Is There a Statute of Limitations on Debt?

Statute of Limitations on Debt: Things to Know

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

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

What Is The Statute of Limitations on Debt?

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

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

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

How Long Until a Debt Expires?

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

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

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

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

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

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

Types of Debt

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

Written Contract

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

Oral Contract

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

Promissory Notes

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

Open-Ended Accounts

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

Statute of Limitations on Debt Collection

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

Statute of Limitations For Debts By State and Type of Debt

State Written Contract Oral Contract Promissory Note Open-Ended Account
Alabama 6 6 6 3
Alaska 3 3 3 3
Arizona 6 3 6 3
Arkansas 5 3 5 5
California 4 2 4 4
Colorado 3 3 3 3
Connecticut 6 3 6 3
Delaware 3 3 3 3
District of Columbia 3 3 3 3
Florida 5 5 4 4
Georgia 6 4 4 4
Hawaii 6 6 6 6
Idaho 5 4 5 4
Illinois 10 5 10 5
Indiana 6 6 6 6
Iowa 10 5 10 5
Kansas 5 3 6 3
Kentucky 15 5 10 5
Louisiana 10 10 10 3
Maine 6 6 6 6
Maryland 3 3 6 3
Massachusetts 6 6 6 6
Michigan 6 6 6 6
Minnesota 6 6 6 6
Mississippi 3 3 3 3
Missouri 10 6 10 5
Montana 8 5 5 5
Nebraska 5 4 5 4
Nevada 6 4 3 4
New Hampshire 3 3 6 3
New Jersey 6 6 6 6
New Mexico 6 4 6 4
New York 6 6 6 6
North Carolina 3 3 3 3
North Dakota 6 6 6 6
Ohio 8 6 6 6
Oklahoma 5 3 5 3
Oregon 6 6 6 6
Pennsylvania 4 4 4 4
Rhode Island 10 10 10 10
South Carolina 3 3 3 3
South Dakota 6 6 6 6
Tennessee 6 6 6 6
Texas 4 4 4 4
Utah 6 4 4 4
Vermont 6 6 14 3
Virginia 5 3 6 3
Washington 6 3 6 6
West Virginia 10 5 6 5
Wisconsin 6 6 10 6
Wyoming 10 8 10 6

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

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

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

Disputing Time-Barred Debt With Debt Collectors

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

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

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

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

Statute of Limitations on Student Loan Debt

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

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

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

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

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

Statute of Limitations on Credit Card Debt

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

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

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

Statute of Limitations on Credit Card Debt By State

State Number of years
Alabama 3
Alaska 3
Arizona 6
Arkansas 5
California 4
Colorado 6
Connecticut 6
Delaware 3
District of Columbia 3
Florida 5
Georgia 6
Hawaii 6
Idaho 5
Illinois 5
Indiana 6
Iowa 5
Kansas 3
Kentucky 5 or 15
Louisiana 3
Maine 6
Maryland 3
Massachusetts 6
Michigan 6
Minnesota 6
Mississippi 3
Missouri 5
Montana 8
Nebraska 4
Nevada 4
New Hampshire 6
New Jersey 6
New Mexico 4
New York 6
North Carolina 3
North Dakota 6
Ohio 6
Oklahoma 5
Oregon 6
Pennsylvania 4
Rhode Island 10
South Carolina 3
South Dakota 6
Tennessee 6
Texas 4
Utah 6
Vermont 6
Virginia 3
Washington 6
West Virginia 10
Wisconsin 6
Wyoming 8

Effects of the Statute of Limitations on Your Credit Report

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

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

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

How to Know If a Debt Is Time-Barred

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

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

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

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

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

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

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

How to Verify Whether You Owe the Debt

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

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

The Takeaway

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

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

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

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

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

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

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

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

When does the statute of limitations commence?

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

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

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

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

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


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.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

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Budgeting With a Credit Card: Guide to Spending Smarter With Your Credit Card

Budgeting With a Credit Card: Guide to Spending Smarter With Your Credit Card

While you may think of your credit card as what tends to break a budget, it’s actually possible to budget with a credit card to spend smarter. In fact, there are a number of advantages of budgeting with a credit card. If you spend only what you can afford to pay off each month, you can enjoy earning rewards, building your credit score, and accessing other perks without accruing interest.

