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You can file a tax extension in a few different ways, such as online or by mail. This process can help people who may need more time to finalize their return, whether they are missing documents, dealing with a personal emergency, or have other reasons for being behind schedule.

While a six-month extension can be a good safety net, it’s important to learn the facts. For instance, an extension doesn’t mean you have more time to pay any taxes you may owe.

Read on to learn the facts and important considerations to know when filing a tax extension.

What Is a Tax Extension?

A tax extension extends the deadline for filing your federal tax return by six months. All you have to do to get an extension is request one by Tax Day (typically April 15). Here are important points to know:

•   An extension grants you more time to file your return, but not more time to pay any taxes you owe. If you file an extension for taxes but do not pay your tax bill by the original deadline, you will face penalties and interest on the unpaid amount.

•   The failure-to-pay penalty is typically 0.5% of the unpaid taxes for each month (or part of a month) the tax remains unpaid, up to a maximum of 25%. If you set up an IRS installment agreement, however, the IRS will reduce your failure to pay penalty to 0.25% of the tax you owe while the installment agreement is in effect.

•   The IRS charges interest on the underpayment, which compounds daily from the original due date until the date you pay in full. The interest rate is determined quarterly and is generally the federal short-term rate plus 3%.

•   If you fail to file or request an extension by Tax Day, you can also get hit with a failure-to-file penalty. This is generally 5% of unpaid taxes per month, up to 25%, but is reduced by the failure-to-pay penalty if both apply. 

How Do Tax Extensions Work?

There are three ways to request an automatic extension of time to file your return:

1.    File IRS Form 4868 electronically using your personal computer or through a tax professional who uses e-file. You’ll be asked to provide your prior year’s adjusted gross income for verification purposes. (If you do not know your prior year’s AGI and do not have a copy of that tax return, you can find the information by signing in to your IRS online account.)

2.    Mail a paper Form 4868. (The IRS says, though, not to mail in Form 4868 if you file electronically unless you’re making a payment with a check or money order.)

3.    Pay all or part of your estimated income tax due, and indicate that the payment is for an extension, using IRS Direct Pay or the Electronic Federal Tax Payment System. You can also pay taxes with a credit card or debit card.

Special rules about filing extensions may apply to those serving in a combat zone or a qualified hazardous duty area or living outside the United States.

Recommended: Tax Season 2025 Help Center

Reasons to File for a Tax Extension

Many high earners routinely seek tax extensions because their business dealings and investments can take longer to sort out. Other people might seek a tax extension for different reasons, such as:

•   Needing extra time to track down missing tax documents, especially if you’re dealing with an extenuating circumstance (for instance, the closure of a place of employment shortly before tax documents were due to be issued).

•   A major unplanned life event interrupts your plans and makes it hard to get things together on time.

•   You’re still figuring out how to do taxes as a freelancer and want to take all the deductions you can.

•   You’re going to take the home office tax deduction as a self-employed person and want to carefully crunch the numbers because you’re skipping the simplified deduction of up to $1,500.

•   General life busyness led to the deadline sneaking up on you.

•   Maybe you’re filing taxes for the first time and you simply procrastinated.

•   You have a primary and second home and are still unsure whether to itemize and take the mortgage interest deduction.

Filing for a Tax Extension Online

Remember, you don’t need to file Form 4868 if you make a payment using IRS electronic payment options or by phone and indicate that you want an extension.

If you do need to file Form 4868, you can do so electronically by accessing the IRS e-file with your tax software or by using a tax professional who uses e-file.

IRS e-file options include Free File, which lets you prepare and file your federal income tax online using guided tax preparation at an IRS partner site (for filers with AGI of $84,000 or less) or Free File fillable forms (for any income level).

Filing for a Tax Extension by Mail

You can simply download and print Form 4868 from IRS.gov, fill it out, and mail it in, along with a check for estimated income taxes owed.

The form itself includes information about where to send the document, depending on where you live.

Recommended: High-Yield Savings Account Calculator

Can I File for a Tax Extension If I Owe Money?

Yes, you can still file for a tax return extension if you owe the government money — but the money itself is still due on the original due date.

