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Conventional loans — mortgages that are not insured by the federal government — are the most popular type of mortgage and offer affordability to homebuyers.

Private mortgage lenders originate and fund conventional loans, which are then often bought by Fannie Mae and Freddie Mac, publicly traded companies that are run under a congressional charter.

By buying and selling these mortgages, Fannie and Freddie help to ensure a reliable flow of mortgage funding.

Requirements for Conventional Loans

It can be confusing to know how to qualify for a mortgage.

Just realize, for one thing, that a higher credit score is usually required for a conventional home loan than for an FHA loan backed by the Federal Housing Administration, a type popular among first-time homebuyers.

Here are factors a lender will consider when sizing you up for a conventional loan.

Credit Score

You’ll usually need a FICO credit score of at least 620 for a fixed-rate or adjustable-rate mortgage.

The FICO score range of 300 to 850 is carved into these categories:

•   Exceptional: 800 to 850

•   Very Good: 740 to 799

•   Good: 670 to 739

•   Fair: 580 to 669

•   Poor: 300 to 579

In general, the higher your credit score, the better the interest rate you’ll be offered.

Down Payment

Putting 20% down is desirable because it means you can avoid paying for PMI, or private mortgage insurance, which covers the lender in case of loan default.

But many buyers don’t put 20% down. The median down payment on a home for first-time buyers is 10%, according to a recent study by the National Association of Realtors®.

Conventional loans require as little as 3% down for first-time homebuyers, and the down payment can be funded by a gift from a close relative; a spouse, fiancé or domestic partner; a buyer’s employer or church; or a nonprofit or public agency. The gift may require a gift letter for the mortgage.

Just keep in mind that the smaller the down payment, the higher your monthly payments are likely to be, and PMI may come along for the ride until you reach 20% equity.

Debt-to-Income Ratio

Your debt-to-income (DTI) ratio helps a lender understand your ongoing monthly debt obligations relative to your gross monthly income.

To calculate back-end DTI:

1.    Add up your monthly bills (but do not include groceries, utilities, cellphone bill, car insurance, and health insurance).

2.    Divide the total by your pretax monthly income.

3.    Multiply by 100 to convert the number to a percentage.

In general, lenders like to see a DTI ratio of 36% but will accept 43%.

The Fannie Mae HomeReady® loan, for lower-income borrowers, may allow a DTI ratio of up to 50%.

In any case, the lower your DTI ratio, the more likely you are to qualify for a mortgage and possibly better terms.

Loan-to-Value Ratio

The loan-to-value ratio (LTV) is the amount of the mortgage you are applying for compared with the home value. The higher the down payment, the lower the LTV ratio.

Fannie Mae typically sets LTV limits at 97% for a fixed-rate mortgage for a principal residence (think: 3% down) and 85% for a fixed-rate or adjustable-rate loan for a one-unit investment property.

When LTV exceeds 80% on a conforming loan, PMI will likely apply, although some borrowers employ a piggyback loan to avoid mortgage insurance.

Conventional Conforming Loan Limits

Many loans are both conventional and conforming — meaning they meet the guidelines of secondary mortgage market powerhouses Fannie Mae and Freddie Mac, which buy such mortgages and often package them into securities for investors.

Conventional conforming loans fall below limits set by the Federal Housing Finance Agency (FHFA) every year. Staying under a conforming loan limit often equates to a lower-cost mortgage because the loan can be acquired by Fannie and Freddie.

The conforming loan limits for 2026 in many counties in the contiguous states, Washington, D.C., and Puerto Rico rose with market prices:

•   One unit: $832,750

•   Two units: $1,066,250

•   Three units: $1,288,800

•   Four units: $1,601,750

In high-cost areas like Alaska, Hawaii, Guam, and the U.S. Virgin Islands, the 2026 conforming loan limits are:

•   One unit: $1,249,125

•   Two units: $1,599,375

•   Three units: $1,933,200

•   Four units: $2,402,625

If you’re curious about your county’s specific conforming loan limits, you can check out this FHFA guide.

Nonconforming Loans

Word games, anyone? Nonconforming loans are simply mortgages that do not meet Fannie and Freddie standards for purchase. They usually take the form of jumbo loans and government-backed loans.

A homebuyer or refinancer who needs a mortgage beyond the FHFA limits can seek a jumbo mortgage loan. A jumbo loan is still a conventional loan if it’s not backed by a government agency; it’s just considered a “nonconforming” loan.

FHA, VA, and USDA mortgages — those backed by the Federal Housing Administration, Department of Veterans Affairs, and the U.S. Department of Agriculture — are also nonconforming loans.

Nonconforming mortgage rates for jumbo loans may be higher because the loans carry greater risk for lenders, but when the nonconforming loan is backed by the government, its rate might skew lower than conventional conforming rates.

The Takeaway

Conventional loan requirements are good to know when you’re looking at the most popular type of mortgage around. Would-be homebuyers will want to make sure their credit score, debt-to-income ratio, and down payment numbers are lined up as favorably as possible before pursuing their dream property.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Are there any drawbacks to a conventional loan?

The main drawback to a conventional loan is that you will need to make some type of down payment on the property. It doesn’t need to be the 20% down payment that was common in decades past. But even a low down payment of, say, 3.5% could add up to tens of thousands of dollars given today’s home prices.

What’s the main reason I might not qualify for a conventional loan?

The most common reason someone might not qualify for a conventional home loan is usually related to credit — perhaps the applicant has a credit score below 620, or maybe there is some other significant warning sign on the credit report, such as a history of delinquencies or bankruptcy.

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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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. ^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency. ^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency. Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
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.

