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If you’re repaying a variety of different debts to different lenders, keeping track of them and making payments on time each month can be time consuming. It isn’t just tough to keep track of these various debts, it’s also difficult to know which debts to prioritize in order to fast track your debt repayment. After all, each of your cards or loans likely have different interest rates, minimum payments, payment due dates, and loan terms.

Consolidating — or combining — your debts into a new, single loan may give your brain and your budget some breathing room. We’ll take a look at what it means to consolidate debt and how it works.

What Is Debt Consolidation?

Debt consolidation taking out one loan or line of credit and using it to pay off other debts — whether that’s car loans, credit card debt, or another type of debt. After consolidating those existing loans into one loan, you have just one monthly payment and one interest rate.

Common Ways to Consolidate Debt

Your options to consolidate debt depend on your overall financial situation and what type of debt you wish to consolidate. Here are some common approaches.

Balance Transfer

If you are able to qualify for a credit card that has a lower annual percentage rate (APR) than your current cards, a balance transfer credit card may be one option to consider and can be a smart financial strategy to consolidate debt if you use it responsibly.

Some credit cards have zero- or low-interest promotional rates specifically for balance transfers. Promotional rates are typically for a limited time, so if you pay the transferred balance in full before it ends, you’ll reap the benefit of paying less — or possibly zero — interest.

Credit card issuers generally charge a balance transfer fee, sometimes 3% to 5% of the amount transferred. If you use the credit card for new purchases, the card’s purchase APR, not the promotional rate, will apply to those purchases.

At the end of the promotional period, the card’s APR will revert to its regular rate. If a balance remains at that time, it will be subject to the new, regular rate.

Making late payments or missing payments entirely will typically trigger a penalty rate, which will apply to both the balance transfer amount and regular purchases made with the credit card.

Home Equity Loan

If you own a home and have equity in it, you may be considering a home equity loan. Home equity is the home’s value minus the amount remaining on your mortgage. If your home is worth $300,000 and you owe $125,000 on the mortgage, you have $175,000 worth of equity in your home.

Another key term lenders use in home equity loan determinations is loan-to-value (LTV) ratio. Typically expressed as a percentage, the LTV is similar to equity, but on the other side of the scale: Instead of how much you own, it’s how much you owe. The percentage is calculated by dividing the home’s appraised value by the remaining mortgage balance.

Lenders typically like to see applicants whose LTV is no more than 80%. In the above example, the LTV would be 42%.

$125,000 / $300,000 = 0.42
(To express this as a percentage, multiply 0.42 x 100 to get 42%.)

If you qualify for a home equity loan, you’ll typically be able to tap into 75% to 80% of your equity.

After the home equity loan closes, you’ll receive the loan proceeds in one lump sum, which you can use to pay your other debts.

A home equity loan is essentially a second mortgage, a secured loan using your home as collateral. Since there is a risk of losing your home if you default on the loan, this option should be considered carefully.

Personal Loan

If you don’t have home equity to tap into or you prefer not to put your home up as collateral, a personal loan may be another option to consider.

There are many types of personal loans, but they are typically unsecured loans, which means no collateral is required to secure the loan. They can have fixed or variable interest rates, but it’s fairly easy to find a lender that offers fixed-rate personal loans.

Recommended: Secured vs. Unsecured Loans 101

Generally, personal loans offer lower interest rates than credit cards. So consolidating credit card debt with a fixed-rate personal loan may result in savings over the life of the loan. Also, since personal loans are installment loans, there is a payment end date, unlike the revolving nature of credit cards.

There are many online personal loan lenders and the application process tends to be fairly simple. You may be able to use a loan comparison site to see what types of interest rates and loan terms you may be able to qualify for.

When you apply for a personal loan, the lender will do a hard credit inquiry into your credit report, which may temporarily lower your credit score. The lower credit score may drop off your credit report in a few months.

If you’re approved, the lender will send you the loan proceeds in one lump sum, which you can use to pay off your other debts. You’ll then be responsible for paying the monthly personal loan payment.

A drawback to using a personal loan for debt consolidation is that some lenders may charge origination fees, which can add to the total balance you’ll have to repay. Other fees may also be charged, such as late fees or prepayment penalties. It’s important to make sure you’re aware of any fees or penalties before signing the loan agreement.

Recommended: Personal Loan Calculator

Is Debt Consolidation Right For You?

Your financial situation is unique to you, but there are some considerations to be sure if debt consolidation is right for you.