Unfortunately, there’s no way to file for an extension of taxes owed. Rather, your best bet is to pay as much of your estimated taxes as you can when you file for the extension. Then apply for a payment plan online or call the IRS to learn about your options for complete repayment if you don’t have enough money in your bank account to cover what you owe.

Can Someone Be Denied a Tax Extension?

Yes, but it’s uncommon. If your tax extension was denied, it was probably because of a mistake in your personal information on Form 4868.

You can resubmit your request and make sure to enter your current address, name, and Social Security number correctly.

How to Know If You Owe Taxes

While self-employed individuals must estimate their taxes and pay on a quarterly basis, those who file using W-2 wage reports may not do this kind of taxation math.

There are several easy ways to find out if you owe Uncle Sam.

•   You may receive a notice in the mail from the IRS, but ensure that it’s official correspondence and not a note from a scammer. The IRS will never email, text, or reach out to individuals via social media.

•   “Your Online Account” on IRS.gov allows you to see how much you owe in taxes. This user profile also allows you to pay any owed taxes directly.

•   You can always call the IRS at 800-829-1040 to confirm any amount of back taxes you might owe.

The Takeaway

Is it hard to file a tax extension? Not really. What may prove difficult is paying all taxes owed by the filing deadline (aka Tax Day) or paying a balance still owed plus a penalty and interest after the April date to file taxes.

It’s important to have a handle on your tax status and tax bill as April 15th arrives. It’s also wise to have a good banking partner and accounts that allow easy payment of any money you owe or refunds you receive.

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

FAQ

How do I know if I’ve been approved for a tax extension?

Extension requests are rarely denied, but news of a denial would come by email. In the event of an error in an address or name, a taxpayer will be given a few days to remedy the error and file a tax extension again. Usually, you can get an automatic extension of time to file your tax return by filing Form 4868 electronically. You’ll receive an electronic acknowledgment of your request.

Is there a fee to file for a tax extension?

No. Filing for a tax extension is free.

Is the process for filing a tax extension easy?

Yes. You simply submit Form 4868 electronically or by mail before the filing deadline, or make a tax payment through approved methods and indicate you want an extension of time to file your federal return.

What happens if I file my taxes late and without an extension?

If you don’t pay your tax balance by the filing deadline and you did not file for an extension, you’ll get hit with a failure-to-file penalty (in most cases) and interest. Interest also compounds daily on any unpaid tax from the due date of the return until the date of payment in full.

Photo credit: iStock/Delmaine Donson

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SOBNK-Q424-073
CN-Q425-3236452-131

If you’re trying to build your credit, it may take a while. Pulling out of debt can be hard, especially when unexpected bills or job loss hits. And negative marks can stay on your credit report for seven or even 10 years.

This can be a challenging situation, but knowing what can positively impact your score can help you navigate this situation. Read on to learn more about what it takes to manage debt responsibly and help build your score.

Factors that Can Influence Your Credit Score & Report

A credit score gives a numerical value to a person’s credit history. It can help give lenders a big-picture look at a potential borrower’s creditworthiness. These scores (there isn’t just one) provide lenders with insight into how reliable a person might be when it comes to repaying their debt.

This can influence a lender’s decision on whether or not to loan a person money, how much money they are willing to lend, and the rates and terms for which a borrower qualifies.

Since credit scores are so widely used, it’s easy to see why some individuals may be interested in improving their credit scores. First, it might be helpful to understand the factors used to actually determine your score. Here’s a snapshot of what goes into a FICO® Score, since that is the credit score used by many lenders right now.

•   Your payment history accounts for approximately 35% of your FICO Score, making it one of the most influential factors. Even just one missed or late payment could potentially lower a person’s credit score.

•   Credit utilization ratio accounts for 30% of your score. Credit utilization ratio is your total revolving debt in comparison to your total available revolving credit limit. A low credit utilization ratio can indicate to lenders that you are effectively managing your credit. Typically, lenders like to see a credit utilization ratio that is less than 30%.

•   The length of your credit history counts for 15%, and that may be a good reason not to close an account that you use infrequently. It might help add to the length of your history.

•   Your credit mix accounts for 10% of your score. While not a good reason to go out and open a new line of credit, the bureaus do tend to prefer to see a mix of accounts vs. just one kind of credit.

