-year 10% cap on credit card interest — has generated significant debate. Here’s a look at potential benefits and drawbacks of his proposal:

Example Scenarios

To understand how a credit card interest cap might play out in practical terms, consider the following examples.

Scenario 1: Average Borrower

Suppose you have a credit card balance of $6,500 — roughly the average among Americans with credit card debt — with a 22% APR. If the rate cap is implemented, that rate would drop to 10% for one year.

Under a 10% cap, your annual interest cost would drop from about $1,430 to $650, adding up to $780 in interest savings alone.

Scenario 2: Consumer Actively Paying Down Debt

With a $6,500 balance at 22% APR, you would have to make monthly payments of at least $608 to pay off the balance within one year. At a 10% APR, you could pay off the same balance with monthly payments of about $571. Over the year, you would save roughly $443 in interest.

Scenario 3: Consumer Who Usually Pays in Full

If you pay off your balance in full every month and rarely incur interest, the 10% cap would provide no direct benefit. However, you might be indirectly affected. Reward rates might decline, or a previously no-fee card might introduce an annual fee. While you would not save on interest, you could still bear some of the costs issuers shift elsewhere to offset capped rates.

The Takeaway

A credit card interest cap is a powerful but blunt policy tool. It offers significant protection against excessive borrowing costs and could help millions of Americans escape high-interest debt cycles. At the same time, it could reduce access to credit, reshape card benefits, and push some borrowers toward riskier financial alternatives.

The renewed attention generated by Trump’s proposal and similar efforts reflects growing dissatisfaction with current credit card pricing. Whether or not a federal interest cap is enacted, the debate raises a larger question: how to balance consumer protection with a functional and inclusive credit market.

For consumers, understanding how interest rates and potential caps work — and their possible consequences — can support smarter borrowing decisions, regardless of how future policy unfolds.

Credit cards have an average APR of 20%–25%, and your balance can sit for years with almost no principal reduction. Personal loan interest rates average 12%, with a guaranteed payoff date in 2 to 7 years. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. See your rate in minutes.

FAQ

Why is capping credit card interest bad?

While capping credit card interest provides immediate relief to consumers, opponents argue it can negatively affect the credit market. Primary concerns include reduced access to credit for high-risk borrowers, as lenders may deny applications if they can’t charge a rate that justifies the risk of default. Issuers may also offset lost revenue by increasing fees (like annual or late fees) or reducing valuable card perks such as rewards and cash-back programs, ultimately impacting all consumers.

What is the cap on credit card interest?

The U.S. currently has no universal federal cap on credit card interest rates. However, specific limits are in place: Federal credit unions are generally capped at 18%, and the Servicemembers Civil Relief Act limits credit card rates for active-duty service members to 6% on debt incurred before entering military service. While some states enforce rate caps, many major card issuers operate from states with very high or no caps, allowing APRs well above 20%.

How does an interest cap work?

An interest cap is a legal maximum annual percentage rate (APR) lenders can charge. If a cap exists, credit card issuers must price cards at or below that rate. Caps are meant to protect consumers from excessive interest but can also reduce credit availability if lenders see capped rates as unprofitable.

Who sets credit card interest caps?

Interest caps are set by governments, usually at the state level in the U.S. through usury laws. Congress could impose a federal cap, but has yet to do so. Because lenders are permitted to “export” rates from their home state, they frequently base their operations in jurisdictions with high interest limits or no caps at all.

Is 22% interest high on a credit card?

The national average credit card interest rate is currently around 22%, according to the Federal Reserve. That means a 22% APR is considered typical for the current market. However, for consumers carrying a balance, 22% is a high rate that significantly increases the cost of debt and makes it harder to pay off. Rates for borrowers with excellent credit may be lower, while those with weaker credit can face rates as high as 30%.

What does Trump’s credit card cap mean?

President Trump has proposed a temporary 10% cap on credit card interest rates, effective January 20, 2026, to combat high borrowing costs. While the plan could save Americans an estimated $100 billion annually, it faces significant hurdles. Legal experts note that a president cannot mandate interest caps via executive order; implementation requires an act of Congress. The banking industry also warns that a rigid 10% ceiling would likely force lenders to cancel accounts for high-risk and subprime borrowers, as they could no longer price for the risk of default.

Photo credit: iStock/andreswd

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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