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If you’re asked to insert rather than swipe your credit card when you go to pay, you’re using a chip credit card. A credit card chip is a small gold or silver microprocessor that’s embedded in the card and intended to offer greater security for your transactions.

Credit card chips are growing dominant in the plastic payment market. According to data from Emvco.com, credit card chips — also known as Europay, MasterCard, and Visa (EMV) chips — comprised about 90% of global credit card transactions in 2021. Read on to learn more about how the credit card chip works.

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What Is a Credit Card Chip?

Credit card chips are small microchips embedded in the card that collect, store, and transmit credit card data between merchants, their customers, and participating financial institutions. Each time you use a credit card to make a transaction, these chips generate a unique code that can only be used for that transaction.

Chip credit cards date back to the mid-1990’s, when the three titans of card payment technology — Europay, MasterCard, and Visa — collectively rolled out the first chip-based credit card to the masses. Also known as EMV chips, credit card chips were introduced as a way to enhance payment security over the existing magnetic-strip credit cards.

Today, chip makers are planning huge expansion as chip credit cards continue to grow in popularity. Contactless credit cards are another advancement underway.

Magnetic Strip vs Chip Credit Cards

Magnetic-strip cards hold data on the magnetic strip that appears on the back of payment cards. Because these strips hold all of a cardholder’s information needed to make a purchase, this type of card is an easy target for thieves.

With industry-wide concerns over data fraud linked to magnetic stripe cards, credit card companies turned to advanced computer microchips as a solution to credit card data security problems, using EMV technology.

Chip-based payment cards have a big advantage over magnetic-strip cards, as each card payment transaction generates a unique data code. Because the chip’s code is a “one-and-done” feature that disappears after the transaction is completed, even if data fraud criminals uncover the code, they can’t use it for future transactions.

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How Does a Chip Credit Card Work?

Chip credit cards don’t work on a standalone basis. Merchants who want to conduct card payment transactions need payment processing tools, like card terminals and mobile scanners, that are compliant with EMV chip industry standards.

When a consumer inserts a chip credit card into a payment terminal (unlike with a contactless payment), and follows the on-screen prompts to complete the transaction, the chip and the terminal exchange the needed data in an encrypted code. That code is then used to transmit the transaction details to the acquiring bank, which quickly reviews the transaction.

After the cardholder’s financial data is authenticated and it’s determined the consumer has the funds to cover the purchase, the payment software may run fraud filters to further authenticate the user and the transaction.

Then, the transaction is approved by the acquiring bank (or declined if the consumer doesn’t have the funds to cover the purchase, or if fraudulent activity is suspected). The appropriate transaction confirmation codes are relayed back to the EMV payment device in real time, thus concluding the transaction.

Assuming the transaction is approved, the embedded card chip transmits the approval to the cardholder’s bank, which releases funds to pay for the transaction and sends it to the acquiring bank. The transaction is then settled by the merchant’s payment provider and deposited into the merchant’s bank account.

Types of EMV Cards: Chip-and-Signature vs Chip-and-PIN

There are two main types of chip-based cards:

1.    Chip-and-signature cards: The most widely used form of EMV card in the U.S. is the chip-and-signature card. With these, the cardholder simply inserts the card into the point-of-sale terminal and then provides their signature to verify the transaction.

2.    Chip-and-PIN cards: With a chip-and-PIN card, the cardholder is asked to enter a four-digit PIN, or personal identification number, at the point-of-sale. That process authenticates the user and allows for the card transaction process to be completed.

While each type of chip-based payment card model serves the same function — the safe and efficient completion of a transaction — chip-and-pin cards may be the safer alternative.

That’s because with a chip-and-signature card, the cashier or front-of-the-store service provider may not ask to see the back of the card to manually authenticate the signature. That gives fraudsters a leg up, since their signatures may not be checked. With a chip-and-pin card, on the other hand, the thief would need to know the credit card PIN to complete a transaction.