•   The last component, also at 10%, is new credit, meaning are you currently making a lot of requests for credit. The number of hard credit inquiries in your name could make it look as if you are at risk of financial instability and are seeking ways to pay for goods and services.

Credit Issues: How Long Do They Linger?

Negative factors like late payments and foreclosures can hang around on your credit report for a while. Generally, the information is included for around seven years.

Bankruptcy is an exception to this seven year guideline—it can linger on your credit report for up to 10 years, depending on the type of bankruptcy filed. Bankruptcies filed under Chapter 7 can be reported for up to 10 years from the filing date. Bankruptcies filed under Chapter 13 can be reported for seven.

While a late payment will be listed on a credit report for seven years, as time passes it typically has less of an impact. So if you missed a payment last month, it will have more of an effect on your score than if you missed a payment four years ago.

These numbers are important to know when you are working to build your credit.

How Long Does It Take for Your Credit Score to Go Up?

Here’s a look, in chart form, at how long it takes for different negative factors to drop off your credit report.

Disputing an Error on Your Credit Report

Checking your credit report can help you stay on top of your credit. You’ll also be able to make sure the information is correct, and if needed, dispute any mistakes. There could, for instance, be a bill you paid long ago on your report as unpaid, or perhaps account details belonging to someone else with a similar name erroneously wound up on your report.

There are three major credit bureaus — Equifax®, Experian®, and TransUnion®. You can request a copy of your credit report from each of the three credit bureaus at no cost. You can visit AnnualCreditReport.com to learn more. Checking in with each report may feel a little repetitive, but it’s possible that the credit bureaus could have slightly different information on file.

If you find that there are discrepancies or errors, you can dispute the mistake. You’ll have to write to each credit bureau individually. Generally, you’ll need to send in documentation to support your claim. Once you’ve submitted your dispute letter, the bureaus typically have 30 days to respond.

It’s possible that a bureau will require additional supporting documentation, which can lead to some back and forth within or sometimes after the 30 days. It could take anywhere from three to six months to resolve a credit dispute, though some of these situations will take more or less time depending on complexity.

Staying on Top of Efforts to Build Credit

Sometimes, resolving issues on a credit report isn’t enough to build a bad credit score. On the bright side, credit scores aren’t permanent. Here are a few ideas for helping you to build your credit.

Improve Account Management

If you’re struggling to keep up with accounts with a variety of financial institutions, it could be time to simplify. Take stock of your investments, debts, credit cards, and savings or checking accounts. Is there any opportunity to consolidate?

Having your accounts in one, easy-to-check location can make it simpler to ensure you never miss an alert or important deadline. Automating your finances and using your bank’s app to regularly check in with your accounts (say, a few times a week can be a good cadence) can make good money sense as well, helping you keep on top of payment deadlines and when your balance might be getting low.

Make Payments On-Time

Did you know that your payment history (as in, do you pay on time) is the single largest factor in determining your credit score? Lenders can be hesitant to lend money to people with a history of late payments. So make sure you’re aware of each bill’s due date and make your payments on time. One idea? As mentioned above, you could set up autopay so you don’t even have to think about it.

Limit Credit Utilization Ratio

It could help to set a realistic budget that leads to a fair credit utilization ratio, meaning that your credit balances aren’t too high in relation to your credit limit. Some accounts will let you set up balance alerts that can warn you as you inch closer to the 30% guideline of the maximum you want to reach. Another option could be paying your credit card bill more frequently (for example, setting up a mid-cycle payment in addition to your regular payment).

Strategize to Destroy Debt

When it comes to paying off debt, having a plan can help. For example, using a credit card can be an effective way to build your credit history, but if not used responsibly, credit card debt can be incredibly difficult to pay off.

Not only that, it could end up impacting your credit score (say, if your credit utilization ratio creeps up above 30%, as noted above). As a part of your plan to build your credit after negative factors have occurred, you might consider putting a debt repayment plan into place.

Your finances and personal situation will be a major factor in the debt payoff plan that works best for you. If you need some inspiration, the methods below may be helpful to reference in your quest to pay off debt. If you decide that one of these options works for you, here’s how you might go about them.

The Snowball

The snowball method of paying off debt is pretty straightforward.