SOHL-Q126-022

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There are two basic types of income: earned and unearned. Earned income is the money you make from working, and unearned income is money you receive that isn’t tied to a business or job.

The difference between these two types of income is critical when saving for retirement and paying taxes. Here’s what you need to know about each of them as well as how they affect your finances.

What Is Unearned Income?

Unearned income is a type of passive income. It’s money you make without working or performing some kind of professional service. For example, money you receive from investing, such as dividends, interest, and capital gains, is unearned income.

Other types of unearned income include:

•   Retirement account distributions from a 401(k), pension, or annuity

•   Money you received in unemployment benefits

•   Taxable social security benefits

•   Money received from the cancellation of debt (such as student loans that are forgiven)

•   Distributions of any unearned income from a trust

•   Alimony payments

•   Gambling and lottery winnings

Dividends from investments in the stock market and interest are two of the most common forms of unearned income. Dividends are paid when a company shares a portion of its profits with stockholders. They may be paid monthly, quarterly, semiannually, or annually.

Interest is usually generated from interest-bearing accounts. These include savings, checking, and money market accounts as well as certificates of deposit (CDs).

How Is Earned Income Different From Unearned Income?

Earned income is the money you make from a job. Any money you earn from an employer, including wages, fees, and tips from which income taxes are withheld, counts as earned income.

Those wages still count as earned income if you’re part of the freelance economy and the companies you work for don’t withhold taxes. They could include wages earned for professional or creative services, driving for a rideshare service, or running errands.

Money you make from self-employment — if you own your own business, for example — also counts as earned income, as does money you earn from a side hustle.

Other types of earned income include benefits from a union strike, disability benefits you receive before you reach full retirement age, and nontaxable combat pay. This guide can help you learn about all the different types of income.

You can keep tabs on all the types of income you have by tracking your checking, savings, investment, and retirement accounts in one place with an online money tracker. It allows you to organize your accounts on a single dashboard and monitor your credit score and budget to achieve your financial goals.

How Income Types Affect Taxes

All earned income is taxed at your usual income tax rate. Taxes on unearned income are more complicated and depend on the type of unearned income you have, including the following.

Interest

Interest, which is unearned income from financial instruments such as bank accounts and CDs, is taxed the same as earned income.

Dividends

Dividends from investments fall into two categories: qualified and nonqualified. Generally, qualified dividends are those paid to you by a company in the U.S. or a qualified foreign company and are taxed at a lower rate. Nonqualified dividends don’t meet IRS requirements to qualify for the lower tax rate and are taxed at the same rate as ordinary income.

Capital Gains

Investments that are sold at a profit are subject to capital gains taxes. If you held the investment for less than a year, your earnings are subject to short-term capital gains rates, which are equal to your regular income tax rate. If you kept the investment for a year or more, it’s subject to long-term capital gains rates, which means it will be taxed at 0%, 15%, or 20%, depending on your taxable income and filing status. The higher your taxable income is, the higher your rate will be.

Social Security

If your income is more than $25,000 a year for individuals or $32,000 a year for married couples filing jointly, you will pay federal income tax on a portion of your Social Security benefits. You’ll be taxed on up to 50% of your benefits if your income is between $25,000 and $34,000 for an individual or $32,000 to $44,000 for a married couple, and you’ll be taxed on up to 85% of your benefit if your income is more than that.

Alimony

As a result of the Tax Cuts and Jobs Act of 2017, alimony payments that are part of divorce agreements made after January 1, 2019, are not taxable by the person who is paying the alimony, nor are they taxable for the person receiving the alimony.

Gambling Winnings

Money earned from gambling, including winnings from casinos, lotteries, raffles, and horse races, is fully taxable. This applies to cash and to prizes such as vacations and cars, which are taxed at their fair market value.

Debt Cancellation

If you have a debt canceled or forgiven for less than the amount you were required to pay, the canceled debt is taxable, and you must report it on your tax return. Starting in 2026, this includes the forgiven amount of certain federal student loans. There are exceptions: Public Service Loan Forgiveness, Teacher Loan Forgiveness, and Death and Disability Discharge are still tax-free. Debt payoff planning can help you resolve any outstanding debts you may have.

How Earned vs. Unearned Income Affects Retirement Savings

Retirement accounts, including 401(k)s, IRAs, and the Roth versions of both, provide tax advantages that help boost the amount that you can save.

For example, 401(k) contributions are made with pre-tax dollars, which can then be invested in the account. The investments are allowed to grow tax-deferred until withdrawals are made in retirement, at which point they become subject to income tax. In contrast, your contributions to Roth accounts are made with after-tax dollars. These increase tax-free, and withdrawals made in retirement are not subject to income tax.

Retirement accounts can only be funded with earned income. You can’t use unearned sources of income to make contributions.

There are certain exceptions to this rule. If you’re married and you file a joint return with your spouse and you don’t have taxable compensation, you may be able to contribute to an IRA as long as your spouse did have taxable compensation.

The Takeaway

The difference between earned income and unearned income is an important distinction, especially when it comes to paying your taxes. Unearned income, which is income you make not from a job but through other means, such as investments, can be taxed at different rates, depending on its type. Make sure you understand yours and their tax implications. Doing so can significantly impact how you save for your future.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

SoFi helps you stay on top of your finances.

FAQ

What is the difference between earned and unearned income?

Earned income is cash or in-kind benefits people receive in exchange for work or service, including employment and self-employment. Unearned income is cash or in-kind benefits received without being required to perform work or services.

Why do I need to know the difference between earned and unearned income?

It’s important to understand the difference between earned and unearned income because the two may be taxed differently. Also, in most cases, you must use earned income to fund your retirement accounts.

What is an example of unearned income?