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Protecting Yourself From Credit Card Fraud

While chip-based credit and debit cards have been a game-changer in improving payment security, card thieves still have ways to either steal your card or lift sensitive personal data from a payment card.

Here are some ways you can protect yourself against credit card fraud:

•   Review your card statements. One of the important credit card rules to follow is checking your card statements regularly for potential security issues. If something looks suspicious, immediately contact your credit card issuer. In the case of unauthorized charges, report the fraudulent activity and follow the steps recommended by the card company, which could include freezing the card temporarily or getting a new card.

•   Keep physical possession of the card at all times. A cardholder’s best defense against physical card theft is to always know where their card is and only carry it when needed. It’s also a good idea to avoid storing your card account number on a digital device — particularly sensitive information like the credit card CVV number — that could be stolen by a savvy cyber thief.

•   Shred any documents that contain sensitive information. To further protect your account information, shred physical payment card files that include your credit card or account number once you’ve paid your monthly bill. Better yet, sign up for paperless billing, so there’s no paper trail at all.

•   Watch out for email scams. Steer clear of “phishing” scams, i.e., fraudulent emails or texts pretending to be from trusted retailers and financial institutions. If you receive an email requesting sensitive information, reach out to the company directly using the contact information listed on their website or on the back of your card.

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The Takeaway

As you can see, the introduction of credit card chips has greatly increased the security of credit card transactions. Credit card chips generate a unique code for each transaction, and that code cannot be used for future transactions. This makes it harder for thieves to intercept your personal data — though that doesn’t mean credit card fraud isn’t still possible.

When choosing a credit card, it’s important to consider the security features the card offers alongside other perks, like cash-back rewards. The SoFi credit card, for instance, offers Mastercard ID theft protection to help protect your personal information through the detection of potential fraud.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.¹

Take advantage of this offer by applying for a SoFi credit card today.

FAQ

What is the chip on credit cards?

A credit card chip is a microchip embedded into a credit or debit card that securely stores transaction data. This helps to facilitate safe and efficient payment card transactions.

Are chip-and-signature cards as safe as chip-and-PIN cards?

Not necessarily. That’s because the merchant may not verify the signature provided against the one on the back of the card. This means it may be easier for thieves to get away with signing on behalf of the actual cardholder. It’s likely more difficult for a thief to get ahold of a cardholder’s PIN.

Do all retailers accept EMV cards?

A high percentage of global retailers accept chip-based credit and debit cards. Industry figures show that EMV chip cards comprised roughly 90% of the global credit card transaction market in 2021.

Is dipping or contactless credit cards safer?

Both are secure ways to make transactions. That’s because both contactless and chip credit card transactions generate a new transaction code for each purchase.

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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.

The SoFi Credit Card 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.

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.

¹Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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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.

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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 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.

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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 APR for the check amount.

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

•   You’ll have fewer legal 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.

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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 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, there’s a greater chance 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 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 starting a side gig, like tutoring, for some additional income.

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The Takeaway

A convenience check can be a fast way to access cash in hand 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.

If you need access to credit, consider applying for a SoFi credit card. It offers up to 2% cash back rewards for every dollar spent on eligible purchases. Cardholders earn 1% cash back rewards when redeemed for a statement credit.¹ Plus, if you make on-time payments of at least the minimum amount over a 12-month period, SoFi lowers your APR by 1%.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.¹

Take advantage of this offer by applying for a SoFi credit card today.

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 fees.

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’d 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.

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¹See Rewards Details at SoFi.com/card/rewards.

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.

The SoFi Credit Card 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.

¹Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

Photo credit: iStock/Ivan Pantic
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After reviewing a credit card statement, it might be tempting to just throw it away to cut down on clutter. But sometimes, there’s good reason to hold onto credit card statements.