•   To put it into action, you would organize your debts from smallest to largest, without factoring in the interest rates.

•   Then you’d continue to make the minimum payments on all of your debts while paying as much as possible on your smallest debt.

•   When the smallest debt is paid off, you’d then roll that money into debt payments for the next smallest debt — until all of your debt is repaid.

This strategy is all about changing behavior and building in incentives to help keep you going. Starting with the smallest debt means you’d see the reward of paying it off faster than if you had started with the larger debt. While this method can help keep you motivated and laser-focused on eliminating your debt, it isn’t always the most cost effective, since it doesn’t take into account interest rates.

The Avalanche

The debt avalanche method encourages you to focus on your highest-interest debts first.

•   Prioritize debts with the highest interest rates by putting any extra cash towards them.

•   Continue to make the minimum payments on all of your other debts.

This technique could help save money in interest in the long run. And it could even help you pay off your debts sooner than the snowball method.

The Fireball

The fireball method combines the snowball and avalanche methods in a hybrid approach designed to help you blaze through costly debt so you can focus on the things that matter most to you.

•   The first step in this method is to go through all of your debts and categorize them as either “good” or “bad.”

•   “Good” debts are those that tend to contribute to your financial growth and net worth; they also tend to have relatively lower interest rates. Good debt might be a student loan that helps you launch your career or a mortgage that allows you to own a home.

•   Debts with high interest rates that don’t go towards building wealth (such as credit card debt) are often considered “bad.” With this method, you can list your “bad” debts from the smallest amount to the largest amount.

•   Then you’d take a look at your budget and see how much money you have to funnel toward making extra debt payments. While making the minimum monthly payment on all outstanding debts, you’d direct the extra funds toward the bad debt with the smallest amount due.

•   When that smallest balance is repaid in full, you’d apply the total amount you were paying on that debt to the next smallest debt. Then you’d continue this pattern, moving through each outstanding bad debt until they are all paid in full.

An important note: While you are moving through your higher-interest debts, you would still follow the normal payment schedule on your lower-interest debts.

By focusing on the debts with the highest interest rates first, this method could save you some change when compared with the snowball method. And, since you’re then targeting bad debt from the smallest balance to the largest, you could still benefit from the same psychological boost as you see your debt shrink, one payment at a time.

Create a Goals-Based Approach

Having financial goals could possibly help you streamline your efforts. If you’re actively working toward saving for, say, a down payment, you may feel less inclined to spend money elsewhere.

You could try setting short-term, mid-term, and long-term goals. In the short-term your goals might be as simple as tracking your spending and setting up a budget. Or perhaps saving for a big vacation that’s a year or so away. For mid-term goals, you might think about something a little further out, like buying a house or saving for a child’s education. Long-term goals are often things like (you guessed it) saving for retirement.

Writing down your goals and setting a time for when you’d like to reach them can help you set up your plan.

Consolidate Your Debt

If you are working on building your credit and want to pay down your credit card balances, one option could be a personal loan to consolidate that high-interest debt.

A debt consolidation loan can offer a couple of benefits. For instance, it can simplify paying your debts since you can combine multiple debts into one simple payment. This can be easier to pay on time than multiple bills with different due dates.

Also, a personal loan may offer a more favorable interest rate and terms than credit cards, potentially allowing you to pay less and get out of debt sooner.

The Takeaway

It can take a few months to several years (a decade even) to repair credit. Much will depend on your particular situation and what damaged your credit and by how much. By managing debt responsibly, you can build your score. Different debt payoff methods or a debt consolidation loan are among the options to help positively impact your score.

FAQ

How long does it take to build credit from 500 to 700?

There’s no set amount of time that it will take to build a credit score from 500 to 700. It could take a year or two or longer. It will depend on such factors as whether you pay bills on time, avoid taking on new debt, and manage your balances well, among others

How long does it take to repair your credit score?

Repairing a credit score can take a few months to several years, depending on your particular scenario. You might see small improvements in as little as a couple of months if you pay off credit card debt, or it can take years to recover from, say, a bankruptcy.

Will my credit score go up if I pay off all my debt?

Typically, your credit score will go up if you pay off all your debt. Among the positive impacts are lowering your debt-to-income (DTI) ratio.