Unearned income is money you receive without working for it. Interest, such as that from a bank account, and dividend payments are two of the most common types of unearned income.

Do I have to pay taxes on unearned income?

The answer is yes. Though it’s not subject to employment taxes (such as Social Security and Medicare, and, in most cases, payroll taxes), unearned income is generally treated as taxable income.

How does being a freelancer affect my taxes?

According to the IRS, a self-employed individual is generally required to file an annual income tax return and pay estimated taxes quarterly. You have to file an income tax return if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement.

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*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

SORL-Q126-001

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With the cost of higher education out of reach for many, more young people are flocking to high-paying trade jobs that don’t require a bachelor’s degree. Many of these jobs pay well, but they are typically in high demand due to unpredictable job markets and economic conditions.

What Is a Trade Job?

A trade job is a profession that doesn’t require a college degree, but rather a specialized skill or skill set obtained through a trade school or on-the-job experience and training. Popular trade jobs include construction managers, technicians, dental hygienists, mechanics, commercial pilots, and real estate brokers.

Pros of a Skilled Trade Job

A skilled trade job can be an attractive career path for a couple of reasons:

Educational Requirements

Unlike careers that require a college degree — which can cost hundreds of thousands of dollars and take four years to complete — trade jobs can often be obtained with less than two years of specialized education and at a fraction of the cost. Some trade jobs do not require any supplemental education at all, allowing trade workers to earn a living without being saddled by student loan debt.

Job Security

Many trade jobs are in high demand due to the specialized knowledge and skilled physical labor needed to perform them. They can also have a lower risk of outsourcing or automation because they require a human to be physically present.

Recommended: Is the Average College Tuition Rising?

Cons of a Skilled Trade Job

On the other hand, there are downsides to some trade jobs, including:

Physical Demands

Trade jobs involving physical labor, such as construction workers and mechanics, can take a toll over the course of a long career.

Potential Dangers

Certain trade jobs have high injury and mortality rates, particularly those involving the operation of heavy machinery or working in hazardous environments.

25 Trade Jobs That Make the Most Money

Despite the conventional wisdom that a bachelor’s or master’s degree is required to earn a good salary, trade jobs can pay very well. In fact, some of the highest-paying jobs in certain states are skilled trades.

Here are 25 of the highest-paying trade jobs in the last several years, according to data from the U.S. Bureau of Labor Statistics:

1. Transportation, Storage, and Distribution Manager

•   2024 Median Annual Salary: $102,010

•   Requirements: High school diploma or equivalent, 5+ years of work experience

•   Job Description: Supervise and coordinate the transportation, storage, testing, and shipping of materials or products in accordance with government regulations.

•   Duties:

◦   Supervising workers involved in receiving or shipping

◦   Inspecting warehouse and equipment safety

◦   Analyzing logistics and collaborating with other departments

2. Elevator/Escalator Installers and Repairer

•   2024 Median Annual Salary: $106,580

•   Requirements: High school diploma or equivalent, apprenticeship, license (most states)

•   Job Description: Assemble, install, maintain, and fix elevators, escalators, chairlifts and other moving walkways and equipment. In addition to understanding the mechanics and components of each system, they are typically involved in the physical repair or replacement of parts, as well as testing equipment to ensure it meets specifications.

•   Duties:

◦   Assembling elevators, escalators, and similar units

◦   Conducting preventative maintenance and inspections

◦   Maintaining service records

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3. Nuclear Power Reactor Operator

•   2023 Median Annual Salary: $120,350

•   Requirements: High school diploma or equivalent, long-term on-the-job training, U.S. Nuclear Regulatory Commission license

•   Job Description: Control and maintain the systems that generate and distribute power to businesses, homes, or factories. This can include monitoring and adjusting control rods to moderate the amount of electricity a plant generates, controlling cooling systems, and implementing safety procedures.

•   Duties:

◦   Monitoring voltage and electricity grids

◦   Adjusting control rods and electricity output

◦   Recording systems data

4. Radiation Therapist

•   2023 Median Annual Salary: $98,300

•   Requirements: Associate degree (preferred) or certificate, state and national license

•   Job Description: Administer radiation therapy to patients with cancer.

•   Duties:

◦   Explaining treatment plans to patients

◦   Calibrating and operating radiation machinery

◦   Monitoring patients and keeping records of treatment

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5. Subway and Streetcar Operator

•   2023 Median Annual Salary: $84,270

•   Requirements: High school diploma or equivalent, moderate on-the-job training, local transit training program (varies by location)

•   Job Description: Operate subways and aboveground street cars, ensuring passengers safely move from one location to another.

•   Duties:

◦   Operating train controls

◦   Making announcements and providing verbal directions to passengers

◦   Ensuring passenger safety

6. Nuclear Medicine Technologist

•   2024 Median Annual Salary: $97,020

•   Requirements: Associate degree from an accredited nuclear medicine technology program, state license, long-term on-the-job training

•   Job Description: Prepare and administer radioactive drugs for imaging or treatment, typically within hospitals, medical labs, and care centers.

•   Duties:

◦   Explaining medical procedures to patients

◦   Preparing and administering drugs

◦   Maintaining and operating imaging equipment

7. Gas Plant Operator

•   2023 Median Annual Salary: $82,560

•   Requirements: High school diploma or equivalent, long-term on-the-job training

•   Job Description: Oversee the day-to-day operations of industrial power plants used by utilities, oil and gas, and manufacturing companies.

•   Duties:

◦   Maintaining equipment and machinery

◦   Ensuring compliance with safety and regulatory standards

◦   Supervising employees and contractors at the plant

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8. Dental Hygienist

•   2024 Median Annual Salary: $94,260

•   Education Requirements: Associate degree, state license

•   Job Description: Examine patients for oral diseases and provide preventative care and education about oral hygiene.

