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When a cash-back rewards credit card features a 2% cash back feature, that means you receive a flat 2% back on all purchases. This can be a solid way to reap rewards.

Read on to learn the ins and outs of what 2% cash back actually means, as well as the pros and cons of a 2% cash-back credit card, to help you determine whether it’s worth your while.

What Is Cash Back?

Cash back is a form of reward that cash-back credit cards offer that allows you to earn money back on purchases you make. Other examples of credit card rewards include points or travel miles.

With a flat-rate cash-back card, all of your purchases earn the same amount in cash back. Other credit card issuers might offer higher cash-back rates on certain spending categories, such as on gas or groceries.

Meanwhile, some may feature rotating bonus categories to give your rewards-earning abilities a boost. For example, you might earn 5% cash back in the fall months on purchases made at restaurants and on gas.

You can redeem the cash-back rewards you earn in the form of a check, bank transfer, or gift card, or as a statement credit. Other options might include making a charitable donation or making a purchase through the issuer’s online portal. Depending on the credit card, there might be a spending threshold you need to meet before you can redeem your cash-back rewards.

What Is 2% Cash Back?

Earning 2% cash back simply means that for every $100 you spend on your credit card, you’ll get $2 back. So if you were to spend $1,000, that’s $20 back in your pocket — though you’ll then have to redeem that cash back in order to make the rewards usable.

How 2% Cash-Back Credit Cards Work

As mentioned previously, having a 2% cash-back credit card means you’ll earn two cents back for every $1 you spend using the card, or $2 for every $100, and so forth.

There might not be a limit to how much you can earn in cash back. However, in other cases, the card may cap the amount of cash-back rewards you can earn for either regular spending or spending in bonus categories.

Pros and Cons of 2% Cash Back

While a 2% cash back card does come with some advantages, there are some drawbacks as well. Take a look at both:

Pros

•   Easy to use: A major benefit of a 2% cash-back credit card is that the rules are simple: You spend money, and get a certain amount back. Plus, redeeming rewards is usually pretty straightforward, and you have a choice of how to do so.

•   Can rack up rewards quickly: If you use your credit card for everyday purchases, you’ll accrue rewards fairly fast. Of course, only put everyday purchases on your card if you can afford to pay them off, and always use your card responsibly, considering what a credit card is and the implications overspending can have for your credit score.

•   Often no annual fee: Many cash-back cards don’t have an annual fee. That means you won’t need to worry about spending enough to offset the fee.

Cons

•   Higher APRs compared to non-rewards credit cards: While your annual percentage rate (APR) on a card partly depends on your credit and other financial factors, rewards credit cards like cash-back cards tend to carry higher interest rates. If you keep a balance on your account, you can expect to pay a pretty penny in interest, given how credit cards work.

•   Earning caps may apply: While some credit cards allow you to earn unlimited cash-back rewards, others place a limit on how much you can earn. If you’re looking to max out your rewards potential, a cap could make that harder to do.

•   Don’t often offer travel rewards or perks: If you’re hoping to earn rewards that apply to travel, such as airline trips or hotel stays, a cash-back credit card likely isn’t the form of rewards credit card for you. While some cards may offer travel redemption options, most don’t, and many also charge foreign transaction fees.

Recommended: When Are Credit Card Payments Due?

Is a 2% Cash Back-Credit Card Worth It?

Whether a 2% cash-back credit card is worth it really depends on how you’ll use the credit card. This includes what types of purchases you’d like to make, and if you plan on using your card for bills and everyday expenses, such as gas and groceries. If you use the credit card regularly, you’ll be able to earn a greater amount of cash-back rewards.

However, you’ll also want to balance that spending with sticking to important credit card rules, like not spending more than you can afford to pay off. Because rewards credit cards tend to have higher interest rates, it’s important to avoid carrying a balance so you don’t cancel out the cash back you earn.

A cash-back rewards card might not be worth it if you prefer to use your credit card rewards for travel. In that case, a travel rewards credit card typically will offer more lucrative ways to earn points or miles to use on trips.

Recommended: How to Avoid Interest On a Credit Card

Guide to Using a 2% Cash-Back Credit Card

If you get a 2% cash-back card, here are some tips to keep in mind to use it effectively:

•   Read the redemption rules. Familiarize yourself with credit card requirements, and see if there are any limits on how much cash back you can earn. Similarly, check if you need to hit a minimum amount in cash-back earnings before you can redeem those rewards.

•   Be intentional with your purchases. Devise a plan for how you intend to use your cash-back credit card. Perhaps you would prefer to use it on big-ticket items, or maybe on seasonal purchases, such as during the holidays or back-to-school season. This will help you make the most of your card.