Debt Consolidation Might Be a Good Idea If …

•   You want to have only one monthly debt payment. It can be a challenge to manage multiple lenders, interest rates, and due dates.

•   You want to have a payment end date. Using a home equity loan or a personal loan for debt consolidation will be useful for this reason because they are forms of installment debt.

•   If your credit is good enough to qualify for a zero- or low-interest rate balance transfer credit card, you may be able to consolidate multiple debts on one new credit card and save interest by paying off the balance before the promotional rate ends.

Debt Consolidation Might Not Be For You If …

•   If you think you’ll be tempted to continue using the credit cards you paid off in the debt consolidation process, you may just end up further in debt.

•   You may have to incur fees (balance transfer fee or origination fee), and if they are high, it might not make sense financially to consolidate the debts.

•   Consolidating your debts may actually cost you more in the long run. If your goal is to have smaller monthly payments, that generally means you’ll be making payments for a longer period of time and incurring more interest over the life of the loan.

Credit Card Debt Relief: How to Get It

Some people seek assistance with getting relief from debt burdens. Reputable credit counselors do exist, but there are also many programs that scam on people who may already be overwhelmed and are vulnerable.

Disreputable debt settlement companies may charge fees before ever settling your debt, guarantee that they will be able to make your debt go away, or claim there is a government program to bail out those in credit card debt. Companies may make other bogus claims, but these are common.

Even if a debt settlement company can eventually settle your debt, there may be negative consequences to your credit along the way. A debt settlement program may require that you stop making payments to your creditors. But your debts may continue to accrue interest and fees, putting you further in debt. The lack of payments may also take a negative toll on your payment history, which is an important factor in the calculation of your credit score.

Debt Relief: Is it a Good Idea?

What’s a good idea for some people may be a bad idea for others. Whether debt relief is a good idea for you and your financial situation will depend on factors that are unique to you. Working with a reputable credit counselor may be a good way to get some assistance that will help you get out of debt for good and create a solid financial plan for the future.

The Takeaway

Debt consolidation allows borrowers to combine a variety of debts, like credit cards, into a new loan. Ideally, this new loan has a lower interest rate or more favorable terms to help streamline the repayment process.

SoFi Personal Loans offer fixed, competitive interest rates with terms to work with a variety of budgets. Applying online is quick and easy.

Got high-interest debt? SoFi may be able to help.

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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.
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.
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Editor's Note: Since the writing of this article, the federal student loan payment pause has been extended into 2023 as the Supreme Court decides whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. The U.S. Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.

When you’re worried about money and feel your options are limited, debt can feel like a pair of handcuffs. And if it feels like you can’t do what you want to do — which is to pay it all off and get yourself free — there’s the temptation to do nothing. But there are some things that can be helpful when crafting a debt reduction plan that will work for your situation.

Tips to Build a Debt Reduction Plan

Prioritizing Expenses

Before you start prioritizing expenses, it’s important to have a clear understanding of what income is available and how much is being spent. This can be done with pen and paper, or by leveraging an all-in-one app, such as SoFi Relay.

Keeping a roof over their head is a number one priority for most people. Mortgage lenders are not very patient when it comes to getting their money, and failing to make a house payment can leave a big black mark on a person’s credit record. For renters, paying the property owner on time each month may have a positive impact on their credit report.

Making sure a car loan and car insurance are current, especially if that’s the only way to get to work, might be next in order of importance. After that come big debts, such as student loans, but those may be eligible for student loan forgiveness depending on the type of loan and if the qualifications for forgiveness are met.

Refinancing student loans into one manageable payment might be worth considering if that would save money with a lower interest rate or a shorter loan term. (For federal student loan borrowers, though, refinancing may not be the best option right now since the CARES Act and the Biden administration has offered some relief through Dec. 31, 2022.)

Making a plan to tackle credit card debt is also important. Each month, making the monthly minimum payment is important, otherwise, a person’s credit report can quickly reflect any lack of payment . And to manage the outstanding balances on those credit cards, it may be time to work out a new payment plan to get out from under credit card debt.

Once all that information is accounted for, moving forward with a personal debt reduction plan will make it easier to deal with all those long-term bills and relieve debt-related worry.

There are four popular approaches to knocking down debt. The debt avalanche method is probably best suited to those who are analytical, disciplined, and want to pay off their debt in the most efficient manner based solely on the math.