•   Duties:

◦   Taking dental x-rays

◦   Assisting dentists in providing teeth cleaning and plaque removal

◦   Educating patients about oral hygiene techniques

9. Diagnostic Medical Sonographer

•   2024 Median Annual Salary: $89,340

•   Requirements: Associate degree, state license or certification (some states)

•   Job Description: Operate sonographs to produce images of the inside of a body to assess and diagnose medical conditions.

•   Duties:

◦   Prepping and administering sonograph exams

◦   Reviewing images and test results for quality

◦   Analyzing diagnostic information and providing summaries for physicians

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10. Electrical Line Installer and Repairer

•   2024 Median Annual Salary: $92,560

•   Requirements: High school diploma or equivalent, long-term on-the-job training

•   Job Description: Install and repair cables or wires used in electrical power systems and telecommunications systems.

•   Duties:

◦   Installing, inspecting, and testing power lines and equipment

◦   Identifying defective devices, transformers, and switches

◦   Installing power lines between buildings and structures

11. Construction Manager

•   2024 Median Annual Salary: $106,980

•   Requirements: High school diploma or equivalent, 5+ years of experience

•   Job Description: Supervise and coordinate the activities of construction workers.

•   Duties:

◦   Overseeing construction projects

◦   Scheduling and supervising on-site contractors

◦   Preparing and monitoring budgets

12. Aircraft and Avionics Equipment Mechanic and Technician

•   2024 Median Annual Salary: $79,140

•   Requirements: Certificate from a Federal Aviation Administration-approved program

•   Job Description: Repair and perform maintenance on aircraft.

•   Duties:

◦   Diagnosing mechanical and electrical issues

◦   Repairing aircraft components

◦   Testing aircraft parts with diagnostic equipment

13. Boilermaker

•   2024 Median Annual Salary: $73,340

•   Requirements: High school diploma or equivalent, apprenticeship

•   Job Description: Assemble, maintain, and repair boilers, vats, and other containers used to hold liquids and gas.

•   Duties:

◦   Reading blueprints to determine where to position boiler parts

◦   Assembling boiler tankers using welding machines

◦   Cleaning boiling vats and replacing broken valves and pipes

14. Wellhead Pumper

•   2023 Median Annual Salary: $71,830

•   Requirements: High school diploma or equivalent, moderate on-the-job training

•   Job Description: Operate power pumps and equipment used to extract oil or gas from an oil field well.

•   Duties:

◦   Assembling pumps and attaching hoses to wellheads

◦   Operating pumps and monitoring flow

◦   Transferring oil to storage tanks or trucks

15. Electrical and Electronic Engineering Technologist and Technician

•   2024 Median Annual Salary: $77,180

•   Requirements: Associate degree (preferred), certificate from accredited program

•   Job Description: Assist electrical engineers with the design and development of communications equipment, computers, medical devices, and other electrical equipment.

•   Duties:

◦   Designing and assembling electrical systems

◦   Observing onsite systems placement and performance

◦   Performing quality control and identifying issues

16. Real Estate Broker and Sales Agent

•   2024 Median Annual Salary: $58,960

•   Requirements: High school diploma or equivalent, licensing exam

•   Job Description: Help clients buy, sell, or rent their properties.

•   Duties:

◦   Generating lists of properties for sale or rent and showing them to clients

◦   Advising clients on prices, mortgages, and market conditions

◦   Facilitating buyer/seller negotiations and final purchase or rental agreements

17. Respiratory Therapist

•   2024 Median Annual Salary: $80,450

•   Requirements: Associate degree

•   Job Description: Provide care for patients with respiratory issues.

•   Duties:

◦   Examining patients and recording symptoms and conditions

◦   Consulting with physicians on treatment

◦   Performing diagnostic tests

18. Construction and Building Inspector

•   2024 Median Annual Salary: $72,120

•   Requirements: High school diploma or equivalent

•   Job Description: Review building plans to ensure construction meets local and national regulations and ordinances.

•   Duties:

◦   Monitoring construction to ensure compliance

◦   Inspecting electrical and plumbing systems to ensure they are up to code

◦   Issuing violations for noncompliant work

19. Millwright

•   2023 Median Annual Salary: $62,980

•   Requirements: High school diploma or equivalent

•   Job Description: Install, dismantle, repair, reassemble, and move machinery in factories, power plants, and construction sites.

•   Duties:

◦   Repairing and replacing malfunctioning equipment

◦   Cleaning, adjusting, and calibrating new machinery

◦   Moving machinery and equipment

20. Electrician

•   2024 Median Annual Salary: $62,350

•   Requirements: High school diploma or equivalent, apprenticeship, license (most states)

•   Job Description: Install, maintain, and repair electrical power, communications, lighting, and control systems.

•   Duties:

◦   Identifying and repairing electrical problems

◦   Installing wiring and equipment for electrical systems

◦   Ensuring compliance with national and local codes

21. Plumber, Pipefitter, and Steamfitter

•   2024 Median Annual Salary: $62,970

•   Requirements: High school diploma or equivalent, apprenticeship

•   Job Description: Install and repair gas and water piping systems in homes, factories, and businesses.

•   Duties:

◦   Identifying and repairing plumbing problems

◦   Installing pipes and plumbing fixtures

◦   Cleaning drains, removing obstructions, and repairing or replacing broken pipes and fixtures

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22. Mining Roof Bolter

•   2023 Median Annual Salary: $66,660

•   Requirements: High school diploma or equivalent, moderate on-the-job training

•   Job Description: Operate machinery to install roof supporting bolts in underground mines.