It isn’t always easy to set — and then stick to — a budget though, and a credit card budget is no different. Read on for tips on budgeting with a credit card.

Why Use Credit Cards?

Although credit cards can have downsides — especially when someone tends to overspend — they also offer benefits that you can’t get when you pay with other methods. This includes:

•   Fraud protection: It can be easier to dispute charges and fraudulent activity on a credit card as opposed to a debit card or cash.

•   Opportunity to improve your credit score: When a credit card is used responsibly, it can build a person’s credit score.

•   Credit card rewards: Credit cards often come with perks like travel points or cash back.

•   Travel insurance: Some credit cards offer specialty protection benefits like travel insurance.

While you may think of your credit card as what tends to break a budget, it’s actually possible to budget with a credit card to spend smarter. In fact, there are a number of advantages of budgeting with a credit card. If you spend only what you can afford to pay off each month, you can enjoy earning rewards, building your credit score, and accessing other perks without accruing interest.

It isn’t always easy to set — and then stick to — a budget though, and a credit card budget is no different. Read on for tips on budgeting with a credit card.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

Why Is Budgeting Important?

Whether using a bank account or credit card, a monthly budget is an essential part of financial wellness. Budgeting can:

•   Help to reach financial goals, such as establishing an emergency fund or saving for a downpayment for a home.

•   Alleviate financial anxiety that can come from uncertainties around finance.

•   Improve credit history through a record of on-time payments and responsible spending.

At first glance, budgeting may seem like a limiting factor, but it actually allows you to spend guilt-free. When budgeters know how much they can spend on certain categories each month and adhere to those guidelines, they don’t have to worry about overspending.

Specific Budgeting Methods You Can Work With

There’s no one-size-fits-all budgeting method. However, here are some popular methods that you might consider trying if you’re interested in creating a personal budget.

The Zero-Sum Budget

In a zero-sum budget, every dollar has a job. However, that doesn’t mean an account should be $0 at the end of the month. Instead, it means that every dollar earned should be allocated to a specific category, with no money left unassigned by the end of the month.

Each time an after-tax paycheck comes in, a zero-dollar budget will assign it to a category, starting with necessities like rent, food, student loan payments, and insurance. The rest goes toward discretionary spending or saving.

Zero-sum budgeting means taking a critical look at each dollar entering a bank account, which can feel frustrating for some but helpful for others. Depending on your preferences, this could be the right type of budget for you.

The Spreadsheet Budget

A spreadsheet or line-item budget groups spending and purchases into categories balanced against monthly post-tax income. In its most basic form, the spreadsheet budget is a list of expenses, shown line by line and grouped by type. Income covers expenses, with surpluses going toward additional savings or debt payoff.

The Online Budget

Apps and other digital tools make budgeting as easy as creating a log-in and connecting existing accounts to track spending. You can also set up budgets for upcoming purchases.

An online tool can be helpful for those who feel intimidated by budgeting prep or prefer a more passive look at spending.

11 Tips for Budgeting With a Credit Card

Using a credit card to budget isn’t so different from a traditional budget. Keep these 11 tips in mind when building a credit card budget.

1. Determine Your Monthly Income

To figure out take-home pay each month, budgeters can consult their bank account or look at paystubs from their employer (typically through an online portal). If your income varies each month, take the average income over the past year to get a rough ballpark figure.

2. Pick a Budgeting Method

A person can’t budget with a credit card if they don’t have a budgeting method in mind. Consider one of the aforementioned methods or an alternative like the 50/30/20 budget, where you allocate 50% of your budget to needs, 30% to wants, and the remaining 20% to savings.

3. Track Your Spending

Some budgeting methods are specific about how spending should be tracked. However, you can easily track your spending with pen and paper, a spreadsheet, or a spending app. No matter the method, it’s important to track each purchase.

4. Categorize Your Spending

When it comes to how to budget credit card payments, it helps to look back at your spending first. Gather financial statements from credit cards and bank accounts for the past month. Break each transaction into a category, such as needs, wants, savings, or something more specific.