The debt snowball method takes human behavior into consideration and focuses on maintaining motivation as a person pays off their debt.

The debt fireball method is a hybrid approach that combines aspects of the snowball and avalanche methods.

And a personal loan may be an option for those who have a solid financial history or whose credit score has improved since they first signed up for their high-interest loans and credit cards.

Here’s how each strategy typically works.

Debt Avalanche

This method puts the focus on interest rates rather than the balance that’s owed on each bill.

1.   The first step is collecting all debt statements (e.g., credit card, auto loan, student loan) and determining the interest rate being charged on each debt.

2.   Making a list of all those bills is next, looking past the total amount owed on each debt. This method puts the debt with the highest interest rate in the spotlight, so that one will be at the top of the list, with the other debts listed in order of interest rate, second highest to lowest.

3.    Some things to keep in mind might be any fees, prepayment penalties, or tax strategies that could make one debt more or less expensive than the others. When using a balance transfer credit card to save money on any particular debt, reprioritizing the list once the introductory rate runs out and a higher rate kicks in plays a part in how this method works.

4.   Continuing to pay the minimum on each bill — on time, every month — is important. But paying extra (as much as possible) toward the bill at the top of the list will help that debt be paid off as quickly as possible.

5.    When the first debt is paid off, moving on to the next debt on the list and starting to pay extra there will start the process over again. Money will be saved as each of those high-interest loans and credit cards are eliminated, which can allow all the bills to be paid off sooner.

Recommended: Debt Avalanche Method 101

Debt Snowball

This approach can be effective in getting a handle on debt by slowly reducing the number of bills there are to deal with each month.

1.   This method also starts with collecting debt statements and making a list of those debts, but instead of listing them in order of interest rate, organizing them from the smallest debt to the largest (total amount owed, not monthly payment amount).

2.   Continuing to pay the minimum — on time, every month — but paying as much extra as possible toward the smallest debt on the list is key to this method. (If possible, completely paying off the balance on that very first bill might provide some sweet momentum to get started.)

3.   As with the debt avalanche method above, paying attention to fees, penalties, and tax strategies may determine which debt gets paid first.

4.   Moving on to the next debt on the list, and so on, will keep this method in motion. Keeping track of paid-off debts with a visual tracker might help with motivation.

5.   No longer using credit cards that have been paid off is a good way to stay out of debt for the long term. And having a goal to set up an emergency fund to cover unexpected expenses—a medical bill or car repair, for example — to stay on track is a good way to stay ahead of the game.

Recommended: Debt Snowball Method 101

Debt Fireball

This strategy is a hybrid approach of the snowball and avalanche methods. It separates debt into two categories and can be helpful when blazing through costly “bad debt” quickly.

1.   Categorizing all debt as either “good” or “bad.” “Good” debt is generally in the form of things that have potential to increase net worth, such as student loans, business loans, or mortgages, for example. “Bad” debt, on the other hand, is normally considered to be debt incurred for a depreciating asset, like car loans and credit card debt. As this list is being developed, identifying all debt with an interest rate of 7% or higher is likely the “bad” debt that may be beneficial to focus on first.

2.   Listing bad debts from smallest to largest based on their outstanding balances will provide the working order.

3.   Making the minimum monthly payment on all outstanding debts — on time, every month — then funneling any excess funds to the smallest of the bad debts is the focus of this method.

4.   When that balance is paid in full, going on to the next smallest on the bad-debt list will keep the fireball momentum until all the bad debt is repaid.

5.   When that’s done, paying off good debt on the normal schedule can be a smart way to invest in the future. Applying everything that was being paid toward the bad debt to a financial goal, such as saving for a house — or paying off a mortgage, starting a business, or saving for retirement, for example, is a good way to look forward to a financially secure future.

Using Personal Loans for Debt Reduction

Consolidating debts at a lower interest rate or with a shorter term offers another option to pay those debts off in less time than expected.

1.   Gathering debt statements and totaling up the debts to be paid off is the first step.

2.    To have an idea of interest rates that might be available (most lenders will offer a range), making sure the information on credit reports is accurate is the next important step. Any errors found on a credit report can be reported to the credit reporting agency.

3.    Looking at a variety of lenders to find the best interest rates and terms available will help when setting a goal to find a manageable payment while paying off the debt load as quickly as possible.

4.    Considering member benefits or other perks that lenders may offer, such as a hardship deferral or a discount on a future loan might make a difference when choosing a lender. Then, applying for the loan that best suits the borrower’s needs is the next step in the process.