•   Duties:

◦   Drilling bolt holes into roofs

◦   Performing safety checks on bolting equipment

◦   Extracting loose rock from bolting supports

23. Broadcast, Sound, and Video Technician

•   2024 Median Annual Salary: $56,600

•   Requirements: High school diploma or equivalent, moderate on-the-job training

•   Job Description: Operate and maintain electrical equipment used for television broadcasts, radio programs, live concerts, and films.

•   Duties:

◦   Setting up and operating equipment

◦   Monitoring and adjusting audio and video quality

◦   Repairing equipment and fixing recording issues

24. Heating, Air Conditioning, and Refrigeration Mechanic and Installer

•   2024 Median Annual Salary: $59,810

•   Requirements: Postsecondary nondegree award, lengthy on-the-job training

•   Job Description: Install and perform maintenance on heating, air conditioning, and refrigeration (HVACR) systems for buildings and private residences.

•   Duties:

◦   Installing, testing, and repairing HVACR systems

◦   Replacing and repairing defective parts

◦   Conducting overall system maintenance and performance improvements

25. Masonry Worker

•   2024 Median Annual Salary: $56,600

•   Requirements: High school diploma or equivalent, apprenticeship or on-the-job training

•   Job Description: Use bricks, concrete, and natural and manmade stones to build structures, walls, and walkways.

•   Duties:

◦   Designing blueprints and calculating materials needed

◦   Breaking and resizing materials into the required shape

◦   Aligning, constructing, and polishing finished structures

The Takeaway

Many trade jobs offer competitive pay and job security, without a significant upfront educational cost. Moreover, they provide an opportunity to make a difference by solving real-world problems. Choosing the right career path is an important step toward achieving your financial goals. It’s just as important to practice smart financial habits, such as setting spending limits, staying on top of your credit score, and establishing long-term goals.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

What is a trade job?

A trade job does not require a college degree, but it may require other qualifications or on-the-job training.

What are the pros and cons of a trade job?

The benefits of a trade job may include a higher level of job security and not needing to have a college degree. However, trade jobs can be more physically demanding and dangerous than other professions.

What skilled trades are in demand?

According to the Bureau of Labor Statistics, wind turbine service technicians, solar photovoltaic installers, and physical therapist assistants are expected to experience the greatest job growth over the next ten years.

What are some of the best trades to learn that pay well?

Transportation managers, elevator installers, nuclear power reactor operators, and radiation therapists all earn a median salary above $80,000.

What are high-paying trade jobs that require no degree?

HVACR technicians, real estate agents, subway operators, and plumbers all pay above-average salaries and require no formal degree.

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Photo credit: iStock/dima_sidelnikov

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*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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.

SORL-Q126-002

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Renovations can improve your home and increase its value. But as any seasoned homeowner will tell you, those projects can be expensive. If you can’t afford to cover the costs out of pocket, you may wonder if a construction loan is right for you. While it is an option, there are complications that people should be aware of, as well as other home loans for renovations that might be a better fit.

Let’s take a look at construction loans, their requirements, and some alternatives to consider.

What a Construction Loan Is and How it Works

Construction loans finance the building of a new home or substantial renovations to a current home. They are typically short-term loans with higher interest rates, designed to cover the costs of land, plans, permits and fees, labor, materials, and closing costs. They can also provide a contingency reserve if construction goes over budget.

With a construction loan for home renovation or a new build, applicants must submit project plans and schedules along with their financial information as part of the qualification process. We’ll get into that in more detail below.

How Funds Are Disbursed During the Project

Once approved for a construction loan for a remodel or new build, a homeowner receives funding for the first phase of the project only, rather than a lump sum. As construction progresses, assessments are provided to the lender so that the next round of funds can be released. Meanwhile, borrowers make interest-only payments on the funds they’ve received.

When construction is finished — and the borrower now has a home to serve as collateral — the construction loan may be converted to or paid off by a regular mortgage. The borrower then begins repaying both the principal and interest.

Eligibility Requirements and Typical Terms

The formal application process for a construction loan involves submitting plans and specifications for the proposed building. Your builder will need to provide blueprints, estimated costs, and a schedule for the project. With a typical home mortgage loan the back-and-forth is between you and the lender; in a construction loan the builder or contractor will also play a key role, supplying important supporting documents.

As with a typical mortgage, the lender will scrutinize the borrower’s credit score (680 or above is ideal) and debt-to-income ratio, and you can expect to be asked to provide proof of income. A down payment of 20% is often required for a construction loan — after all, the lender is loaning money against collateral that doesn’t entirely exist yet.

Recommended: Home Maintenance Checklist

Renovation Loans vs. Construction Loans: What’s the Difference?

Though renovation loans and construction loans can be used for similar purposes, there are important differences to know. Let’s take a closer look at both types of loans.

Renovation Loans

Unlike other types of home improvement loans, a renovation loan takes into account the property’s after-repair value, which is an estimation of the home’s value once the improvements are made. This can be good news for borrowers, especially those buying a fixer-upper. That’s because they may be able to secure a larger loan amount than they would with a traditional mortgage based on the home’s current value.

What’s more, renovation loans often come with lower interest rates than credit cards and unsecured personal loans.

Some common types of lending for renovations include:

•  Government-sponsored loans, such as the FHA 203(k) home loan, Freddie Mac’s CHOICERenovation loan, and Fannie Mae’s HomeStyle renovation loan. Each type has its own rules and requirements.

•  VA renovation loans, which are available to eligible veterans and active-duty military personnel.

It’s also possible to use a home equity loan or home equity line of credit for renovations. More on that below.