With an idea of historical spending, now’s time to put a plan into place moving forward.

5. Create a Plan

Armed with a structure and an understanding of your past spending, now comes the time to plan for the future. When creating a plan, consider:

•   Recurring expenses

•   Savings goals

•   Debt repayment goals

•   Annual subscription costs

•   Emergency savings needs

6. Pay Yourself First

A top priority when budgeting with a credit card should be paying yourself first. That means that when money hits a bank account, it should go toward personal savings goals, an emergency fund, or an accelerated debt repayment plan.

It’s important to prioritize paying yourself first, as many try to budget with the reverse in mind, only setting aside what’s left over at the end of the month. This approach can lead to falling short on savings goals.

7. Calculate Your Expenses

After setting aside money for savings, it’s time to break down the remaining income into monthly expenses. This includes necessities like rent or mortgage payments and wants like dining out or entertainment.

If monthly income can’t cover all of the anticipated expenses, it may be time to cut back on spending. Is there slack in the budget from underused subscriptions? Or can grocery spending go down?

Figuring this out before you swipe can help you to avoid overspending on credit cards.

8. Plan for Debts

The difference between credit card budgeting and traditional budgeting comes when the credit card bill is due. If someone has been primarily spending on a credit card, it’s unlikely they’ll see their bank account change most of the month. However, that changes when the bill comes due.

With each transaction on the card, the budgeter should have enough money in their check or savings to cover the cost. Planning for this debt means avoiding the scramble that sometimes comes with a credit card due date.

9. Simplify Your Billing Schedule

Missing a credit card bill can harm a credit score and add financial stress to a person’s budget. Mark credit card due dates on the calendar each month, and consider paying the bill early or breaking it into multiple payments throughout the month.

10. Use Rewards as a Bonus

The benefit of budgeting with a credit card comes from the various credit card rewards you can earn. Remember to cash in on cash back perks every few months for a discounted bill or redeem the travel miles you’ve earned for an upcoming trip.

11. Avoid Carrying a Balance

Carrying a balance on a credit card could indicate an imbalanced budget due to how credit cards work. When a credit card bill isn’t paid in full, the remaining balance can accrue interest, leading to a ballooning balance that becomes harder to pay.

That’s why upfront planning is essential to budgeting with a credit card. Without a plan in place, there’s a bigger risk of overspending, which can snowball into credit card debt. If you’re using a credit card, it’s important to stick to one of the most important credit card rules of always trying to pay off your balance in full.

Recommended: How to Avoid Interest On a Credit Card

Pros and Cons of Budgeting With a Credit Card

There are benefits and drawbacks to credit card budgeting, including:

Pros

Cons

Opportunity to earn credit card rewards and cash back from spending Possible to more easily go over budget with a higher credit limit
Improved credit score with responsible spending Exceeding budget could mean incurring interest charges and additional debt
Option to set up account alerts to better stay on top of account spending Potential to harm credit score with missed or late payments

The Takeaway

There are advantages of budgeting with a credit card, such as earning rewards, gaining access to credit card perks like travel insurance, and building your credit score if you use your card responsibly. By setting up a credit card budget, you can better prevent yourself from spending more than you can afford and ending up owing interest when you can’t pay off your statement balance in full.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How can I manage my budget with credit cards?

Budgeting with a credit card isn’t different from budgeting without one. The key to budgeting credit cards is not to spend more on a credit card than you can afford to pay off at the end of the month.

Should I budget with a credit card?

If someone can stick to a traditional budget, then budgeting with a credit card might make sense. The difference is remembering to stay up to date with payments, as missing a credit card payment can negatively impact a credit score.

How much of a hold does the budget put on your credit card?

Budget should have a pretty serious hold on a credit card. When people can’t pay their credit card bill in full, they’ll incur interest charges, which can cause them to fall into debt over time and potentially drag down their credit score.

How do credit cards affect my personal budget?