5.   Paying off old debts with the personal loan and staying current with the new loan payments will help keep things manageable. Sticking to a budget that prevents the same spending mistakes from being made again is important to keeping debt at bay.

Personal loans used for debt consolidation can help pull everything together for those who find it easier to keep up with just one monthly payment. A bonus is that because the interest rates for personal loans are typically lower than credit card interest rates, the amount paid on the total debt may be less than what would have been paid just by plugging away at those individual debts. For those who qualify for a rate that’s less than their credit card rates, a personal loan can make sense.

The Takeaway

Having a debt reduction plan in place is key to getting rid of those financial handcuffs and being able to look forward to a successful financial future. Planning ahead, saving for specific goals, and sticking with a budget will go a long way to minimizing dependence on credit cards or high-interest loans in the future.

With an unsecured personal loan from SoFi, debts can be consolidated and paid off in a way that works for your income, budget, and timeline.

Ready to tackle your debt head-on? A personal loan from SoFi can help you consolidate your debt into one easy-to-manage monthly payment.

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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.
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.
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.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi’s Insights tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
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.

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Nothing beats the feeling of freedom you can achieve by being debt-free. Yet the average American is carrying $92,727 in debt. Paying off debt—whether it’s student loans, credit cards or more—can be a challenge.

Everyone’s financial situation is different, and this list is not exhaustive of all existing strategies, but here’s a look at some approaches that could help you get on top of common types of debt.

Creating a Budget

A budget can help you understand, and create a plan, for where your money is going. And this is where you can start to figure out how to live within your means to avoid accumulating new or more debt in the future, such as credit card debt.

To start your budget, take an inventory of all of your after-tax income. If you have one job, simply look at your net paycheck and multiply the number by how many times you’re paid each month.

Next, tally up necessary expenses. These might already include debt payments such as your student loans or a car payment. They can also include rent, utilities, insurance payments, food, and so on.

Subtract this total from your income and what you have left represents the money available for discretionary spending. If the amount of money you’re spending on discretionary expenses exceeds the amount you have available, you’ll likely need to make some adjustments to how you spend.

To pay off debt, focus a portion of the available discretionary income on debt payments.

The Snowball and Avalanche Methods

Once you’ve identified funds you can use to pay down debt, there are a number of strategies you can use to put that money to work. If you have multiple debts, you might consider the snowball or avalanche method.

If you decide to use the snowball method, list your debts in order of smallest balance to largest. Look exclusively at the amount you owe, ignoring the interest rate. Make minimum payments on all the debts to avoid penalties. Make all extra payments toward paying off the smallest debt.

Once the smallest debt is paid in full, move on to the next largest debt and so on. Use all of the money you were directing toward the previous debt, including minimum and extra payments, to pay off the next smallest. In this way, the amount you’re able to direct toward the larger debts should grow or “snowball.”

One downside to the snowball method is that while targeting your smaller debts first, you may be holding onto your higher interest debts for a longer period of time.

However, you should also theoretically get a psychological boost every time you pay off a debt that helps you build momentum toward paying all of your debts off. And if this extra push can help keep you motivated to continue eliminating debt, the benefits of this strategy might outweigh the extra costs.

The avalanche method takes a slightly different approach. To use this method, you would list your debts in order of highest interest rate to lowest. Once again, commit to making minimum payments on all of your debts first.

Then make any extra payments toward your highest interest rate debt. As you pay each debt off, move on to the next debt with the highest rate. The debt avalanche method minimizes the amount of interest you pay as you work to get debt-free, potentially saving you money in the long-term.

Choose the strategy that fits your personality and financial situation to increase the chances for success.

The Fireball Method

A hybrid approach to the snowball and avalanche methods, SoFi’s Fireball method asks you to first group your debts by good and bad debt. Good debts are those that help you build your future net worth, like a mortgage, business loans, or student loans.

Good debt typically carries interest rates of less than 7%. Bad debts, on the other hand, are those that work against your ability to save. Think credit cards where if you don’t pay your balance off each month, high interest rates and fees can quickly spiral into a big credit card bill.

Bad debts usually have interest rates higher than 7%, though credit card debt should always be characterized as bad debt even if you are taking advantage of a 0% interest promotion.

Now, list your bad debts in order from smallest to largest based on balance size. Continue making minimum payments on all debts, but funnel extra cash toward paying off the smallest of the bad debts.