There’s no hard-and-fast rule regarding how long to keep credit card statements, However, there are some helpful timelines worth keeping in mind for different situations. Keep reading for more insight if you’re wondering how long you should keep credit card statements.

Why Should You Keep Your Credit Card Statements?

It’s fair to wonder, why should I keep my credit card statements and how long should I keep credit card statements? Let’s start with the why.

Aside from 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 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 someone needs to review them for errors or signs of fraud. It’s easy to miss mistakes when quickly reading a credit card statement while sorting the mail and checking for when credit card payments are due.

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. It can also cost money to get a copy of an older statement.

Factors That Determine How Long to Keep Credit Card Statements

So, how long should you keep credit card statements? Like the rules around keeping financial documents in general, it depends on each consumer’s unique needs. That being said, a good rule of thumb is to at least hold onto them until it’s time to prepare taxes for the year — especially if you hope to deduct expenses and may need help confirming them.

If someone does use their credit card statements to help them prepare their taxes, they should hold onto them for at least seven years just in case the IRS 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 look at how the two groups can answer the question: How long do you keep credit card statements?

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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 someone buys 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 potential tax issues that may arise.

When You Should Keep Credit Card Statements Longer

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

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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 someone downloads a digital copy of their statement, they can store them in a password-protected file on their 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 someone is ready to dispose of their 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.

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The Takeaway

How long someone should keep their credit card statements depends on their unique needs. If someone has extended warranties through their credit card issuer, they may keep them for the length of their warranty in case they need a reference. Or, if someone uses the statements to help them with their 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. Looking for a new credit card? The SoFi Credit Card offers unlimited 2% cash back rewards on eligible purchases, and charges no foreign transaction fees. Cardholders earn 1% cash back rewards when redeemed for a statement credit.¹

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.¹

Take advantage of this offer by applying for a SoFi credit card today.

FAQ

How can I get old credit card statements?

If someone didn’t save their old credit card statements, they can look for them in their online account or can call their credit card issuer to request them.

Do you need to keep credit card receipts?

The ideal timeline for how long to keep credit card statements depends on the individual’s needs. It can be a good idea to keep old credit card statements for up to seven years if someone is going to use them for tax purposes. Holding onto them for at least one year is helpful when it comes time to review spending habits and create a budget.

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

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

How can you keep digital credit card statements safely?

If someone downloads a digital copy of their 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.

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¹See Rewards Details at SoFi.com/card/rewards.

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.

The SoFi Credit Card 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.

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.

¹Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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The average American household carrying a credit card balance has over $5,500 in credit card debt in 2021. But how do you pay off credit card debt? One method to consider: taking out a personal loan.

By taking out a personal loan to pay off credit cards, you can use the funds from the loan to pay off your credit card debt. In turn, this will consolidate your multiple credit card payments into one monthly debt payment and potentially allow you to secure a lower interest rate. Still, there are pros and cons to consider if you’re thinking about getting a personal loan to pay off credit cards. Read on to learn more.

How Using a Personal Loan to Pay Off Credit Card Debt Works

Personal loans are a type of unsecured loan. There are a number of uses of personal loans, including paying off credit card debt. Loan amounts can vary by lender and will be paid to the borrower in one lump sum after the loan is approved. The borrower then pays back the loan — with interest — in monthly installments that are set by the loan terms.

Many unsecured personal loans come with a fixed interest rate that won’t fluctuate or change over the life of the loan, though there are different types of personal loans. An applicant’s interest rate is determined by a set of factors, including their financial history, credit score, income, and other debt, among other factors. Typically, the higher an applicant’s credit score, the better their interest rate will be, as the lender may view them as a less risky borrower. Lenders may offer individuals with low credit scores a higher interest rate, presuming they are more likely to default on their loans.

When using a personal loan to pay off credit card debt, the loan proceeds are used to pay off the cards’ outstanding balances, consolidating the debts into one loan. This is why it’s also sometimes referred to as a debt consolidation loan. Ideally, the new loan will have a much lower interest rate than the credit cards. By consolidating credit card debt into a personal loan, a borrower’s monthly payments can be more manageable and cost considerably less in interest.