•   Choose how you’ll receive your rewards. YYou’ll also want to decide whether you plan on receiving the cash-back in the form of an ACH transfer to your account, as a statement credit, or as a check dropped in the mail. You also might be able to use your rewards by making online purchases through the credit card’s shopping portal, or by purchasing gift cards or donating to charity.

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

Maximizing 2% Cash-Back Earnings

If you have a cash-back credit card, it’s worth your while to take the time to determine how to maximize your earnings. Here are several ways to do so.

Use Your Card For Everyday Purchases and Bills

Consider using your cash-back card on major spending categories to earn the most on rewards. For example, if you spend $4,500 a year on food for you and your family and put all of your groceries and dining expenses on your card, you’ll get $90 in cash-back on just that spending alone.

You might also consider putting your recurring bills and subscription services on your credit cards. This will allow you to scoop up points in areas you already spend.

Just make sure you aren’t spending beyond your means. Keep an eye on your expenditures, and commit to paying off your balance in full each month.

Put Big-Ticket Buys on Your Card

If you’ve been saving up for a sleek new laptop or coveted designer shoes, consider putting that cost on your 2% cash-back card. That way, you can get the item and earn a bit of cash back on the purchase.

Your card may even come with added perks, such as purchase protection or an extended manufacturer’s warranty.

Look for a Card With No Annual Fee

A card without an annual fee means you won’t need to spend as much to make the cash-back rewards worthwhile. Case in point: If you get a card with a $40 annual fee, you’ll need to put $2,000 in purchases to break even at a 2% cash-back rewards rate.

Pay Off Your Balance in Full Each Month

As cash-back credit cards tend to have higher APRs, make it a point to pay off your card in full. This will help you avoid racking up interest charges, which can cut into the cash-back rewards you earn.

Strategize When You’d Like to Redeem Your Cash Back

To maximize your 2% cash-back rewards card, it helps to be intentional with how you choose to redeem your cash-back rewards as well as when you do so. For instance, if you tend to dig a debt hole during the holidays, use your rewards to pay for gifts and other related expenses. Or, you can put the rewards you’ve accumulated toward a statement credit, or redeem it for a gift card for your loved one.

The Takeaway

Whether a 2% cash-back credit card is right for you may depend on a few considerations, such as how often you plan to use the card, whether you may purchase higher-priced items with it, and if you plan to pay off the balance in full each month. It’s also important to understand all of the rules that apply to the credit card. Some cards have limits on how much you can earn in cash back or have annual fees that could cut into the value of your rewards.

A 2% cash-back credit card that’s used regularly, however, can provide you with a steady stream of extra cash that could benefit your budget, and you can also be strategic about how you redeem the rewards depending on your needs at a given time.

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 2% cash back good for credit cards?

A 2% flat-rate, cash-back credit card can be a strong choice as a go-to credit card if you intend to use your card for everyday spending. Earning rewards at a flat rate and in this manner is simple and straightforward, as you don’t have to worry about keeping track of rotating categories or figuring out point conversion values.

Is 2% cash back better than points?

A 2% cash back credit card is a no-hassle, straightforward way to earn rewards. While you might earn more points on a travel card, redemption values and ways to redeem points on a travel rewards card can be more complicated. A flat-rate cash-back card can be a good choice to use as a foundation. Then, you can also open a travel card if it makes sense for your needs.

Photo credit: iStock/LaylaBird

SOCC-Q324-045

Whether you’ve noticed a potentially fraudulent charge or you simply changed your mind on a purchase, there are a number of reasons why you might want to cancel a credit card payment. Luckily, there are actions you can take to do so, assuming the payment falls within certain parameters.

Read on to learn how to cancel a credit card payment, whether the charge is still pending or if it’s already posted. You’ll also learn how to stop payments on credit cards if you don’t want your scheduled payment to go through.

Can You Cancel a Credit Card Payment?

Per the Fair Credit Billing Act (FCBA), a law that all credit card issuers must follow, there are times when you can withhold a payment. So if you define “cancel” as disputing a charge instead of making the payment, there are instances when it’s acceptable under the law to cancel credit card payment.

You can also request to cancel a credit card payment if you believe it’s the result of fraudulent activity.