Construction Loans

As we mentioned, a construction loan is commonly used to pay for building a brand-new home. In some cases, the loan can be converted to a mortgage after your home is finished. However, getting one can be more challenging than securing a conventional mortgage.

Lenders generally want to see a debt-to-income ratio of 45% or lower and a high credit score, and you may be required to make a down payment of at least 20%. Depending on the type of construction loan you apply for, you may also be required to provide a detailed plan, budget, and schedule for the construction. Some lenders will also need to approve your builder.

There are different types of construction loans to consider:

•  Construction-to-permanent loans, or single-close loans, which converts to a mortgage once the project is finished. The borrower saves money on closing costs by eliminating a second loan closing.

•  Construction-only loans, or standalone construction loans, which must be paid off when the building is complete. You will need to apply for a mortgage if you don’t have the cash to do so.

•  Renovation construction loans, which are designed to cover the cost of substantial renovations on an existing home. The loan gets folded into the mortgage once the project is complete.

Pros and Cons of Using a Renovation Loan

As you explore different home improvement loans, consider the following pros and cons of renovation loans.

Pros

•  Borrowers may have access to substantial funds that can pay for major upgrades or repairs.

•  Money can be used for a wide variety of renovation projects.

•  The loan amount is based on the home’s projected value after the repairs and renovations are complete.

•  Interest rates tend to be lower than what you’d be offered with an unsecured loan or credit card.

Cons

•  You may be required to use your home as collateral.

•  As with any loan, you’ll need to meet certain eligibility requirements, such as a good credit score, low debt-to-income ratio, and proof of income and employment.

•  A renovation loan increases your debt load, which could put a strain on your finances.

Recommended: Home Inspection Checklist

Pros and Cons of Using a Construction Loan

There are advantages and disadvantages to consider before taking out remodeling construction loans to fund renovations.

Pros

•  Funds can be used to cover all construction expenses.

•  Borrowers can use equity from other investments as collateral.

•  Loan requirements are generally focused on the construction process instead of a borrower’s credit profile.

•  Borrowers may only need to make interest payments during construction.

•  Loan terms may be more flexible than a traditional loan.

Cons

•  Funds are released as work progresses instead of in one lump sum.

•  It can be difficult to find lenders that offer competitive rates and to qualify for them — particularly if you don’t have a flawless credit history.

•  Loans tend to be short-term and must be paid in full at the end of the term.

•  May need to provide extensive documentation on the construction process in order to get approved.

•  If construction is delayed, you may need to ask the lender for an extension on the loan. This can cause interest rates and fees to accumulate.

When to Use a Renovation Loan vs. a Construction Loan

The key to knowing when to use a renovation loan vs. a construction loan is written right in the names of these financial tools. If you’re building a home, a construction loan will be necessary. But if you are substantially renovating a home, a renovation loan might be just the ticket. It’s not your only option, however, and there are less complicated ways to finance small- or medium-size renovations.

Alternative Ways to Finance Home Renovations

If you are planning a small construction project or renovation, there are a few financing alternatives that might be easier to access and give you more flexibility. Here’s a look at home equity loan vs. HELOCs vs. home improvement loans.

Personal Loans for Renovations

An unsecured personal loan can fund a renovation project or supplement other construction financing.

Personal loan interest rates are typically lower than construction loan rates, depending on your financial profile. And you can frequently choose a personal loan with a fixed interest rate.

Personal loans also offer potentially better terms. Instead of being required to pay off the loan as soon as the home is finished, you can opt for a longer repayment period. And applying for a personal loan and getting approved can be much faster and easier than for a construction loan.

The drawbacks? You won’t be able to roll your personal loan into a mortgage once your renovation or building project is finished.

And because the loan is disbursed all at once, you will have to parse out the money yourself, instead of depending on the lender to finance the build in stages.

Cash-Out Refinance for Construction Costs

A cash-out refinance is also a good financing tool, particularly if you have a lot of equity in your current home. With a cash-out refinance, you refinance your home for more than you owe and are given the difference in cash.

You can estimate your building or renovation expenses with this Home Improvement Cost Calculator. Add your estimate to what you owe on your home to get the amount of your refinance.

Home Equity Loans and HELOCs

Both a home equity loan and a home equity line of credit (HELOC) allow you to borrow funds based on your home equity to use for any purpose you wish. Your home serves as collateral. This means that if you fail to repay what you borrow, with interest, the lender could foreclose. The good news, though, is that because the lending is secured by your home, interest rates are often pretty attractive.

Home equity loans are lump-sum loans, typically with a fixed interest rate. So your monthly payment remains the same for the full repayment term, which could be up to 30 years.

A HELOC is a credit line. You can draw against it as needed, up to the maximum you are allowed. For the first five or ten years, you often don’t have to repay the principal — you can just pay interest. Interest on HELOCs is more likely to be a variable rate, so payments can be somewhat unpredictable. After the initial “draw” period you have to stop borrowing and you begin to repay what you have borrowed, with interest.

Grants or Government Programs for Certain Renovations

FHA loans and VA loans aren’t the only government programs that can help fund renovations. There may be grants or loans available from government or nonprofit sources, depending on your specific renovation project and your personal circumstances. Check your local government web site for more information about programs in your local area. There are often programs specifically for older adults, Native Americans, and those in rural areas. If your renovations might make your home more energy efficient, also check in with your local power company.

Using Savings or Cash for Smaller Projects

Remember that if your renovations aren’t a big production, you may be able to earmark savings for them, if the repairs aren’t urgent and you are willing to be patient and save up the money. Flexing your savings muscle is a good idea even if you are financing some or all of the work. “When budgeting for a remodel, it can be helpful to have a dedicated fund for renovation expenses. This can help you allocate the appropriate amount of money,” says Brian Walsh, CFP® and Head of Advice & Planning at SoFi.