Finally, using an unsecured personal loan to pay off credit cards also has the benefit of ending the cycle of credit card debt without resorting to a balance transfer card. Balance transfer credit cards offer an introductory rate that’s lower or sometimes even 0%. This might seem like an appealing offer. But if the balance isn’t paid off before the promotional offer is up, the cardholder could end up paying an even higher interest rate than they started with. Plus, balance transfer cards often charge a balance transfer fee, which could ultimately increase the total debt someone owes.

Understanding Credit Card Debt vs. Personal Loan Debt

At the end of the day, both credit card debt and personal loan debt are both simply money owed. However, personal loan debt is generally less costly than credit card debt. This is due to the interest rates typically charged by credit cards compared to those of personal loans.

The average credit card interest rate is nearly 17% APR. Meanwhile, the average personal loan rate is 9.41%, according to the Federal Reserve. Given this difference in average interest rates, it can cost you much more over time to carry credit card debt, which is why taking out a personal loan to pay off credit cards can be an option worth exploring.

Keep in mind, however, that the rate you pay on both credit cards and personal loans is dependent on your credit history and other financial factors.

Taking Out a Loan to Pay Off Credit Card Pros and Cons

While on the surface it may seem like taking out a personal loan to pay off credit card debt could be the best solution, there are some potential drawbacks to consider as well. Here’s a look at the pros and cons:

Pros	Cons
Potential to secure a lower interest rate: Personal loans may charge a lower interest rate than high-interest credit cards. Consider the average interest rate for personal loans is under 10%, while credit cards charge an APR over 16% on average.	Lower rates aren’t guaranteed: If you have poor credit, you may not qualify for a personal loan with a lower rate than you’re already paying. In fact, it’s possible lenders would offer you a loan with a higher rate than what you’re paying now.
Streamlining payments: When you consolidate credit card debt under a personal loan, there is only one loan payment to keep track of each month, making it less likely a payment will be missed because a bill slips through the cracks.	Loan fees: Lenders may charge any number of fees, such as loan origination fees, when a person takes out a loan. Be mindful of the impact these fees can have. It’s possible they will be costly enough that it doesn’t make sense to take out a new loan.
Pay off debt sooner: A lower interest rate means there could be more money to direct to paying down existing debt, potentially allowing the debtor to get out from under it much sooner.	More debt: Taking out a personal loan to pay off existing debt is more likely to be successful when the borrower is careful not to run up a new balance on their credit cards. If they do, they’ll potentially be saddled with more debt than they had to begin with.
Credit score boost: It’s possible that taking out a personal loan could boost the borrower’s credit score by increasing their credit mix and lowering their credit utilization by helping them pay down debt.	Credit score dip: If closing the now-paid-off credit cards after taking out a personal loan is a temptation, perhaps reconsider doing so. Closing credit accounts that have been on a person’s credit report for some time could shorten their length of credit history and possibly negatively affect their credit score.

How Frequently Can You Use Personal Loans to Pay Off Credit Card Debt?

Taking out a personal loan to pay off credit cards isn’t a habit you should get into. Ideally, it will serve as a one-time solution to dig you out of your credit card debt.

Applying for a personal loan will result in a hard inquiry, which temporarily lowers your credit score. If you apply for new loans too often, this could not only drag down your credit score but also raise a red flag for lenders.

Additionally, if you find yourself repeatedly reamassing credit card debt, this is a signal that it’s time to assess your financial habits and rein in your spending. Although a personal loan to pay off credit cards can certainly serve as a lifeline to get your financial life back in order, it’s not a habit to get into as it still involves taking out new debt.

So You’ve Decided to Apply for a Personal Loan to Pay Off a Credit Card. Now What?