If a budgeter isn’t paying attention when using a credit card, it’s easy to overspend. This can result in putting more on a credit card than you have available in cash to pay it off. As a result, you may end up paying more than the sticker price for your purchases due to interest, leaving you less money leftover for your other needs and savings goals.


Photo credit: iStock/Mirel Kipioro

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.

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

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What Is a Prepaid Credit Card and How Does It Work?

What Is a Prepaid Credit Card and How Does It Work?

A prepaid credit card is a type of credit card onto which you load money in advance. You can use the card to make purchases online or at brick-and-mortar stores or to withdraw money at ATMs.

While they have “credit card” in the name, prepaid credit cards are actually quite different from a standard credit card. Here’s a closer look at what a prepaid credit card is, the different types of prepaid cards, and the pros and cons of having one.

What Is a Prepaid Credit Card?

As mentioned before, a prepaid card is a card on which you load money ahead of time, similarly to how you would with a gift card. Some of the same credit card issuers that offer traditional credit cards may offer prepaid credit cards.
The amount you load onto the prepaid card is the maximum amount you can spend on the card, similar to a credit limit. For instance, if you load $200 onto the card, you can spend up to $200.

You can use the card to make purchases or withdrawals from an ATM. Prepaid cards might also be used for government benefits or for payroll.

Many prepaid credit cards are also called prepaid debit cards or stored-value cards. While they may look just like a credit card and bear the logo of a major credit card company like Visa or Mastercard, they’re not actually credit cards.

Because you’re not borrowing from a line of credit, you won’t have to worry about accruing debt, making a minimum payment by a due date, or owing interest. Your activity also will not be reported to the credit bureaus, meaning it won’t affect your credit score or history.

Recommended: What Is a Charge Card

Types of Prepaid Credit Cards

There are two main types of prepaid credit cards: open-loop and closed-loop. Here’s how they differ.

Open-Loop

An open-loop prepaid credit card can be used anywhere that accepts the credit card network that the card is within. For instance, if your open-loop prepaid credit card has a Visa logo, then your prepaid card will be accepted at any merchant, location, or ATM where Visa cards are accepted.

Closed-Loop

Also known as a single-purpose card, a closed-loop prepaid credit card can only be used to make purchases from a single retailer or a group of stores. For instance, you may only be able to use the card when you shop at a particular grocery store chain. Closed-loop prepaid credit cards usually don’t have a credit card network logo on them.

How Does a Prepaid Credit Card Work?

You can use a prepaid credit card to make purchases and take out money at ATMs, just as you can get cash from a credit card. Each transaction you make using the prepaid card will reduce the total balance you have available. So, for instance, let’s say you loaded a total of $500 onto your card. Then, you make a purchase for $150. You would have $350 remaining to spend with your card.

Though it depends on the prepaid credit card, you may be able to reload additional funds onto your card. You can do so by depositing money from a bank account or paycheck, reloading the card at a retail location using cash, or buying a reload pack to add a certain amount to your card.

Advantages of a Prepaid Credit Card

Let’s look at some of the benefits and risks of prepaid debit cards, another common name for prepaid credit cards. Here are some of the upsides to weigh if you’re considering getting one.

Doesn’t Require a Credit Check

A credit check isn’t required to open a prepaid card. As such, it may be an option available to those with lower credit scores or a thin credit history. Further, getting a prepaid credit card won’t require a hard credit inquiry, which can ding your credit.

Provides a Safe Alternative to Cash

A prepaid credit card is a safe, easy alternative to using cash. Depending on the network, a prepaid card might come with liability protections similar to those offered by debit cards.

Doesn’t Necessitate a Bank Account

You won’t need a bank account in order to get or use a prepaid debit card. Unlike debit cards, prepaid credit cards don’t require you to draw funds from a bank account, though if you do have one, you have the option to deposit money from your checking or savings account.

Won’t Cause You To Go Into Debt

Since you’re using money that’s already been uploaded to the card, you won’t have to worry about running a balance on your credit card. Further, you won’t have to worry about making payment due dates, one of the cardinal credit card rules, or the possibility of incurring interest if you can’t pay off your balance in full.