The Takeaway

Planning a new home or substantial renovation? There are several ways to pay for the projects. One option is a renovation loan, which lets you pay for major (and minor) renovations without having to dip into your personal savings. Another option is a construction loan, which typically covers the entirety of new construction expenses. For smaller projects, a personal loan can be a good option — and a lot less complicated.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

Can you use a construction loan for renovations on an existing home?

It is possible to use a construction loan to fund renovations on an existing home, but it may not be the easiest way to borrow for your renovation. That said, if you need a very large sum and are planning to work with a builder or contractor who can help provide plans and other supporting documents, it is doable.

Can you convert a construction loan to a regular mortgage after renovations are complete?

It is possible to either convert a construction loan to a typical mortgage or take out a mortgage to pay off a construction loan. Explore what your options will be before you sign on to a construction loan with a lender.

Do you need equity in your home to qualify for a renovation or construction loan?

Lenders who fund renovation or construction loans often like to see that a homeowner has a significant amount of equity — sometimes 20% or more — before financing the work. The exception would be for an FHA 203(k) loan. If you have a credit score of 580 or better, you may be able to fund a renovation with an FHA loan even if you have just 3.5% equity. A score from 500 to 579 will require 10% equity.

How do inspections and draw schedules work with construction loans?

In the application stage of your construction loan, you will (with your builder or contractor’s help) submit a schedule with certain milestones that correspond to stages of funding of your loan. As your project reaches each milestone, the project manager, builder, or you will report in to the lender. It’s not just a casual phone call: Your draw request (the process of drawing down your loan) will require documentation, and an inspector may come out to review the work. Once all this is completed and the lender is satisfied, the lender will send the funds.

What are some alternatives if I don’t qualify for a construction or renovation loan?

If you don’t qualify for a construction loan for renovation or a government-backed renovation loan such as an FHA 203(k) loan, you might look into a personal loan, which is unsecured. Or if you have some equity built up in your home, you might fund your renovations by using a home equity loan, home equity line of credit (HELOC), or a cash-out refinance.

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

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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 .

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOPL-Q126-004

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If you have high-interest credit card debt and are ready to put together a plan to pay it back, you might be considering one of two popular methods: credit card refinancing vs. debt consolidation.

Both involve paying off your debt with another credit card or loan, ideally at a lower interest rate. Still, the two methods are not the same, and both options require careful consideration. Below, we’ll discuss the pros and cons of each debt payback method, so you can make an informed decision.

What Is Credit Card Refinancing and How Does it Work?

Credit card refinancing is the process of moving your credit card balance(s) from one card or lender to another with a lower interest rate. The main purpose of refinancing is to reduce the amount of interest you’re paying with a lower rate while you pay off the balance.

Common Ways to Refinance Credit Card Debt

A common way to accomplish a credit card refinance is to pay off your existing credit cards with a brand-new balance-transfer credit card. This type of card offers a low or 0% interest rate for a promotional period that may last from a few months to 18 months or more. Can you refinance a credit card that you already have? Perhaps. You can always try to approach your existing credit card issuer and ask for a lower interest rate, possibly by doing a balance transfer to a lower-rate card issued by the same company.

What are the Benefits of Credit Card Refinancing?

We’ve discussed what is credit card refinancing and its goal: to lower your interest rate. Now let’s explore some of the benefits (and drawbacks) of refinancing.

Pros

•   You may qualify for a promotional 0% annual percentage rate (APR) during your card’s introductory period. If you can pay down your debt during this time, you could potentially get out of debt faster.

•   Depending on the interest rate you’re offered, you could save money in interest charges.

•   Bill paying would be streamlined if you decide to refinance multiple credit cards into one new credit card.

•   If monthly payments are reasonable, it may be easier to consistently pay them on time. This can help build your credit score.

Cons

•   The introductory 0% interest period is short-term, and after it ends, the interest rate can skyrocket to as high as 25%.

•   There may be a balance transfer fee of 3%-5%, which can add to your debt.

•   0% interest balance transfer cards often require a good or excellent credit score to qualify.

•   Your credit score may temporarily dip a few points when you apply for a new credit card or loan. That’s because the lender will likely run a hard credit check.

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

Who Should Consider Credit Card Refinancing?

Credit card refinancing isn’t right for everyone. That said, a balance transfer to a 0% APR card could be a good move if you have a smaller debt to manage or are carrying a balance on more than one credit card. Plus, transferring multiple balances into one card can streamline bills. All of the usual credit card rules apply when you transfer a balance, so you’ll want to make every payment on time with your new card.

Refinancing may make sense if you’re looking for better terms on your credit card debt, qualify for a 0% APR, and can pay off the balance before the promotional period ends.
So, as you’re weighing your options, you’ll want to consider a number of factors, including:

•   Your credit score and credit history

•   How much debt you have

•   Your personal finances and whether or not you can eliminate the debt fairly quickly

Recommended: The Risks of Payday Loans

What Is Credit Card Debt Consolidation?

Credit card debt consolidation is an alternative to credit card refinancing. The term “debt consolidation” refers to the process of paying off multiple credit cards or other types of debt (such as medical debt) with a single loan, referred to as a debt consolidation loan. The main purpose of consolidation is to simplify bills by combining multiple payments into one fixed loan payment, while ideally also saving on interest.

Types of Debt Consolidation

There are two primary types of debt consolidation loans: a personal loan and a loan secured by your home equity. The latter could be either a home equity loan or a home equity line of credit (HELOC). Not everyone owns a home or has enough equity to qualify for home equity lending, so let’s focus on what a personal loan is and how you might use it to consolidate debt.