Related: How to Cancel a Credit Card

Things to Consider Before You Cancel a Credit Card Payment

Before you cancel credit card payments, it’s important to note that the previously mentioned FCBA guidance only applies when you believe a billing error was made. Per the Federal Trade Commission (FTC), examples of billing errors include:

•   Unauthorized charges

•   Charges with the wrong date or amount listed

•   Charges for items or services you didn’t accept or that weren’t delivered as agreed

•   Mathematical errors

•   When the credit card issuer didn’t post your payments or your returns/credits

•   When the credit card issuer didn’t send the bill to the appropriate address, assuming they were provided adequate notice of any change in address

•   Charges where you’ve asked for written proof of a purchase or an explanation of it, along with a claim of an error and a clarification request

Further, for disputes about goods and services, you generally must have made the purchase on your credit card in your home state or within 100 miles from your home for the laws on credit card disputes to apply. The charge in question must be for more than $50. Credit card rules stipulate that it’s also necessary to have made an attempt to resolve the issue with the merchant first.

Recommended: What Is a Charge Card?

Reversing a Credit Card Payment After It Has Been Made

If you’ve already paid the merchant but are unsatisfied with how they’ve responded to your complaint, contact your credit card company to see if you can get the charge reversed. They may call this a chargeback.

Parties that will get involved in the process, besides you, can include your credit card issuer, the merchant from whom you purchased goods or services, the merchant bank, and the credit card network. This is due to how credit card payments work.

Typically, you’ll receive credit on the disputed amount while an investigation takes place. If you win the billing error dispute, this credit card refund will remain permanent. If the case isn’t decided in your favor, then the amount would get added back to your credit card balance.

Recommended: When Are Credit Card Payments Due?

How to Cancel a Credit Card Payment After It’s Made

If you’re hoping to cancel credit card payment, here are the general steps you should go through to do so.

Attempt to Resolve the Dispute With the Seller

As an initial step, contact the seller of the item you’re unhappy with and explain the situation. It’s possible, for example, that you received the wrong item or a part may have been defective in what you received. Perhaps they can send you a replacement. Or you can ask the seller to reverse the charges on your credit card, resulting in a credit card refund.

Avoid Paying the Disputed Amount

If you don’t get satisfaction by working with the merchant, you can decide to not pay the disputed amount and have the situation investigated. To make that happen, though, you need to follow specific steps, starting with reaching out to your credit card issuer.

Contact Your Credit Card Issuer

Write and send a letter to your credit card issuer that outlines the billing error and disputes the charge. Your credit card company should have a billing inquiry address listed on its website.

Make sure to send this letter within 60 days of receiving the billing statement with the disputed charge. Keep copies of the letter, and consider sending it via certified mail with a return receipt.

Await Your Credit Card Company’s Decision

Then, you wait. The creditor has up to two billing cycles — a maximum of 90 days — to resolve the dispute. The result may be that you don’t have to pay the disputed amount, or that you do. Or, you may end up needing to pay part of it.

If you have reason to believe that the creditor isn’t following the rules set out by the FCBA, you have the right to sue them. If you were to win, the court may award you damages and order the credit card company to pay your attorney fees.

Understand the Limitations

After you’ve filed a dispute, you aren’t required to pay the charge in question until after the investigation ends and a decision is made. That said, you are required to pay whatever else is owed on this bill — such as a credit card minimum payment or finance charges on the undisputed portion of the bill. And, of course, remember there’s no guarantee that you would win a lawsuit.

Recommended: What Is the Average Credit Card Limit

How to Stop Payments on Credit Cards

Perhaps you want to know how to stop a scheduled payment on a credit card that hasn’t already been made. In this case, you’d need to contact your bank at least three business days before the payment is set to come out. Do so in person, in writing, or over the phone. The financial institution may require a follow-up of this request in writing within 14 days.

Note that, even after the bank stops a payment, you may still be responsible for making the payments to the credit card company; that’s part of using a credit card responsibly. Here are some other general tips to keep in mind for the process of stopping payment on a credit card.

Identify the Credit Card Payment You Want to Cancel

When you contact your bank, make sure you’re clear about which payment you want to cancel. If you only have one automatic payment taken out, this wouldn’t apply.

Check the Restrictions That May Apply

Be clear about whether your stopped payment falls within your FCBA rights. Remember that you’re still liable to pay your credit card bill outside of any disputed charges.

Contact the Credit Card Provider to Stop the Pending Payment

If you want to contact your credit card company to stop a pending payment, use the phone number on the back of your card. You can then talk to someone about stopping the payment.

Verify That the Payment Has Been Canceled

Whether you talk to your financial institution or the credit card company, ask for the name of the person you spoke to and a confirmation number. Take good notes and keep them. Later, you’ll want to check back to make sure that the payment was indeed canceled.

What to Do in the Case of the Non-Reversal of Funds

If you aren’t satisfied with how your credit card company is handling a situation, you can submit an online complaint online to the Consumer Financial Protection Bureau (CFPB) or call them at (855) 411-2372.

Also keep in mind that if your dispute was denied, you can request an explanation from your credit card company. You also have the option to appeal the decision.