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

Getting the Whole Picture

It can be scary, but getting the hard numbers — how much debt is owed overall, how much is owed on each specific card, and what the respective interest rates are — can give you a sense of what personal loan amount might be helpful to pay off credit cards.

Choosing a Personal Loan to Pay off Credit Card Debt

These days, you can do most — or all — personal loan research online. A personal loan with an interest rate lower than the credit card’s current rate is an important thing to look for. Origination fees, which can add to a person’s overall debt and possibly throw off their payoff plan, is another thing to watch out for.

Paying Off the Debt

Once an applicant has chosen, applied for, and qualified for a personal loan, they’ll likely want to immediately take that money and pay off their credit card debt in full.

Be aware that the process of receiving a personal loan may differ. Some lenders will pay off the borrower’s credit card companies directly, while others will send the borrower a check that they’ll then have to deposit and use to pay off the credit cards themself.

Hiding Those Credit Cards

One potential risk of using a personal loan to pay off credit cards is that it can make it easier to accumulate more debt. The purpose of using a personal loan to pay off credit card debt is to keep from repeating the cycle.
Consider taking steps like hiding credit cards in a drawer and trying to use them as little as possible.

Paying Off Your Personal Loan

A benefit of using a personal loan for debt consolidation is that there is only one monthly payment to worry about instead of several. Not missing any of those loan payments is important — setting up a monthly reminder or alert can be helpful.

Budgeting Debt Payoff

Before embarking on paying off credit card debt, a good first step is making a budget, which can help a person better manage their spending. They might even find money in their budget to put toward that outstanding debt.

If a person has more than one type of debt — for instance, a mortgage, student loan, and maybe a car loan — they may want to think strategically about how to tackle them. Some finance gurus recommend taking on the debt with the highest interest rate first, a strategy known as the avalanche method. As those high-interest-rate debts are paid off, there is typically more money in the budget to pay down other debts.

Another approach, known as the snowball method, is to pay off the debts with the smallest balances first. This method offers a psychological boost through small wins early on, and over time can allow room in the budget to make larger payments on other outstanding debts.

Of course, for either of these strategies, keeping current on payments for all debts is essential.

Where Can You Get a Personal Loan to Pay off Credit Cards?

If you’ve decided to get a personal loan to pay off credit cards, you’ll next need to decide where you can get one. There are a few different options for personal loans: online lenders, credit unions, and banks.

Online Lenders

There are a number of online lenders that offer personal loans. Many offer fast decisions on loans, and you can often get funding quickly as well.

While securing the lowest rates often necessitates a high credit score, there are online lenders that offer personal loans for those with lower credit scores. Rates can vary widely from lender to lender, so it’s important to shop around online lenders to find the most competitive offer available to you. Be aware that lenders also may charge origination fees.

Credit Unions

Another option for getting a personal loan to pay off credit cards is through credit unions. You’ll need to be a member in order to get a loan from a credit union, which means meeting membership criteria. This could include working in a certain industry, living in a specific area, or having a family member who is already a member. Others may simply require a one-time donation to a particular organization.

Because credit unions are member-owned nonprofits, they tend to return their profits to members through lower rates and fees. Additionally, credit unions may be more likely to lend to those with less-than-stellar credit because of their community focus and potential consideration of additional aspects of your finances beyond just your credit score.

Banks

Especially if you already have an account at a bank that offers personal loans, this could be an option to explore. Banks may even offer discounts to those with existing accounts. However, you’ll generally need to have solid credit to get approved for a personal loan through a bank, and some may require you to be an existing customer.

You may be able to secure a larger loan through a bank than you would with other lenders.

Recommended: Credit Unions vs. Banks

Ready for a Personal Loan to Pay Off Credit Card Debt? Use SoFi Today!

SoFi personal loans have low interest rates and fixed monthly payments, which can be helpful when paying off high-interest debt. The online application is quick — find your rate in just one minute without any commitment to continue. If you’re approved, the funds are deposited directly into your account.