Recommended: When Are Credit Card Payments Due

Disadvantages of a Prepaid Credit Card

While there are a number of positives to prepaid debit cards, there are disadvantages worth considering as well.

Can Carry High Fees

Fees are probably the biggest drawback of a prepaid credit card. Many prepaid credit cards come loaded with fees, which can include the following:

•   Activation fees

•   Monthly maintenance fees, often around $10

•   Reloading or card replacement fees

•   Purchase fees

•   ATM fees for transactions or balance inquiries

•   Check deposit fees

•   Declined transaction fees

•   Inactivity fees

•   Foreign transactions fees

•   Customer service inquiry fees

Just as you would consider how much a credit card costs before applying for you, do the same due diligence on prepaid card fees before getting one.

Does Not Boost Your Credit Score

Prepaid credit cards aren’t actually credit cards, which offer a revolving line of credit. Because they aren’t a form of credit, your activity is not reported to the credit bureaus. In turn, they aren’t a way to build your credit.

Offers Fewer Fraud and Liability Protections

While prepaid credit cards might come with some fraud and liability protections, they typically don’t have the full suite of protections that standard credit cards offer. Instead, their protections, if offered, may be more akin to those offered by debit cards, which are generally weaker than those of credit cards.

Recommended: How to Avoid Interest On a Credit Card

Alternatives to Prepaid Credit Cards

Besides prepaid credit cards, here are a few other options you might consider:

•   Gift cards: A gift card can be used at particular merchants or retailers. There are also gift cards offered by credit card networks, such as Visa or Mastercard, that you can use anywhere these networks are accepted. Like a prepaid credit card, you don’t need a bank account to get a gift card, though using one won’t help you boost your credit. Unlike prepaid credit cards, gift cards don’t typically carry any fees aside from potentially a one-time activation fee.

•   Debit cards: Another option you might consider is a debit card. These do typically require a bank account, however. Like a prepaid card, you’re only using the funds available in the account connected to the card. As such, getting a debit card does not involve a credit check nor will you have to pay interest since you’re not borrowing funds. There may be fees involved though.

•   Secured credit cards: If you have a low credit score or a thin credit profile, a secured credit card — one of the different types of credit cards available — can help boost your credit if you’re using the credit card responsibly. Secured credit cards require a deposit, and the deposit amount is usually the same as the card’s credit limit. Secured credit cards usually have lower fees than prepaid cards, but they do have interest fees. Plus, a credit check is required.

The Takeaway

Contrary to its name, a prepaid credit card isn’t actually a credit card. You aren’t accessing a line of credit with a prepaid card, and you can’t build credit. Instead, you load cash onto the prepaid card, which effectively acts as your credit limit. You can then use the funds to make purchases or withdraw money from an ATM.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Do prepaid cards require monthly payments?

Prepaid cards can have a monthly maintenance fee. The amount of this fee varies, typically ranging from $10 to $15 a month. The money is drawn from the existing balance on your card.

Do prepaid cards cost money?

Prepaid cards usually do have fees. This may include an activation fee, ATM fees, reload fees, and foreign transaction fees, among others. Before getting a prepaid credit card, make sure to check what fees are involved.

Is an account needed for a prepaid credit card?

A bank account is not required for a prepaid credit card.

Do prepaid cards help build your credit?

Prepaid credit cards do not help you to build credit. That’s because they’re not actually credit cards and don’t offer a revolving credit line. In turn, your payment history isn’t reported to the three credit bureaus.


Photo credit: iStock/towfiqu ahamed

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

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What Are Credit Card Convenience Checks and How Are They Used?

What Are Credit Card Convenience Checks and How Are They Used?

If you have an active credit card account, you might be offered or have already received unsolicited credit card convenience checks. A credit card convenience check lets you draw a portion of funds from your available credit limit without swiping your card.

Although convenience checks offer the benefit of using your credit line toward other bills — either as a cash advance or a check-based payment for a purchase — they also come with their fair share of issues. Keep reading to learn more about what a convenience check is and how to get one from a credit card.

What Is a Credit Card Convenience Check?

Also known as cash advance checks, access checks, or balance transfer checks, credit card convenience checks let you borrow money against the credit card limit that is available beyond your credit card balance.