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

The Takeaway

It is possible to cancel a credit card payment if it falls within your FCBA rights or it’s due to fraudulent activity. There are protections built into the law for when you receive erroneous billing, as well as an established process to follow to address this issue. In the meantime, you’re still liable to make minimum payments outside of the disputed amount.

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

Can I cancel a pending transaction on my credit card?

Possibly. Contact the merchant and ask them to cancel the transaction. Aim to do so in the day or two before the pending charge is added to your balance. Once it’s posted, then you would need to pursue another route, like filing a dispute or asking for a chargeback.

Does canceling a credit card payment affect your credit score?

If you dispute a charge, it may show up on a credit report, but it shouldn’t directly affect your scores. The FCBA notes that it’s not legal for someone to be denied credit because they disputed a bill. That said, to avoid your credit score getting dinged, you must keep up credit card payments outside of the disputed amount.

How long does it take to cancel a credit card payment?

You should provide at least three days’ notice before a bill is set to be taken out of a bank account. That should provide adequate time for the cancellation of the credit card payment.

Photo credit: iStock/solidcolours??

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

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOCC-Q324-037

Credit bureaus are companies that gather and store credit-related information on just about every adult in the United States. There are three major credit bureaus, or credit reporting agencies: Equifax®, Experian®, and TransUnion®.

The information collected by the credit bureaus is used to make financial decisions that have a major impact on the lives of many Americans. While credit bureaus themselves don’t make lending decisions, lenders typically rely on the information that credit bureaus provide to judge individuals’ creditworthiness.

What Is a Credit Bureau?

A credit bureau is a company that gathers credit and debt information about consumers. The three major credit bureaus in the U.S. — Equifax, Experian and TransUnion — also sell credit reports and credit scores to creditors, such as credit card issuers and mortgage lenders.

Credit bureaus keep a database of historical financial records about consumers. This may include information like the total number of credit or loan accounts you have open, your current account balances, and your payment history.

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

How Does a Credit Bureau Work?

Credit bureaus work by detailing and cataloging credit and loan transactions. The bureaus get their information from a variety of sources, including public records and information reported by lenders.

Not all third parties report to each of the three bureaus, which is why you may see different information on credit reports provided by different bureaus. If a lender wants one report that has information from all three major credit bureaus, they’ll need to get a tri-merge credit report.

Why Are Credit Bureaus Important?

Credit bureaus serve an important role in the overall financial markets. While credit bureaus do not make lending decisions themselves, they provide historical financial information on consumers to potential lenders and creditors. This information is used by potential lenders when deciding whether or not to issue you credit, which is why it’s important to regularly review your credit report. It’s also wise to dispute a credit report if there’s any incorrect information.

Credit Bureau Regulations

The Fair Credit Reporting Act (FCRA) regulates the credit bureaus and helps ensure that consumers are protected. One part of the FCRA states that information held by each credit bureau cannot be given to someone without authorization or a valid purpose. The FCRA also has a provision that gives every American the ability to see their credit report for free at least once per year.

The 3 Major Credit Bureaus

As previously mentioned, there are three major credit bureaus in the U.S. While not the only credit credit bureaus in the country, these are the three credit bureaus that dominate the collection and dispersal of information.

Equifax

Equifax was founded in 1899 and is headquartered in Atlanta, Georgia. With 13,000 employees in total, Equifax operates in 25 countries.

Experian

Experian traces its roots back to 1826 and is currently a conglomeration of several different companies. Headquartered in Dublin, Ireland, Experian currently has over 20,000 employees working in 43 countries around the world.

TransUnion

TransUnion was formed in 1968 by the Union Tank Car Company, a railcar leasing operation. Shortly afterward, they acquired the Credit Bureau of Cook County and got into the credit reporting business. TransUnion currently serves over 30 countries on five continents.

What Information Do the Credit Bureaus Monitor?

Generally speaking, credit bureaus monitor credit and debt information. For example, a credit card issuer might share the number of financial accounts you have, when you opened or closed them, your maximum credit line for each account, and/or your payment history, including if you pay your credit card bills when they are due. They may also collect information on debt collections and bankruptcies in your financial history.

How Do Credit Bureaus Use Your Information?

The credit bureaus themselves do not use your information to make any lending or financial decisions. Instead, the credit bureaus simply store and catalog this information. Credit bureaus then sell access to the credit data, allowing lenders and other potential creditors to view information about borrowers for a fee.

When credit card companies report to credit bureaus, the information they provide is added to the credit report for that consumer. This is why credit reports are constantly changing and updating, leading to credit score updates. As such, companies often regularly purchase reports and scores for their current customers.

What Is a Credit Report?