Work your way up the list until all your bad debts are paid off. Pay off your good debts on a regular schedule while investing in your future. Once you’ve blazed through your bad debt, you may even have extra cash to help you accomplish those goals.

Balance Transfers

A balance transfer allows you to pay off debt from one or more high-interest credit cards (or other high-interest debt) by using a card with a lower interest rate. This strategy has a number of benefits. First, it helps you get organized.

Staying on top of one credit card statement might be easier than keeping track of many cards. What’s more, this strategy helps you free up the money you were paying toward higher interest rates, which you could use to accelerate your debt payments.

Some credit cards offer teaser rates as low as 0% for a set period of time, such as six months to a year. It may make sense to take advantage of one of these deals if you think you can pay down your debt within that time frame.

Be careful, however, when these teaser rates expire, the card might jump to its regular rate, which could be higher than the rates you were previously paying.

Paying More Than the Minimum

Credit cards allow you to make minimum payments—small portions of the balance you owe—until your debt is paid off. While this might seem convenient on the surface, this system is stacked in the credit companies’ favor. Making minimum payments can cost more in the long run than making larger payments and paying down debt faster.

That’s because as you make minimum payments, the remaining balance continues to accrue interest. Consider a credit card balance of $5,000 with a 15% interest rate. According to Bankrate’s minimum payment
calculator , if you only make minimum payments of $112.50 per month, it will take you 266 months (22 years!) to pay off your debt. And in that time you will have spent more than $5,700 on interest payments—more than your initial balance.

In an ideal world, you would pay your credit card balance off each month and wouldn’t owe any interest. But, if that’s not possible, consider paying as much as you can to minimize the cost of high interest rates.

Establishing Realistic Goals

It takes a lot of discipline to get debt-free. Setting measurable and achievable goals can help you stay on track. When setting reasonable goals, it might help to work backwards a little bit. Think carefully about how much money you actually are able to put toward your debts each month. Include factors like how much spending you can reasonably cut and how much you might be able to add to your income.

Don’t factor in extra income unless you’re sure you’ll be able to come up with it. Once you settle on your monthly amount, you can calculate how many months it will take you to pay your debt off. For example, say you have $500 dollars per month to help you pay off $10,000 in credit card debt with a 14% interest.

With an online credit card payoff calculator , you can determine that it will take you 23 months to pay off your card. So, a reasonable goal might be two years to get debt free, which even builds in a little wiggle room if you can’t come up with a full $500 in one of those months.

Finding Extra Cash

Finding the cash to pay off your debt can be tough, especially if you’re looking to accelerate your debt payments. The most obvious place to start is by cutting unnecessary expenses.

For example, you might forgo cable television or gym membership while you’re getting your debt in check. You may also try negotiating lower rates for some necessary expenses such as phone or internet bills.

Sometimes cutting expenses can only take you so far. Your discretionary income is limited since you still have to pay for your necessary expenses. You might consider starting a side hustle that can boost your income.

For example, you can get a second job, monetize your hobby by selling crafts online, or join the gig economy by driving for ridesharing apps like Lyft and Uber.

You can use windfall, extra cash from tax returns, bonuses at work, or generous birthday gifts to help accelerate your debt payments.

Rewarding Yourself

Paying off debt isn’t always fun. It can be a challenging process that could make you feel downright unhappy, discouraged, or even like you want to quit. That’s why it’s so important to treat yourself as you reach debt milestones.

Tethering productive behavior to rewards is a process that Wharton business school professor Katherine Milkman calls “temptation bundling .” This process can help you boost your willpower and stick to your goals.

So, choose a reward and tether it to a debt milestone like paying off a credit card, or paying off 10% of your debt. Each of these steps puts you closer to being debt-free, and that’s worth celebrating. When you reach one, indulge in your reward.

That said, you don’t want to undo any of the hard work you’ve just put yourself through. Set a budget for your reward or find something frugal that you enjoy doing.

For example, maybe you allow yourself a dinner in a nice restaurant after paying off 10% of your debt. Your reward could also be something free that you enjoy doing. Maybe you explore a new hike every time you achieve a goal.

Avoiding Taking on More Debt

While you’re paying off debt, especially if you’re trying to wrangle a bunch of high-interest debts, it’s important that you don’t add to your debt. If you’re trying to pay off a credit card, you might want to stop using it.