Card issuers offer this option as a way to encourage spending on your card account. You can use these checks to pay bills, borrow money, make a balance transfer, or transfer loans to your credit card.

Recommended: When Are Credit Card Payments Due

Pros of Credit Card Convenience Checks

Convenience checks have downsides, but there are pros to them as well:

•   They let you make purchases when using a credit card isn’t accepted.

•   You can use one to pay off other debt.

•   You can access cash quickly with a convenience check.

•   A convenience check borrows against your existing credit line, so you don’t need to undergo a credit check for a new line of credit.

Cons of Credit Card Convenience Checks

There are also a number of drawbacks of convenience checks to consider before using one. These include:

•   You’ll incur an additional fee each time you use a convenience check.

•   Using a convenience check might activate a higher credit card APR for the check amount.

•   You don’t get a grace period, so you’ll start incurring interest immediately.

•   You’ll have fewer protections if your purchase is defective and you need to withhold payment.

•   Your check purchase might not qualify as an eligible purchase under the card’s rewards program.

Factors to Consider Before Getting a Credit Card Convenience Check

Since convenience checks are treated like a cash advance by your credit card issuer, you’ll incur cash advance fees when the funds are drawn from your account. For example, your card issuer or bank might charge a minimum fee of $10 or 3% of the check amount, whichever is greater. Also, if you exceed your available limit and don’t have sufficient funds in your credit card account, you might be charged another fee.

On top of these extra fees, the interest on the check amount accrues immediately at your cash advance APR. Cash advance interest rates are typically higher than the APR charged for swiping your card for purchases at places that accept credit card payments.

If your account is a rewards credit card, purchases or draws using a convenience check are often ineligible for earning rewards. So not only are you paying more money to use the check, you’re losing the benefits of your rewards credit card program.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

How to Get Convenience Checks From a Credit Card

You’ll often get convenience checks in the mail. If you have an existing credit card account, your card issuer might include the checks in your monthly statement. A card issuer might also mail you a promotional offer with convenience checks inside to encourage you to apply for a credit card.

If you have an existing credit card account but haven’t received convenience checks in the mail, you can request them directly. Contact the phone number printed on the back of your credit card, log onto the credit card issuer’s website, or check its app to reach a customer service agent. Make sure to ask about fees you might incur by requesting printed convenience checks, as different types of credit cards carry different fees.

Using Credit Card Convenience Checks

There are many ways to use a convenience check, including:

•   Using it as a cash advance. In this case, you’d write a convenience check to yourself and cash it to access physical currency.

•   Using it to pay off other debts. This could include a loan or other credit card balance. In this scenario, the convenience check acts like a balance transfer vehicle that pays off a third-party credit account. You’ll then repay that balance, plus fees and interest, through your card issuer that provided the checks.

•   Using the checks to pay for goods and services directly. This might come up if you’re dealing with a merchant or vendor that doesn’t accept credit card payments but accepts checks.

If you decide to use a convenience check, it’s more like a physical check from your personal checking account as opposed to how credit cards work. A convenience check has the same familiar fields as a personal check, including a place to write in the date, payee name, amount, optional memo, and your signature.

How Credit Card Convenience Checks Can Affect Your Credit Score

A convenience check borrows money against your existing credit card line, so your credit isn’t verified when using a check. Since convenience checks let you access your credit line through another method other than swiping or tapping your card, they can encourage you to borrow more from your account.

If you borrow large amounts from your credit card account, it can increase your credit utilization ratio. Keeping a high credit utilization ratio can adversely impact your credit score. However, if you repay your balance responsibly and are mindful of your utilization — both key credit card rules to follow — convenience checks can have minimal impact on your credit.

Alternatives to Credit Card Convenience Checks

Although convenience checks are a viable option when you need cash, there are other lower-cost options than turning to your credit card.

Personal Loans

Borrowing a personal loan gives you access to cash at what is probably a lower, fixed APR compared to the variable cash advance APR from your credit card. Some lenders also don’t charge fees of any kind for personal loans. However, you’ll need to undergo a credit check and have strong credit for the most competitive rates.