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

SOPL-Q425-030

If you’re like many Americans, you may carry thousands of dollars of credit card debt. A recent analysis by TransUnion^® found that the average citizen has $6,473 in debt as of mid-2025. While getting out from under debt may seem daunting, there are ways to make it manageable.

Here’s a look at different strategies for paying off a large chunk of debt; specifically, $10,000. In addition to tactics for eliminating debt, you’ll learn why doing so is important, which can help boost your motivation.

Why Paying off Credit Card Debt Is Important

In an ideal world, you would pay off your credit card every month in full. If you’re able to do that, using a credit card (responsibly) can be a good thing. It’s actually a pretty useful way to build credit and gain credit card rewards.

However, when you start to carry monthly credit card debt, things can get a bit dicey, because you’ll start to pay interest.

When you signed up for your credit card, you probably noticed that it came with an annual percentage rate (APR). The APR includes not only the approximate percentage of interest that you’ll likely pay on your credit card balance, but also fees associated with your credit card, such as origination fees or balance transfer fees.

Even if you make minimum payments, interest will still accrue on the balance you owe. The more money you owe, the quicker your interest payments can add up and the harder your debt can be to pay off. The fact that credit cards typically charge high interest rates (the current average interest rate is just over 24% as of November 2025) is part of what you’re grappling with.

So strategies that help you pay down debt as fast as you can also might help you control your interest rates. That, in turn, can help keep your debt from getting ahead of you.

To illustrate some of the debt-demolishing tips in this article, the nice round number of $10,000 is being used. But everyone’s debt totals will be different, and the right ways to pay down debt will be different for everyone as well. It’s up to you to find the path that’s best for your needs.

Avoiding Adding to Your Debt

If tackling $10,000 in credit card debt, or really any amount of credit card debt, the very first step might be to stop using credit cards altogether. This can be tough, especially if you’re used to using them all the time. But if you keep spending on your card, you’ll be adding to your debt. While you get your debt under control, you could consider switching over to only using cash or your debit card.

Building a Budget

Making a budget may help you find extra cash to help you pay down your credit cards. You can start by making a list of all your necessary expenses, including housing, utilities, transportation, insurance, and groceries.

It’s usually a good idea to include minimum credit card payments in this category as well, since making minimum payments can at least keep you from having to pay additional penalties and fees on top of your credit card balance and interest payments.

You can tally up the cost of your necessary expenses and subtract the total from your income. What’s left is the money available for discretionary spending, or in other words, the money you’d use for savings, eating out, entertainment, etc. Look for discretionary expenses you can cut — you might forgo a vacation or start cooking more — so you can direct extra money to paying down your credit card.

Consider using any extra windfalls — such as a bonus at work, a tax refund, or a cash birthday gift — to help you pay down your debt as well.

Though it may seem frustrating to cut out activities you enjoy doing, it can be helpful to remember that these cuts are likely temporary. As soon as you pay off your cards, you can add reasonable discretionary expenditures back into your budget.

The Debt Avalanche Method

Once you’ve identified the money you’ll use to pay off your cards, there are a couple of strategies that may be worth considering to help organize your payments. If you have multiple credit cards that each carry a balance, you could consider the debt avalanche method. The first step when using this strategy is to order your credit card debts from the highest interest rate to the lowest.

From there, you’d make minimum payments on all of your cards to avoid additional penalties and fees. Then, you could direct extra payments to the card with the highest interest rates first. When that card is paid off, you’d focus on the next highest card and so on until you’d paid off all of your debt.

The idea here is that higher interest rates end up costing you more money over the long run, so clearing the highest rates saves you cash and accelerates your ability to pay off your other debts.

The Debt Snowball Method

Another strategy potentially worth considering if you have multiple credit cards is the snowball method. With this method, you’d order your debts from smallest to largest balance. You would then make minimum payments on all of your cards here as well, but direct any extra payments to paying off the smallest balance first.

Once that’s done, you’d move on to the card with the next lowest balance, continuing this process until you have all of your cards paid off. By paying off your smallest debt you get an immediate win. Ideally, this small win would help you build momentum and stay motivated to keep going.