A credit report shares information about how you as a consumer have handled your credit accounts. It contains identifying information about you, such as names you have used, places you have lived, and your birthdate or Social Security Number.

Additionally, a credit report shows information about the different types of credit accounts or credit tradelines that you have or have had. More specifically, this information can include details on payment history, account balances, and credit limits, as well as any derogatory marks, like late payments, civil lawsuits, or bankruptcies.

Information Included in a Credit Report

Credit reports typically contain the following:

•   Identifying information: This includes your name, address, phone number, birthday, and Social Security number. You may also find information on your current and previous places of employment.

•   Credit summary: This portion of your credit report details any accounts you have, such as credit cards, mortgages, or other loans. Information will include the date the account was opened, the account balance, the highest balance, the credit limit or loan amount, the payment status, and the payment history.

•   Public records: Your credit report also contains information pulled from public records, such as bankruptcies or debt collections. You’ll also see payment defaults and late payments noted.

•   Credit inquiries: In your credit report, you can also see any party that’s requested access to your credit report in the last two years. This could come from a credit card or loan you applied for.

When reading a credit report, it’s important to make sure that the information on it is valid and accurate. Incorrect or inaccurate information on a credit report can lead to higher interest rates or being denied for credit.

Recommended: How to Avoid Interest On a Credit Card

Who Uses Credit Reports?

Credit reports are primarily used by potential lenders or creditors. This might include banks, credit card issuers, or other lenders. Landlords and employers are two other groups that often pull credit reports.

Lenders and creditors use credit reports to assess how creditworthy you are, which may help them determine whether to extend you credit (and at what rate). In the case of landlords and employers, your credit report may help them determine whether to offer housing or an employment opportunity.

What Else Do Credit Bureaus Do?

The main role and responsibility of credit bureaus is to provide credit information to potential lenders and creditors, for a fee. In addition to this main business model, credit bureaus also provide access to credit reports to the consumers themselves. This is to remain in compliance with the Fair Credit Reporting Act.

Recommended: Tips for Using a Credit Card Responsibly

Some Other Credit Bureaus

In the United States, the big three credit bureaus are Equifax, Experian, and TransUnion. These three companies do also maintain credit information in other countries. However, outside of the U.S., there are also country-specific credit bureaus. For example, there is SCHUFA in Germany and UC in Sweden.

Credit Bureaus vs Credit Rating Agencies

Confused on what credit bureaus vs. credit rating agencies are? While both credit bureaus and credit rating agencies provide information on creditworthiness, there are some key differences to be aware of:

The Takeaway

Credit bureaus gather, maintain, and collate credit information about millions of consumers throughout the United States and across the world. Lenders and potential creditors use this information to make decisions about whether to extend credit, as well as how much and at what rate. In the U.S., the three major credit bureaus are Equifax, Experian, and TransUnion. Any new credit card that you open will appear on your credit report maintained by one or more of these credit bureaus.

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 you need all three credit scores from the major credit bureaus?

Not necessarily. Because each of the major credit bureaus uses different sources of information, you may have slightly different information on each credit report. Also, each credit bureau uses the information they have differently in calculating an overall credit score. Because of this, some lenders prefer what is called a tri-merge credit report, which is one report that has information from all three major credit bureaus.

How many credit reporting agencies are there?

There are hundreds of credit reporting agencies throughout the world, each with a different focus. In the United States, there are three main credit reporting agencies or credit bureaus: Equifax, Experian, and TransUnion.

Which credit bureau is used the most?

Although Experian is the largest credit reporting agency, Equifax and TransUnion are generally considered to be just as reliable and accurate. There is not one credit bureau that is necessarily used the most. Instead, it varies by geographical region and the preference of the lender or creditor asking for the credit report.

Why doesn’t my report show a credit score?

There may be a variety of reasons why your credit report doesn’t show a credit score. One of the most common reasons is that the credit bureau does not have enough financial information about you to make an accurate decision. When your credit information updates, your credit score updates as well.

Photo credit: iStock/damircudic

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.

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.

SOCC-Q324-036

You may be getting divorced, but you’re not alone. According to the U.S. Census Bureau, 34% of women and 33% of men in the United States are right there with you, having ended their unions.

Certainly, though, this life event can cause emotional turmoil, and it may trigger worries about money too. Take heart: The end of a marriage does not have to mean an end to financial security. If you keep calm and make a careful post-divorce budget, you are more likely to stay fiscally fit.

Why Is a Post-divorce Budget Critical?

A realistic budget after divorce is a must. It can often cost a lot more to run two households than one. Still, doing what’s right for your personal life path and well-being comes first; there’s no point staying unhappily wed simply to save money. It can be possible to find steady footing during this transition with the right basic living expenses budget.