The Takeaway

High-interest credit card debt can be a huge financial burden. If a person is only able to make minimum payments on their credit cards, their debt will continue to increase, and they’ll find themselves in a vicious debt cycle. Personal loans are one potential way to end that cycle, allowing you to pay off debt in one fell swoop and hopefully replace it with a single, more manageable loan.

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

Ready to get rid of your credit card debt? Check your rate on a SoFi personal loan in just 1 minute.

FAQ

Can you use a personal loan to pay off credit cards?

Yes, it is possible to use a personal loan to pay off credit cards. After securing a personal loan, you will use the loan proceeds to pay off your existing credit card debt. Then, you will begin making payments to repay the personal loan.

How is your credit score impacted if you use a personal loan to pay off credit cards?

When you apply for a personal loan, the lender will conduct what’s known as a hard inquiry. This will temporarily lower your credit score. However, if you make on-time payments, and if taking out a personal loan improves your credit mix, your credit score can bounce back over time.

What options are available to pay off your credit card?

Taking out a personal loan to pay off credit cards is certainly an option, but it’s not your only choice. You can also pay off credit card debt with a balance transfer credit card, by exploring a debt payoff strategy like the snowball or avalanche methods, or by consulting a credit counselor or enrolling in a debt management plan.

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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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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

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It may seem to you that droves of college students collect diplomas every year, but how many students actually start college and graduate — at the same college?

The most recent data from the U.S. Department of Education National Center for Education Statistics (NCES) reported in 2019 that the overall six-year graduation rate for bachelor’s degree-seeking full-time undergraduate students at four-year degree-granting institutions in fall 2013 was 63%.

Graduation rates refer to the percentage of a school’s students who complete their program within 150% of the published time for the program. It’s important not to confuse graduation rates with retention rates, which refer to the percentage of students who continue at a particular school the next year. In other words, the retention rate is the percentage of students who finish their first year and return for a second year.

We’ll walk through what the college graduation rate can tell you about a school, why it’s important, as well as outline a good graduation rate. We’ll also break down graduation rates by state and colleges (from lowest to highest), discuss some reasons that students might not graduate, and how to overcome some of these obstacles.

What Does the College Graduation Rate Tell Us?

As a prospective student, understanding the difference between graduation rates and retention rates, you are better prepared to compare these percentages against the schools on your list. Comparing the graduation rate of your first-choice college gives a definite indication of whether the schools fall above or below the average. It’s a quick way to find out how many students finish their degrees “on time” and also tells you the type of institutions that deliver the highest graduation rates. Based on available statistics, private, nonprofit institutions graduate students at a higher rate.

Why Is Knowing the Graduation Rate Important When Selecting a College?

When you’re researching colleges, many different things matter to different students. Athletes may want to know more about their individual athletic programs. English majors may want to know how many professors are published writers.

However, among all the different factors you can research, graduation rate remains one of the most important for all prospective students to understand.

Why? The graduation rate serves as a gauge for many things — student satisfaction and happiness in addition to indicating how many students graduate in a timely manner. However, it’s not the only metric you want to consider when you choose a college. Other priority considerations include teacher-to-student ratio, retention rate, loan default rates, and selectivity.

Two trusted websites compile information on graduation rates: College Navigator and College Results Online.

•  College Navigator : College Navigator compiles information from about 7,000 colleges and universities in the United States. College Navigator breaks down both retention rates and graduation rates on its site, and you can also access these rates by race/ethnicity and gender.

•  College Results Online : College Results Online also lists both rates and retention rates for institutions. You can also cross-index certain peer institutions against each other to compare graduation and retention rates.

What Is a Good Graduation Rate for a College?