Otherwise, it may feel like you’re walking in sand, making a little bit of progress toward paying it off only to backslide a bit when you make new charges. In some cases, you may feel like you’re paying off your cards, but your debt payments are actually only covering your current spending.

You may not want to cancel your credit card, but consider putting it somewhere where it’s not easily accessible. That way you’ll be less tempted to use it for impulse buys.

It can also be helpful to track your spending. If the idea of busting out a spreadsheet every time you buy something has your stomach in knots, consider utilizing technology to do the work for you. An app like SoFi Relay can help you track your spending all in one place.

Consolidating Debt

Consolidating is another strategy that makes use of lower interest rates to pay off debt. When you take out a loan, it will come with a fixed interest rate and a set term. When you consolidate your debts, you are essentially taking out a new loan to pay off debts—hopefully with a better interest rate or term.

A new loan with a lower interest rate can save you money in the long run, especially if you’re carrying a sizeable balance. You may also be able to lower your monthly payments to make a budget more manageable on a month to month basis—or you may be able to shorten your terms, which can let you pay off the loan faster. Consider an unsecured personal loan from SoFi to assist you in your debt consolidation efforts.

Do keep in mind when consolidating debts that extending the term could lead to lower monthly payments but higher interest payments in the long run.

You may want to consider consolidating if your credit score has improved since you took out your loan. A higher credit score may mean banks are more willing to trust a borrower with a loan and will give them more favorable rates and terms. Also, keep an eye on the prime interest rate set by the Federal Reserve. When the Fed lowers interest rates, banks often follow suit, providing you with a possible chance to find a loan with lower interest rates.

The Takeaway

Digging yourself out of debt can be a challenging process, but with a well-crafted plan and discipline, it’s achievable. Evaluate your spending habits, determine how you are going to prioritize your debts, and stick to your plan by setting small, measurable goals. One option people consider is consolidating their high interest debt into a personal loan.

If you are thinking about taking out a loan to consolidate your debt, check out SoFi. SoFi offers credit card consolidation loans to help you get back in control. SoFi’s unsecured personal loans have low rates and no fees required.

Learn more about SoFi Personal Loans today.

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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.
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.
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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Debt often has a negative connotation, but there are plenty of good reasons to have it—for example, using student loans to increase your earning potential, funding an entrepreneurial venture with a small-business loan, or going to the “Bank of Mom & Dad” to pay for a move across the country for a great job.

But even when you have debt for good reasons, actually being in debt doesn’t feel great—especially if high-interest rate credit cards are monopolizing your monthly paycheck.

So how do you use debt to your advantage without letting it get you down? The key is to be proactive about paying it off. Luckily, there are plenty of great resources and techniques to help you create your debt payoff plan—but only you will know what’s best for your unique financial situation.

While none of this is meant to be financial advice, which you should always seek out from a professional, here are a few tips to consider:

Customizing Your Debt Payoff Plan Approach

The words “snowflake,” “snowball” and “avalanche” might sound like an increasingly alarming day on the mountain, but they also apply to three popular debt payoff methods, one of which may be just right for you.

As Melissa Batai from Money Crashers explains, “Snowflaking is the process of using extra money gained here and there to pay down your debt above and beyond your planned monthly payment.” You can acquire this extra cash through things like side gigs, selling the stuff you no longer need, and renting out a room in your house.

The Snowball Method entails paying off your debts in order from smallest to largest–regardless of their respective interest rates. “The benefit … comes from seeing one of your debts paid off sooner,” says Darren Wu from Wisebread. “This, in turn, can provide an emotional boost.”

It is important to remember with this method that you shouldn’t ignore your other debt while you focus on your smallest one. And, of course, it’s crucial to continue making at least the minimum payment on all of the debt you owe.

But people using the debt snowball method, beware: Ignoring interest rates usually means paying more money in the long run. If savings is your main priority, you’ll probably want to look at the Avalanche Method, which has you putting more money toward your higher-interest rate debt first. Not only does this approach save you money, it can also help you get debt-free sooner.

Trying a Debt Detox

People often compare getting fiscally fit with getting physically fit, and with good reason. Whether you’re trying to achieve financial goals or health and fitness goals, you’re more likely to succeed if you have a good plan in place, a fair amount of willpower, and a desire to change your habits.

That was the approach Anna Newell Jones of And Then We Saved took when she decided to embark on a Spending Fast®. It entailed “spending money on necessities only to see what happens, how much debt I can get out of, and how much I can get into savings.”