The drawback of this method is you continue making interest payments on your highest rate loans. So you may actually end up spending more money on interest using this method than you would using the avalanche method.

Only you know what type of motivation works best for you. If the sense of accomplishment you feel from paying off your small balances will help inspire you to actually pay your debt off, then this method may be the right choice for you.

Consolidate Your Debt

Interest rates on credit cards can be hefty to say the least. Personal loans can help you consolidate your credit card debt and potentially pay a lower interest rate. With a personal loan, you can consolidate all of your credit cards into one loan, instead of managing multiple credit card payments.

Once you’ve used your personal loan to consolidate your credit card debt, you’ll still be responsible for paying off the loan. However, you’ll no longer have to juggle multiple debts. And hopefully, with a lower interest rate and shorter term, you’ll actually be able to pay your debt off faster.

Recommended: Personal Loan Interest Rates

The Takeaway

The average American carries several thousand dollars in credit card debt. If you are trying to pay down this kind of high-interest debt, try budgeting, debt payoff methods like the avalanche and snowball techniques, or consolidating debt with a personal loan.

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.

FAQ

How long does it take to pay off $10,000 in credit card debt?

There’s no set amount of time for how long it can take to pay off $10k in credit card debt. The timing will depend on whether you pay the minimum amount or more per month and what your interest rate is. The debt could be paid off in a couple of months or many years.

What is the 2/3/4 rule for credit cards?

The 2/3/4 credit card rule is a guideline that says a person can only get a maximum of two new cards in a 30-day period, three new cards in a 12-month period, and four new cards in a 24-month period.

How many people have $10,000 in credit card debt?

According to one study in 2025, one in four Americans who carry credit card balances has $10,000 or more in credit card debt.

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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.

SOPL-Q425-036

Credit cards can be a convenience for daily spending or buying a big-ticket item (a new laptop or fridge), but they have downsides, too. Perhaps most notably, they have high interest rates. As of October 2025, one analysis found that the average interest rate was just over 20%. That can make paying off debt a challenge, and balances can rise steeply.

Here, you’ll learn more about how and why credit card payments can balloon as interest rates rise. You’ll also read advice on keeping your credit card in check, which can benefit your financial wellness.

How Interest Is Calculated

If you’re confused by all of the fine print that accompanies a credit card offer or the thought of an annual percentage rate (APR) calculation makes you wince, you probably aren’t the only one. To understand how rising rates can affect your credit card payment, it helps to understand a bit about how credit card interest is calculated.

•   First, there are two types of consumer loans: installment loans and revolving credit. A mortgage, student loan, or car loan are all examples of installment loans. With an installment loan, the borrower is loaned an amount of money (called the principal), plus interest to be paid back over a designated amount of time.

•   Revolving credit, on the other hand, is not a loan disbursed in one lump sum, but is a certain amount of credit to be used by the borrower continuously, up to a designated limit. A credit card is revolving credit. A borrower’s monthly payment is determined by how much of the available credit they are using at any given time; therefore, minimum payments may change from month to month.

Installment credit is sometimes easier than revolving credit to understand and calculate. First, installment loans often come with fixed rates, which means that the interest rate doesn’t change (unless you miss payments). For example, the rate on a federal student loan or a 30-year fixed mortgage won’t change, even if government-set interest rates shoot to the sun.

Revolving credit almost often has a variable rate, which means that the interest rate applied to the credit balance fluctuates.

The average rate on credit cards is quoted as an annual percentage rate, or an APR. The APR is the approximate interest rate that a borrower will pay in one year. Why approximate? The prime rate could fluctuate based on when the Fed changes the federal fund target rate.

How Credit Card Interest Rates Change

Generally, when the Fed raises the federal funds rate, it can slow economic growth because it dissuades banks from lending money — and discourages consumers from borrowing at a subsequently higher interest rate. Raising rates is also used as a technique to combat rising inflation.

While this may be a normal and natural part of an economic cycle, rising rates can be frustrating for anyone who is currently carrying a credit card balance.

In October 2025, the average credit card interest rates were falling slightly due to interest rate cuts by the U.S. Federal Reserve, but they remain near historic highs. While lower rates are helpful, small decreases in interest may not significantly impact the debt some people carry.