Truth is, after the sometimes hefty expense of a divorce lawyer (if you hired one), you will possibly be solely responsible for housing, utilities, groceries, car maintenance, and more.

There are various ways to budget for this, including the 50/30/20 rule and the envelope system, among others. You’ll also likely encounter a variety of tools, including spreadsheets and apps. Take the time to review your options and find an approach that feels right for you.

Recommended: Am I Responsible for My Spouse’s Debt?

Lifestyle Pre-divorce and Post-divorce Will Be Different

Get ready for changes in your lifestyle and your cash management. Transitioning from couplehood to single status can take time, patience, and being kind to yourself.

You will likely need to set up your own bank account, for example, if you previously had a joint account with your ex. And you’ll need to put your place of residence, you car, and utility bills, among other things, in your name.

You may be responsible for more household chores now, as you may not be able to afford, say, the cleaning person or landscaper you used to employ. Trimming the leisure budget (dinners out, vacations, entertainment, fitness classes) might be necessary, but all is not lost. Prioritize what is most important to your self-care now. This can be a bump in the road, not the end of the line.

Newly Single Life Can Be Taxing Emotionally and Financially

Divorce can affect your spirit as well as your finances. If you’re struggling and don’t have a therapist, consider finding one and/or joining a support group in your community. We can’t always “adult” our way through rough times.

Finances for Children May Be Difficult

Children are a hot-button topic for almost all parents, both married and divorced. Meeting their emotional and financial needs can lead to a tug-of-war, especially if you and your ex don’t communicate calmly and effectively.

As your divorce unfolds, pay close attention to what counts as child support. For instance, you may want to continue your child’s soccer league, guitar lessons, or art classes, but these activities may or may not be covered. Also, if you have a teen who is begging for a used car, that large expenditure may not be covered by child support either.

Knowing just what counts as a child support expense, along with careful record keeping, will be important as you develop with your divorce budget. After all, knowledge is power. It will help you negotiate and budget better as a single parent, as well as keep the peace as you co-parent.

Recognize You Can No Longer Rely on Two Incomes

It can be a huge learning curve: Relying on a single salary instead of two. This post-divorce situation can be especially complicated if your ex had the employee benefits, including family health and dental insurance, 401(k) contributions, and a flexible spending account (FSA), where payroll deductions cover everything from child care to eyeglasses.

Now is the time to investigate what options you have to gain self-sufficiency and stay on budget. For example, if you work, does your employer offer an affordable health insurance plan? If you are self-employed, what networking groups could advise you on good options? Do you perhaps qualify for a lower-cost health insurance plan on the marketplace? Explore ways to save money, too. For instance, perhaps a high-yield savings account might be right for you. Even if you contribute just $20 a week, the money can add up and earn interest over time. Invest some time in seeing what’s available that suits your needs and budget.

Potential Questions to Ask Yourself

As you move through your divorce process and onto your newly single life, ask and answer the big questions. These can help you both trouble-shoot and thrive.

•   How much is my income going to change? First, look at past bank statements. See how much your spouse and you have each contributed to the family income. In many cases, of course, alimony will come into play, but you need a realistic income-based expectation for that, too.

•   What do I need to let go of? This may take soul-searching. As you go from two incomes to one income, it’s likely that something’s got to give in terms of expenditures. Think creatively about where and how to economize. You might decide to plan and cook ahead for the week to minimize the temptation and expense of eating out. Or perhaps you decide to split an apartment with a friend for a while to save on rent while you get your bearings. It’s your call.

•   How should I supplement my income? If you need to get cash flowing your way, contemplate what’s in your toolbox of strengths and skills. One of the key benefits of a side hustle is that it can boost your income and fit your schedule. Maybe you’re a super-organized person who offers decluttering skills, a tech-savvy type who can build websites for others, or an animal lover who pet-sits or walks dogs. Other ideas: Fill free hours as an Instacart shopper, Amazon delivery person, or Uber driver.

•   How will we fairly work out financial support for the kids? Are the children dividing their time 50/50 between you and your ex? What will your child support agreement entail? What additional expenses may come up in the future (tutoring, college prep classes)? Think and work it through, possibly with professional guidance.

Post-Divorce Budgeting Tips

Once you have mulled over the issues relating to post-divorce life, keep these strategies in mind to help you optimize your finances.

Focusing On Current Income

Base your budget on your income now, after taxes. Do not base it on the projected income you hope to have. Don’t get caught up thinking about your former two-person income. Being pragmatic right now will likely pay off and help you stay out of debt.

Focusing On Most Important Monthly Expenses

For now, prioritize what it will take to get through daily life. Calculate costs of a roof over your head, a way to get to work, food, child care, healthcare, and other essentials. Take care of people first, starting with yourself; then deal with material things later.