Fifteen months later, she’d eliminated nearly $24,000 in debt and inspired her readers to save over $320,000 by doing the Spending Fast® (and its less austere cousin, the Spending Diet) right along with her.

Upping the Minimum

Another approach for a debt payoff plan is to pay more than the minimum balance each month. Whether you have student loans or credit card debt, paying more than the minimum can help accelerate your debt payoff journey.
It can be tempting to just stick with paying the minimum balance due rather than adding to it. But paying as much as you can each month (without stretching yourself too thin) can add up. In order to make this happen, however, you may have to make a few sacrifices.

Making coffee at home, cooking for yourself, or exercising outside instead of paying for a pricey gym membership are all small changes that can help save extra money each month to put toward your debt.

By increasing how much is allocated toward monthly payments, you could pay off your debt faster and therefore save on interest. And who wouldn’t want to be out of debt sooner?

Trying a Balance Transfer

Balance transfer credit cards sometimes offer low or even 0% introductory annual percentage rate, or APR, periods for high-interest credit card debt transfers. Some credit cards offer up to 21 months of 0% interest, which can help keep you from accumulating even more debt via interest.

Reasons people apply for a balance transfer credit card include:

•  Having high-interest credit card debt
•  A desire to simplify payments on one card, rather than managing payments on multiple credit cards
•  Wanting to take advantage of a good promotional deal (for example, 21 months of 0% interest)

But it is important to remember that this debt payoff strategy is optimal if you know you can pay off your entire debt by the time the low- or no-interest period ends. Otherwise, you will go back to accruing interest on your debt after the introductory period ends.

Our Credit Card Interest Calculator can help you discover how much you are paying in interest alone on your credit card debt.

Recalibrating Your Rate

High-interest rate debt is not only expensive, it can also take forever to pay off. But just because your loan or credit card came with a high rate doesn’t necessarily mean you’re stuck with it forever.

For one thing, if you have student loans, new options for student loan refinancing have become available in the past few years. When you refinance your student loans with a private lender, you are taking out a completely new loan with a new interest rate.

You can refinance both private and federal student loans with a private lender, but understand that if you refinance federal loans you will lose access to all federal benefits like deferment, income-driven repayment plans, and public service loan forgiveness programs.

If you have an improved financial profile from when you took out your original loan, however, you may be able to qualify for a lower interest rate. By obtaining a lower interest rate, you could save money over the life of the loan. Or you may be able to select a shorter term with higher payments but a quicker payoff—and save money on interest payments.

And if you have high-interest rate credit cards, you can look into consolidating them with a low-interest rate unsecured personal loan. One plus of taking out a personal loan to consolidate your debt is that personal loans are typically installment loans, which means they have a fixed repayment period. That means you’ll know exactly when your loan will be paid off.

In contrast, credit card debt is “revolving debt,” which means you can continuously add to the debt even while paying it off. That’s not an option with a personal loan. By consolidating your credit card debt with a personal loan, you could also potentially qualify for a lower interest rate, which can make your debt easier to manage.

On the flip side, a personal loan may not be right for everyone. Some personal loans come with origination fees, late fees, or prepayment penalties, which could potentially drive up the cost of your loan. When shopping around for debt payoff solutions, you may want to consider any hidden fees that could come with a personal loan.

No matter what debt payoff plan you choose, the key is to take control of your debt rather than letting it control you. Ultimately, executing a successful debt payoff strategy might help you focus on the positive outcomes that happened as a result of your debt, rather than the frustration of having to pay it back.

Need help consolidating your debt? See how a SoFi personal loan can help get you on the right track to becoming debt free.

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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 Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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Ideally, you would never carry credit card debt, and you’d pay off your statement balance in full every billing cycle, by the due date. Unfortunately, that doesn’t always happen. Emergencies come up. Budgets get derailed.
If you’re having trouble paying off your credit cards, know that you’re not alone.

According to the New York Fed, as reported by NerdWallet, Americans carried an average revolving credit card debt of $6,849 at the end of 2019.

It’s not necessarily a problem to have a balance on your credit card—as long as you pay it off every billing cycle. In fact, using credit cards for rewards or to build credit can be a financially healthy choice. And getting into the habit of paying off your statement balance in full by the due date is important.

But if you start to carry a credit card balance, you’re not just paying for your purchases, you’re paying hefty interest charges on top of what you’ve spent. In fact, the average household with credit card debt paid $1,162 in interest in 2019 .