A personal loan (sometimes referred to as a debt consolidation loan) will often have a lower interest rate than most credit cards (with the exception of the 0% APR period on a credit card, of course). However in order to qualify for a lower rate on a personal loan, you’ll need to have a strong credit score, which will largely determine your personal loan interest rate. Depending on your financial profile, you might be able to borrow anywhere from $5,000 to $100,000.

There are pros and cons to paying off multiple credit cards with a single short-term loan. Let’s take a look:

Pros

•   Personal loans often have lower interest rates than credit cards and can save you money on monthly payments as well as on interest charges over the life of your debt repayment.

•   You can pay off multiple debts with one loan, which can take the hassle out of bill paying.

•   The structured nature of a personal loan means you can make equal payments toward the debt at a fixed rate until it is eliminated.

•   With most personal loans, you can opt for a fixed interest rate, which ensures payments won’t change over time. (Variable interest rate loans are available, but their lower initial rate can go up as market rates rise.)

Cons

•   The terms of a loan will almost always be based on your credit history and holistic financial picture (another reminder to keep an eye on personal finance basics like making timely payments). Not every borrower will qualify for a low interest rate or get approved for a personal loan at all.

•   Some lenders may charge fees, including personal loan origination fees.

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

Credit Card Refinancing vs. Debt Consolidation

To recap, the difference between debt consolidation and a credit card refinance is first a matter of goals.

With credit card refinancing — as with other forms of debt refinancing — the aim is to save money by lowering your interest rate. Debt consolidation may or may not save you money on interest, but will certainly simplify bills by replacing multiple credit card obligations with a single monthly payment and a structured payback schedule. This structure and simplification can be just what it takes to help some borrowers who are struggling with credit to get their debt paid off.

The other difference is that credit card refinancing typically utilizes a balance transfer credit card that has a 0% or low interest rate for a short time. This limits the amount you can transfer to what you can comfortably pay off in a year or so. Debt consolidation utilizes a personal loan, which allows for higher balances to be paid off over a longer payback period.

Which strategy is right for you? That depends on a number of factors, including the amount of debt you have, your current interest rates, and whether you’re able to stick to a structured repayment schedule. Of course, it’s important to regulate your use of credit cards in either scenario. The last thing you want is to be paying off a personal loan or facing the expiration of a 0% interest rate when you’ve racked up more credit card debt.

The chart below sums up the credit card refinancing vs. debt consolidation story.

Side-by-Side Comparison of Key Features

 

	Credit Card Refinancing	Debt Consolidation Loan
Account Type	New credit card with introductory balance-transfer interest rate offer	Lump-sum personal loan
Maximum Amount	Will vary based on lender rules and borrower qualifications	$5,000-$100,000
Upfront Fees	3%-5%	Some lenders have no fees upfront
Interest Rate	Typically has 0% interest for first 12-18 months, followed by market rates, which could be as high as 25% or in some cases more	Fixed interest rate ensures steady payments over the life of the loan
Repayment Term	The low interest rate is typically only available for 18 months at most, making this most suited to smaller debts that can be repaid before the interest rate escalates	Up to seven years

The Takeaway

Credit card refinancing is when a borrower pays off their credit card(s) by moving the balance to another card with a lower interest rate. A popular way to do this is with 0% interest balance transfer credit cards. However, borrowers typically need a high credit score to qualify for the best rates on these cards. Debt consolidation, on the other hand, is when a borrower simplifies multiple debts by paying them off with a personal loan. Personal loans with a fixed low interest rate and a structured payback schedule are a smart option for consolidating debts.

If you have a relatively small balance that can be paid off in a year or so, refinancing with a balance transfer credit card may be right for you. If you have a larger balance or need more time to fully pay it off, personal loans are available.

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

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

Which is better: credit card refinancing or debt consolidation?

There are advantages and drawbacks to both strategies. Credit card refinancing can help you lower your interest rate, which can save you money. Debt consolidation might save you money on interest, but it will definitely simplify bill paying by replacing multiple cards with one monthly bill.

Is refinancing a credit card worth it?

Refinancing a credit card may be worth the effort because it can lower your interest rate, potentially save you money, and make payments more manageable.

Is refinancing the same as consolidation?

Though refinancing and consolidation can both help you manage your debt, they serve different purposes. Refinancing involves moving credit card debt from one card or lender to another, ideally with a lower interest rate. Paying less in interest while you pay off your debt is the main goal of refinancing. When you consolidate, you settle multiple debts with one loan. Simplifying bills into one fixed loan payment is the main reason to consider this strategy.

How do credit card refinancing and consolidation affect my credit score?

Credit card refinancing and debt consolidation might temporarily reduce your credit score because your lender will likely do a hard credit check to qualify you for the account. But with time and consistent, on-time payments, your credit score should rebound. Consolidating several credit cards into one personal loan might also help improve your credit utilization ratio, which in turn should nudge your score upward. Opening new credit accounts, however, can reduce the overall age of your credit accounts, as can closing old accounts. Both of these can ding your credit score. If you aren’t applying for other forms of financing, such as a mortgage, none of this should be a huge concern so long as you are using the credit card refinance or consolidation to reduce debt and better manage your finances.

What should I consider before refinancing or consolidating?

The most important thing to consider when thinking about credit card refinancing or debt consolidation is whether you will save money when interest and fees are factored in. It’s also important to have a good look at your credit habits. If you think having a new credit card with 0% introductory financing might result in you charging even more and falling more deeply into debt, you might want to consider a personal loan and/or explore credit counseling, in which you will work with a professional to help change unhealthy habits and develop a strategy to reduce debt.

---

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

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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 .

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 Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOPL-Q126-002

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