Letting Go of Unnecessary Items

Go ahead and slash some items out of your budget. There are some easy ways to save money. Perhaps you can jettison a couple of streaming services, cut back on clothes shopping, and mow your own lawn instead of hiring someone else to do it. That feeling of opening up some room in your budget can be priceless.

Giving Yourself Safe and Budget-Friendly Fun

Find the right mood lifters. Avoid expensive, impulsive purchases when you are feeling emotionally hurt and raw. They can wreak havoc with your finances.

Instead, treat yourself to free or low-cost adventures and experiences. Fresh air can be healing and motivating; local parks and wildlife sanctuaries may offer free guided walks and birdwatching outings.

Considering Working With a Financial Advisor

As you sort out your finances as you approach a divorce, you may want to enlist a professional versed in the issues that can crop up. Child support, shared credit-card debt, and division of jointly owned real estate can require this kind of guidance. A certified divorce financial analyst (CDFA) is trained to assist with this and help you get the fairest possible deal. Explore the possibility and find out the CDFA fees to see if it’s a good option for you.

Post-divorce, you might also seek out an advisor who can help you set up a financial plan so that your spending and saving habits suit your new situation.

The Takeaway

Transitioning from pre-divorce to post-divorce life can stir up fears and insecurities, but you can take concrete steps to manage the unknown. Face facts about income, set a realistic budget, and find the right bank account. Prioritize your needs, and be willing to put unnecessary expenses on hold for now. Like so many others, you will find your footing and peace of mind, thanks to patience, flexibility, and wise budgeting.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How do you budget after a divorce?

To budget for post-divorce life, assess and prioritize non-negotiable needs (such as housing, food, utilities, and child care), and phase out or reduce unnecessary extras. Pay attention to the details of your divorce agreement, as alimony and/or child support may impact your finances significantly.

How long does it take to financially recover from divorce?

The timeline for recovering financially from divorce varies tremendously, depending on the particulars of a person’s income, divorce agreement, and other factors. It may take around five years to fully regain your sense of control over your money, though that could happen much sooner (or take even longer) for some.

Will I be poor after divorce?

The U.S. Census Bureau reports that after a divorce, household income for women can drop considerably. This is all the more reason to budget carefully after divorce and seek professional advice. These steps could help you avoid costly mistakes that impact your financial wellness.

Photo credit: iStock/PeopleImages

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.

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

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

3.30% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

SOBK-Q224-1945765-V1

Are you toying with the idea of opening a Christmas Club account? It may sound like a retro idea, but a Christmas Club (or Holiday Club account) is simply a short-term savings fund that can help you plan for and manage the annual spending blizzard. The strategy can be smart, since during the most recent season, consumers spent a whopping $964 billion, according to the National Retail Foundation.

Pacing yourself to save in advance of the holiday crush is great, but there can be pros and cons of a Christmas Club account. Learn the details here.

What Is a Christmas Club Account?

Christmas Club accounts started in 1909 at a Pennsylvania bank and are designed to help you save money for holiday expenses. They typically do not earn high interest but can help you pull back your purse strings when December comes along and avoid debt.

After making regular, scheduled contributions to the Christmas account, the money is withdrawn, typically in October, November, or December, depending on your bank’s rules. Christmas Club funds are transferred to your regular checking account with the bank or withdrawn in a check to cover your holiday expenses, be they toys, trimmings, or latke parties.

Saving in increments can be easier on your budget than scrambling for cash when Yuletide, Hanukkah, and Kwanzaa come around. It can also spare you from putting all those charges on your credit cards and having a high balance due.

💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.

How a Christmas Club Account Works

When you sign up for a Christmas Club account, you start with a deposit. Rules and regulations vary by bank. Some require a minimum to start; others don’t. Some have no minimum balance requirement in person at a branch but need a $25 minimum for setting up a Holiday Club account online.

You decide the amount you want to contribute regularly. For instance, you might opt for $25 or $100 swept from your checking account into your Christmas account every week or every payday.

Historically, banks have charged fees for withdrawing money before the club account matures. That encourages consumers to leave their money there until holiday shopping time. Just be aware that if an emergency comes up, like a broken water heater, and you take the money out, you will get hit with a fee.

Reasons to Use a Christmas Club Account

There are several benefits to Christmas Club accounts that can make them a helpful financial tool. Here are some of the reasons why people open them:

•   To save for a predictable spend above and beyond your year-round monthly budget. Many of us try to celebrate the holidays on a budget. But the gifting/decorating/entertaining spree can still hit every winter. A club account plumps up a money cushion to help you avoid credit card debt.