The best graduation rates in the U.S. are from schools that have a graduation rate in the 90th percentile, which many of the Ivy League schools have. For example, let’s take a look at a few six-year graduation rates based on College Navigator data:

•  Harvard University: 98%

•  Yale University: 96%

•  Cornell University: 95%

However, you can still find high graduation rates within highly selective liberal arts colleges:

•  Amherst College: 95%

•  Davidson College: 93%

•  Claremont McKenna College: 92%

It’s important to remember that since these highly selective schools only admit students with top-tier credentials, they naturally attract some of the most driven students on the planet, resulting in a high graduation rate.

So, what is a good graduation rate for a college? Does this mean that a college in the 80th or even 70th percentile isn’t a good school or that it isn’t the right school for you? Absolutely not. As mentioned before, other factors play into the mix as well, based on your personal preferences and interests. The right fit for you may be a school with a 70% graduation rate. The better the fit, the more likely you will graduate on time.

Lowest Graduation Rate College in the United States

Unfortunately, the college with the lowest graduation rate in the U.S. isn’t a highly popularized statistic. However, if, during your own research, you see a school that graduates at or below 60%, you may want to probe your admissions counselor at the college for the reasons why rates are so low and find out more about how the college plans to improve.

Average College Graduation Rate in the United States

When digging a bit more into the 2019 NCES report, it states that the average college graduation rate (more specifically, the six-year graduation rate) was:

•  62% at public institutions

•  68% at private nonprofit institutions

•  26% at private for-profit institutions

Overall, 60% of males and 66% of females graduate within six years, and females had a higher six-year graduation rate at the following types of institutions:

•  Public institutions (65% female vs. 59% male)

•  Private nonprofit institutions (71% female vs. 64% male)

However, at private for-profit institutions, males had a higher six-year graduation rate than females (28% vs. 25%).

How does the U.S. Department of Education arrive at this data? The NCES uses Integrated Postsecondary Education Data System (IPEDS), a system of interrelated surveys conducted annually by NCES through institutions.

The IPEDS graduation rate is calculated like this:

Graduation Rate =
Number of students who completed their program within a specific percentage of normal time to completion / Number of students in the entering cohort

College Graduation Rates by State

Here are the college graduation rates by state, according to World Population Review :

State	College Completion (or Higher)
Massachusetts	44%
Colorado	41%
New Jersey	40%
Maryland	40%
Virginia	39%
Connecticut	39%
Vermont	38%
New York	37%
New Hampshire	37%
Washington	36%
Minnesota	36%
Illinois	35%
Utah	34%
Rhode Island	34%
Oregon	34%
California	34%
Kansas	33%
Hawaii	33%
Nebraska	32%
Montana	32%
Maine	32%
Delaware	32%
Pennsylvania	31%
North Carolina	31%
Georgia	31%
Wisconsin	30%
Texas	30%
North Dakota	30%
Florida	30%
Arizona	30%
Alaska	30%
South Dakota	29%
Missouri	29%
Michigan	29%
Iowa	29%
South Carolina	28%
Ohio	28%
Idaho	28%
Wyoming	27%
Tennessee	27%
New Mexico	27%
Indiana	27%
Oklahoma	26%
Alabama	26%
Nevada	25%
Louisiana	24%
Kentucky	24%
Arkansas	23%
Mississippi	22%
West Virginia	21%

Number of College Graduates in the 21st Century

In the past 20 or so years, the number of college graduates has increased. According to information published by Education Data , in 2001 approximately 1.24 million students graduated from college with a bachelor’s degree. In 2018, that number reached 1.98 million.

Reasons Why College Students Don’t Graduate

When looking at graduation rates, let’s turn the tables a bit and take a look at a few reasons why students might not graduate. Depending on the student, these could include things like the high cost of tuition, trying to balance work and school, or poor academic performance.

Cost

The increasing price tags aren’t a new reason that students leave school. When it gets too expensive, they may feel they have no way out. According to the National Association of School and Financial Aid Administrators (NASFAA) , an analysis of 2,000 colleges and 10 theoretical students found that 48% of families with annual incomes above $160,000 could afford the colleges on the list. Those with a family income over $100,000 could afford more than one-third of the colleges. Finally, the theoretical students from lower-income backgrounds could only afford up to 5% percent of the colleges.