Earning Extra Income

If time is on your side, increasing your cash flow can help you avoid high interest charges and fees for your next large purchase. Consider selling items that are taking up space in your garage, picking up additional shifts at work, or perhaps starting a side gig, like tutoring, for some additional income.

The Takeaway

A convenience check can be a fast way to access cash or make a purchase when a credit card isn’t accepted. However, the disadvantages of using convenience checks, like costly fees, increased APR, and no grace period, often negate the perks.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Is a convenience check linked to your account?

Yes, convenience checks from credit card companies are tied to an existing credit card account you have with that card issuer. The amount that you write on a convenience check will directly be added to your credit card balance, plus potentially fees and higher interest charges.

Can I write a convenience check to someone else?

Yes, you can write a convenience check out to another person or business as a method of direct payment. For example, you can use a convenience check to pay for a utility bill or as rent to your landlord. Keep in mind that this will mean you’ll pay more toward that purchase, thanks to fees and a higher APR. Proceed with caution.

Where can I cash a convenience check?

You can cash a convenience check anywhere you would cash a personal check. Your personal banking institution can cash the check for you, or you can visit a third party, like a check-cashing establishment.

What are the disadvantages of using credit card convenience checks?

The biggest disadvantage when using a convenience check from your credit card company is the added fees and interest you’ll pay. Each check incurs a flat fee or a fee based on a percentage of the check amount. Additionally, convenience checks are considered a cash advance, which incurs a higher APR on the borrowed amount. Plus, there’s no grace period so interest starts accruing immediately.


Photo credit: iStock/Ivan Pantic

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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How Long to Keep Your Credit Card Statements: What You Should Know

How Long to Keep Your Credit Card Statements: What You Should Know

Typically, you only need to keep credit card statements for 60 days, unless they are tax-related. It can be wise to keep copies in the short-term so you can scan the charges and wrangle your budget.

Keep reading for more insight if you’re wondering how long you should keep credit card statements. Different situations may require differ guidelines on the timing.

Why Should You Keep Your Credit Card Statements?

Aside from sharing your credit card statement balance or current balance, your credit card statements contain some pretty helpful information that can come in handy down the road — especially come tax season. If payments are made by credit card, it’s possible to review old statements to look up business expenses (perhaps Ubers taken for work purposes) or other write-offs like mortgage, student loan, or tuition payments that you put on your card.

It can also be helpful to keep credit card statements in case so you can review them for errors or signs of fraud. It’s easy to overlook mistakes when quickly reading a credit card statement while sorting the mail. It can be valuable to take the time to look more closely.

Online vs Hard Copy Statements

If you want to avoid holding onto a lot of paperwork, you also have the option to access online statements for your credit card. Credit card issuers may store this information for a while — though they won’t necessarily hold onto old statements forever.

The length of time your records are stored will vary by financial institution. Some credit card issuers only provide the past 12 months of statements, while others hold onto them for up to seven years. In many cases, five years is a common timeline.

If an old statement isn’t appearing online, the account holder may be able to call their credit card issuer and request a copy of an older statement. Still, there’s no guarantee that this will work; you might not be able to get what you’re searching for. It can also cost money to get a copy of an older statement if it is accessible.

Factors That Determine How Long to Keep Credit Card Statements

Like the rules around keeping financial documents in general, how long to keep credit card statements depends on each consumer’s unique needs. That being said, a good rule of thumb is to keep them at least 60 days, to have time to scan them for signs of erroneous charges or fraud and to reconcile your budget.

If you use your credit card for purchases that might be tax-deductible, then it can be wise to at least hold onto them until it’s time to prepare taxes for the year. (Again, you may not have to keep hard copies since you may be able to download statements from your credit card issuer’s website or app.)

If you do use your credit card statements to help prepare your taxes, you should hold onto them for at least seven years just in case the IRS (Internal Revenue Service) comes knocking with any questions.

How Long Should You Keep Your Credit Card Statements?

It’s worth noting though that consumers may have different needs than business owners when it comes to holding onto old credit card statements. Here’s a closer look.