•   To afford holiday travel. Most of us need extra dough, whether to rent a car to visit family or fly the kids home from college. To score the lowest airfare, car rental, and lodging costs, brush up on smart tips for finding travel deals. (If short-term savings won’t cover your trip, shop for the best travel loans with lower APRs, no compounding interest, and no fees.) Stashing funds in a club account, of course, is a viable solution.

•   To build up funds for other planned annual costs. Just because they are called Christmas Club accounts doesn’t mean they have to be used for holiday spending. Puzzling over how to save on spring break expenses or how to pay for your child’s summer sleepaway camp? In those cases, a club account can be golden.

Where Can You Find a Christmas Club Account?

Christmas Club accounts are most often available at smaller community banks and credit unions vs. banks with a national presence. You can open one in person at a branch or online at your bank’s website. (Search under savings accounts.) Often, the same banks that set up payroll direct deposit plans also offer short-term club accounts.

Christmas Club accounts are offered at credit unions all across America, from the Fidelity Bank and Trust in Iowa to the Pasadena Federal Credit Union in California, and in too many places in between to count.

Pros of a Christmas Club Account

If you’re trying to decide if a Christmas Club account is right for you, it’s worthwhile to consider the advantages of these accounts.

Simplifies the Process of Saving for the Holidays

Framing your holiday budget ahead of time can cut stress. Pacing yourself to save over months may be even better. If it helps, you can give these targeted accounts nicknames to keep your eye on the goal; say, “Christmas in Vermont” to “Kids’ Lego Fund.”

Alternative to Putting Holiday Purchases on Credit Card

Using Christmas cash can help you avoid overspending with credit cards. Once you turn to plastic, things can get out of control. You start hunting online for a scooter a child has her heart set on and then see an ad for the brown suede boots you’ve been wanting…ka-ching. Interest rates on credit cards are quite high, and you can be left with debt that takes a long time to pay off.

Recommended: How Does a Credit Limit Work?

Cons of a Christmas Club Account

It’s not all a winter wonderland; Christmas Club accounts can have downsides. Here are a few to consider.

Most Banks Have Saving Limits

Most Christmas Club accounts have a maximum dollar amount you can save. Some banks allow up to $5,000, but this number will vary. The cap might be less than what you’d like to save. If need be, consider opening a second Christmas club if the bank allows it or open an additional one at another bank, too.

Potential Fees for Early Withdrawal

If you need to get the money out before the set withdrawal date, you will most likely incur early withdrawal fees. These can vary. Find out what they are when you open your account.

Alternatives to Christmas Club Accounts

If you want to save money for the holidays but aren’t sure a Christmas Club account is right for you, consider these options.

•   Certificate of Deposit. A certificate of deposit (or CD) generally offers a higher interest rate than a savings account but comes with a term. The bank holds your money for anywhere from months to years, and you collect the interest when the CD matures at the end of the term. Since a CD will lock up your money for a specific amount of time (typically between six months and 18 months, but shorter and longer terms are available), you may need to plan this right to have funds available for holiday expenses.

•   Money Market Account. A money market account is an interest-bearing account that is federally insured and has competitive interest rates. It generally requires a higher opening deposit.

•   High-yield Savings Account. These high-yield bank accounts earn significantly more interest than standard savings; you may find the best rates at online banks. However, the accessibility of these funds can be a downside. We all know how tempting it can be to transfer money from savings to checking when an unexpected household expense or special occasion comes up.

•   Travel account. Like Christmas accounts, these savings accounts likely won’t pay great interest, but they help you save for your goal. You can pick where to keep travel fund savings, and then use the money to hop on a plane when the holidays roll around.

The Takeaway

Christmas Clubs (or Holiday Club accounts) can spur you on to save regularly for the winter holiday spend. Planning ahead reduces stress. What’s more, setting a savings goal can help you keep your eye on the limit and avoid credit card overspending. But beware of fees for early withdrawals and caps on total amount saved. In some cases, you might be better off with another savings vehicle, like a CD or money market account.

Another option is to stash cash in a high-yield account and earn more interest there.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Do banks still do Christmas Club accounts?

Yes, community banks, smaller banks, and credit unions still offer Christmas Club accounts. Ask at your branch or search the bank’s website.

Are Christmas Club accounts worth it?

Christmas Club accounts generally have low interest rates. However, they can be worthwhile if they help you put money away regularly and thereby avoid a holiday spending blowout using credit cards.

Is there interest on Christmas Club accounts?

Yes, most accounts offer interest. The rates, though, tend to be lower than the interest rates for regular savings accounts, money market accounts, and certificates of deposit (CDs).

Photo credit: iStock/NoSystem images
SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

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