Recommended: What is the Average Cost of College Tuition? 

Balancing Work and School

Many undergraduates work part-time jobs to help pay their way through college. Students often get stuck in the quagmire of trying to keep up with both work and school, which can be a challenging balancing act. Many seasonal jobs for college students exist, which means you might be able to get a job during the summer instead of working during the school year.

Transferring

Transferring colleges sometimes means some credits get lost in translation. When transfer students are forced to retake classes, it not only costs more financially, but they also have to spend extra time pursuing their degree. This sometimes means that students often face trouble getting enough credits to graduate.

Poor Grades

Sometimes, students simply can’t make the grades. Even if it happens during just one semester, it can cause students to shy away from college altogether. In particular, first-generation college students, those who are low-income students, as well as minority students, are vulnerable and question whether they really belong in college.

Being Denied a Student Loan

Being denied a student loan or other types of financial aid can be a huge deterrent to continuing on in college. However, remember that there are ways around it — including seeking a loan through a different lender.

Recommended: I Didn’t Get Enough Financial Aid: Now What?

Overcoming the Obstacles as a College Student

What can you do to overcome the obstacles and successfully graduate from college? Let’s find out. We’ll list a few things you can do to help you stay the course:

•  Get organized with everything — school work, athletics, homework, and more.

•  Get support from family and friends.

•  Create healthy habits. Eat nutrient-dense meals, get enough sleep, and stay healthy.

•  Carefully consider the best ways to pay for college and focus on managing your money.

•  Get to know professors and academic support professionals at your college or university.

•  Work on your time management skills so you have the time you need for important assignments.

•  Take care of your mental health. If you are struggling to balance the many priorities of being a college student, reach out to family or friends for help. If you need additional support, contact your campus’ health and wellness center to see what counseling resources are available to students.

•  Investigate transfer options early on if you attend a community college so you know how to make the transition smoother.

Recommended: FAFSA Guide

Ways to Fund College

Making sure you have a concrete plan to pay for college is one of the best ways to make sure you successfully graduate. Let’s walk through a few tips for making sure you have all your ducks in a row.

•  Fill out the Free Application for Federal Student Aid (FAFSA®).
This is the first step in applying for federal financial aid, including grants, scholarships, and low-interest-rate federal student loan options.

•  Search for scholarships. Ask the college or university you plan to attend about scholarships they offer. Don’t forget to search around in your community as well.

•  Get a work-study job. If you qualify for work-study this can be an opportunity to earn a bit of money for college expenses. This is a federal program in which you earn money and your school pays you for that work via a check, usually every week, every two weeks, or every month.

•  Look into private loans. If you need to fill the gap between scholarships, grants, and federal student loans, look into private loans to help you make it across the graduation stage. These may lack the borrower protections afforded to federal student loans (like deferment options or income-driven repayment plans) and are therefore generally only considered after other financing sources have been exhausted.

Recommended: The Differences Between Grants, Scholarships, and Loans

The Takeaway

A school’s graduation rate is a reflection of the percentage of students that graduate within 150% of the published time frame. This is different from a school’s retention rate which is a measurement of how many students remain at a school from year to year. A school’s graduation rate can be an informative benchmark as you evaluate and compare schools during the application process.

If you are a current college student, you can do a lot to make sure you stay the course, including taking care of yourself, using scholarships and grants to your advantage, getting academic help, and making sure (if needed) that you have the right private loans to make it all happen.

Ready to find private student loans to make sure you get to throw your cap at graduation? Visit SoFi and learn more about private student loans and the low rates we have to offer. Our friendly experts can also help you decide your best course of action.

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Photo credit: iStock/digitalskillet

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

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Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs. SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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.

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.

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