What Does a Rising Prime Rate Mean for Credit Card Holders?

A change in interest rates is likely to impact anyone with a variable rate on their credit card balance. When the Fed raises federal funds interest rates, it can be expected that credit card interest rates may follow. (Similarly, when rates are cut by the Fed, credit card rates often decline.)

How much would your credit card interest rate increase if the Fed raises rates? It depends on your credit card. Generally, credit cards move in sync with rate hikes, which usually happen in quarter-percent increments.

How to Combat a High Credit Card Bill

Here are some ideas for battling a high credit card bill and potentially paying less in interest over time:

1. Pay More Than the Minimum Payment

If at all possible, pay off as much of your credit card balance as you can each month. Making payments greater than the minimum amount due can help reduce your balance. The faster you can work on reducing the actual principal balance on your credit card, the less interest you’ll likely pay. If you only pay your credit card’s minimum payment, you may wind up in debt longer and spend more on interest in the long run.

2. Switch to a Balance Transfer Card

Balance transfer credit cards typically have 0% APR introductory offers lasting for several months to a couple of years. If you’re serious about getting rid of your debt, you could transfer your debt over to one of these cards and then actively work on paying off the debt while you’re not paying interest.

If you do this, make sure to look for a card that has no transfer fee. Beware: If the root of the problem is actually overspending, this will not be a good long-term solution. Sometimes, 0% APR cards have interest rates that jump up dramatically after the trial period is over. And the 0% APR may no longer apply if you make a new purchase on the card.

3. Negotiate a Lower Rate

You might be surprised to find out that a credit card rate can be negotiable. It may be worth giving your credit card company a call and seeing whether they can reduce your rate.

When talking to the person on the other end of the line, explain your situation, be kind to them, and see what happens. Again, this isn’t a permanent solution or a guaranteed outcome, but it could help give you a leg-up on the payback journey.

4. Sign up for Credit Counseling

You might benefit from professional credit counseling to help with your credit card debt. The National Foundation for Credit Counseling (NFCC) is a nonprofit organization that offers free and affordable advice for people who are struggling to manage debt on their own. If you’re unable to envision a path to paying down debt, it could be a good idea to ask for assistance.

5. Consider a Personal Loan

One tactic to consider in an environment where prime interest rates are rising is paying off credit card balances with a fixed-rate unsecured personal loan.

These are sometimes referred to as “debt consolidation loans” and allow a qualified borrower to pay off high-interest debt, such as credit cards, with this lower-rate personal loan. With a fixed-rate personal loan, the rate never changes (as long as payments are made on time), and it helps provide the borrower with a defined plan to pay off the debt.

If you decide to go this route, it’s a good idea to shop around to ensure that you’re getting a fair rate. You can get a personal or debt consolidation loan from banks, credit unions, and online lenders.

To compare estimated personal loan interest charges to credit card interest charges, you can use a tool like a personal loan calculator.

The Takeaway

When the Fed raises interest rates, credit card payments can rise as well. If credit card debt becomes an issue, you can secure a 0%-interest credit card, access credit counseling, or consider a credit card debt consolidation loan, among other options.

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.

FAQ

What is the 2-3-4 rule for credit cards?

The 2-3-4 rule for credit cards is a guideline from card issuers that limits the number of new credit card applications you can be approved for over a specific time period. It restricts applicants to no more than two new credit cards within a 30-day period, three new cards within a 12-month (one year) period, and four new cards within a 24-month (two-year) period.

What is the 15/3 rule for credit cards?

The 15/3 rule is a credit card method that involves making two payments each month: a larger one about 15 days before the statement closing date plus a smaller one three days before the due date. This can help reduce your credit utilization ratio by reducing the balance reported to credit bureaus.

Is a 700 credit score rare?

A 700 credit score is not considered especially rare. It falls within the “good” range and is slightly below the average credit score in the U.S. A score of 700 is ahead of approximately 40% of consumers who have scores below 700.

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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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The prime interest rate is the interest rate that banks charge their best customers. It’s the lowest rate offered to individuals and corporations that are considered low risk by banks — those with good credit history who aren’t likely to miss payments or default on their loan.