For Consumers

How long consumers should keep credit card statements depends on how someone uses their statements. In general, it’s wise to keep your credit card statements for 60 days due to credit card rules. Under the Fair Credit Billing Act (FCBA), credit card issuers must receive written notice of any errors within 60 days of them sending the consumer the statement containing the error.

However, it might be smart to keep your statements for longer in the following scenarios:

•   If you use your statements to make deductions on your taxes: In this case, it’s wise to keep statements for seven years. That way, if you’re ever audited by the IRS, you’ll have those statements handy as supporting documentation for deductions.

•   If you decide to dispute charges: If you’re disputing charges on your credit card, it’s best to hold onto the statement in question for 90 days, as that’s how long the dispute process can take.

•   If you want to track your spending: Those looking to learn more about their spending habits and create a better budget may find that holding onto a year’s worth of statements is helpful. That way, they can sit down on January 1 and get a clear picture of how you spent your money in the last year and where you can cut back. This can help with using a credit card responsibly.

•   If you have an extended warranty: It’s also helpful to hold onto statements that contain purchases that came with extended warranties. For example, if you buy a TV with a three-year warranty, the credit card issuer may offer an extended one-year warranty as a cardholder benefit. Keep that statement at the ready as a proof of purchase in case that extended warranty is needed.

For Business Owners

Similar to consumers, business owners can benefit from holding onto credit card statements for at least a year in order to track business expenses. If referenced for tax purposes, it’s wise to keep credit card statements stored away for seven years to help resolve any future tax issues that may arise.

When You Should Keep Credit Card Statements Longer

As mentioned earlier, if you are going to use your credit card statements to help you prove deductions on your taxes, you’ll want to keep your own copies of your credit card statements (whether you save them on paper or digitally) for seven years. This is generally the longest you might need to keep statements for.

Recommended: What is the Average Credit Card Limit

Different Ways to Store Statements

Because credit card statements contain sensitive personal and financial information, it’s important to keep them safe. Here are a couple ways to store them:

•   In a password-protected file on your computer: If you download a digital copy of your statement, you can store them in a password-protected file on your computer.

•   In a safe: If you want to hold onto hard copies, keep them in a locked, fireproof safe to protect them from both theft and damage.

Different Ways to Dispose of Statements

Once you are ready to dispose of your credit card statements, it’s important to destroy the documents so no one can find them and glean information from them. Here are your options to get rid of your old credit card statements:

•   Shredding or cutting them up: Shredding old documents is ideal, but if you don’t have a shredder, you can cut the statement up into very small pieces using scissors. Then, throw away the various pieces into different garbage cans.

•   Deleting all files: For digital copies, simply delete the files fully from your computer — including any backup copies — once you no longer need them.

Managing Online Statements: What to Know

When it comes to online statements, you can easily save those digitally if you don’t like storing paper documents or if you’ve opted to receive paperless statements. All the cardholder has to do is download their statements and keep them stored in their digital files, ideally with password protection.

Recommended: What is a Charge Card

The Takeaway

How long you should keep your credit card statements depends on your unique needs, but 60 days is a good rule of thumb. If you have extended warranties through your credit card issuer, you may keep statements for the length of their warranty in case you need a reference. Or, if you use the statements to help with your tax deductions, it can be a good idea to hold onto them for up to seven years in case any questions arise.

Further, holding onto your credit card statements can help you easily see your spending habits and how well your credit card is serving you.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How can I get old credit card statements?

If you didn’t save your old credit card statements, you can look for them in your online account or can call your credit card issuer to request them. A charge may be involved for this service.

Do you need to keep credit card receipts?

Often, a credit card statement will give you a record of the information you need without needing to keep receipts.

How long should you keep credit card statements with tax-related expenses?

If you use your credit card statements to help figure out tax deductions, you should keep old credit card statements for up to seven years. That way, if the IRS has questions about any deductions, you can have the documentation to back them up.

How can you keep digital credit card statements safely?

If you download a digital copy of your statement, it’s best to store them in a password-protected file on their computer. Once you no longer need the statements, fully delete the files from your computer.


Photo credit: iStock/Rawpixel

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.

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, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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