But when you run into the term “prime interest rate” in your daily life (maybe you’re taking out a personal loan or applying for a mortgage), it’s pretty common to feel a little confused. To get a better handle on this financial term and know how it relates to your money, read on.

How Is the Prime Interest Rate Set?

You’ve just learned that the prime interest rate is the rate that banks charge their best customers. Take a closer look at how the prime interest rate is set, as well as how this figure fits into the larger financial landscape.

Individual banks determine their prime interest rate. While the Federal Reserve has no direct role in setting the prime rate, many banks choose to set their prime rates based partly on the target level of the federal funds rate.

The federal funds rate is the rate that banks charge each other on an overnight basis and is established by the Federal Open Market Committee.

Why do banks lend each other money? They do so in order to meet the reserve requirement, which is also set by the Federal Reserve.

This is the minimum amount of cash a bank must have in their vault or at the closest Federal Reserve bank. If one bank has excess cash, the bank has a financial incentive to lend that excess cash to a bank that has less than its federally mandated amount. The reserve requirement acts as a lending limit for banks and also ensures that they have enough cash on-hand for the start of business each day.

How Does the Prime Rate Compare?

Generally, the prime rate is about three percent higher than the federal funds rate. That means that when the Fed raises interest rates, the prime rate typically goes up as well.

Because the prime interest rate is typically aligned with the federal funds rate, it’s highly susceptible to change. How often could the prime rate change? It can shift quite a bit. Take, for instance, the fact that the prime rate was 3.25% on March 16, 2020. From that date to July 2023, it rose 11 times to 8.50%. As of October 30, 2025, the prime rate was 7.00%.

Why Is the Prime Interest Rate Important?

The prime interest rate impacts all kinds of loans, including interest rates for mortgages, credit cards, auto loans, and personal loans. Typically, banks and lenders will use the prime interest rate as a benchmark for setting interest rates for their customers. Consider some of the ways this can impact personal finance and the economy:

•  Changes in the federal funds rate and prime interest rate can impact variable rate credit cards, adjustable-rate mortgages, home equity lines of credit (HELOC), and more. The interest rates on variable loans are based on these market interest rates and therefore change over time. In fact, variable interest rates, including those on credit cards, are often expressed as the prime rate plus a certain percentage.

Unlike fixed-rate loans, monthly payments on any variable loan could change considerably from month-to-month. This is why fixed-rate loans can be a more desirable alternative than variable loans for some borrowers.

•  Though rates are largely influenced by the Federal Reserve, borrowers have little control or way of predicting the rates from year to year. Even when the Federal Reserve predicts growth, interest rates can rise due to a variety of factors, causing your monthly bill to rise with it.

•  Beyond individual borrowers, the prime interest rate also influences the financial market as a whole. A low prime rate makes it easier and less expensive to borrow loans which increases liquidity in the market.

•  Historically, when the prime rate is low, the economy grows. That’s why, if there’s a recession, rates may go down, with the goal of getting consumers and businesses to borrow again and stimulate the economy.

When the prime rate is high, economic growth slows down. For instance, recently interest rates were raised, which can nudge consumers to think twice about spending. This can lower demand and help bring down inflation’s impact.

•  The prime rate isn’t the only benchmark that banks use to inform interest rates. Banks also often use the SOFR, or Secured Overnight Financing Rate, which replaced the London Interbank Offer Rate (LIBOR). This reflects the rate that banks charge each other for short-term loans. The federal funds rate, prime interest rate, and SOFR rates generally fluctuate together. When the three rates are out of sync, this can be an indicator of an issue with the financial markets.

Recommended: How to Apply for a Personal Loan

The Takeaway

The prime interest rate is defined as the interest rate that banks charge their best customers who are considered low risk by banks. Interest rates play an important role when you are borrowing funds to finance an expense, so it pays to pay attention to them and shop around for the most favorable offer you can find.

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.

FAQ

What is the prime interest rate?

The term prime interest rate refers to the interest rate that banks charge their best customers, whether they are individuals or businesses.

What is the current prime interest rate?

At the end of October 2025, the prime interest rate was 7.00%.

What is the current interest rate for the Fed?

The St. Louis Fed reported the effective federal funds rate was 4.12% as of October 27, 2025.

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.

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