The problem is when you don’t completely pay off your credit card balance each cycle, the debt can quickly pile up, even if you’re making the required minimum payments. Understanding how credit card interest and penalties compound can help you understand how to reduce your credit card debt.

How Credit Card Interest, APR, Works

When you applied for a credit card, you likely read about the fees, terms, and annual percentage rate. The APR, which for credit cards is usually stated as a yearly rate, is the approximate interest percentage you will pay on balances not paid in full by the statement due date. APRs vary across credit cards and depend on your credit history, but on average, credit card APRs range from around 13% to 23% .

Most credit cards charge compounding interest, which means that you end up paying interest on the interest you accrue. Essentially, if you don’t pay your statement in full each billing cycle, interest is calculated continually and added onto your balance, which you then also pay interest on (in other words, it compounds).

For example, if you owe $100 and your interest is compounded monthly at 10%, then after the first month you’d owe $110. And after the second month, you’d owe $121.

Most credit card interest is compounded daily, so every day you owe money after the due date, the interest climbs. It’s easy to see how compounding interest can add up.

Interest compounds even if you make the minimum payments. That’s because if you just pay the minimum amount due on your monthly credit card bill, then the remainder of the debt still accrues interest, and it compounds until you pay the balance off completely.

If you are wondering how much interest you could pay on your debt, you can take a look at SoFi’s Credit Card Interest Calculator to find out.

What Happens When You Stop Paying Your Credit Card?

Unfortunately, you can’t just ignore credit card bills until they go away. If you stop paying your credit card, your balance can inflate quickly.

If you miss a payment or don’t make the minimum payment due on a bill, you will typically face a late fee or penalty. In addition, the amount you still owe on the credit card—whatever you haven’t paid—continues to accrue interest, and that gets added onto future bills.

If you miss more than two payments, then your interest rate will likely increase to a higher penalty interest rate . And once your credit card interest rate goes up to the penalty rate, it usually stays there until you make at least six on-time payments. Those details are laid out in your credit card contract, even if you didn’t read all the fine print.

If something does come up and you know you’re going to be late on a credit card payment, you should consider contacting your credit card company. Some credit card companies may offer plans to allow you to pay off just the interest or a portion of the payment due.

These options aren’t ideal, since the remaining debt still accumulates interest, but it may allow you to avoid having a delinquency on your credit report. After 30 days of being delinquent on credit card payments, you’ll be reported to all three major credit bureaus—and will be again, every 30 days thereafter, if you still haven’t paid.

As accounts become more and more past due, more fees can rack up and/or the credit card company could offer a settlement, or they could attempt to get a judgment against you for the total amount owed. They could also sell your debt to a collection agency as you get closer to the 120 days late mark.

To sum up: even if you always make the minimum payment due, if you’re not paying off the full credit card debt, then the remainder will accrue compounding interest. That can still add up, and the debt can start to feel insurmountable. But there are ways to lower your interest rate and get rid of your credit card debt before it ever spirals totally out of control.

Getting Ahead of Credit Card Debt

While it can seem like a steep, uphill climb, getting out of credit card debt is possible. It might take some serious planning and commitment, but with the right tools, it’s an achievable goal.

Sometimes it can help to break it down into smaller steps so the process doesn’t seem as overwhelming. Here are some ideas for getting ahead of credit card debt:

Limiting the Use of Credit Cards

If you’re carrying credit card debt, you can try to avoid using the card while you’re getting the balance under control. Eliminating the use of your credit cards can be challenging.

Using credit cards means you’re still adding to your overall debt total, which can make it feel like you’re constantly treading water to stay afloat, instead of making progress toward eliminating your debt. One way to avoid this is to limit the use of your credit card while you take control of your debt.

Budgeting for Debt Repayment

To get serious about repaying your credit card debt, create a plan that will help you get there. One place to consider starting is revamping your budget. If you don’t have one, you may want to think about making one.

If you do have a budget, but it’s currently gathering digital dust in a spreadsheet or going unchecked in an app, it may be time to update it. Tallying up your monthly expenses and your monthly income is a good first place to start.

If you’re budgeting with a partner, including their information as well may help your budget realistically reflect your household finances. Then comes the hard part. What patterns do you see when you look at your spending habits?

To eliminate your credit card debt you may have to make some changes to your regular spending. Identifying areas where you can cut back may help you see those trouble spots. Are impulse orders on Amazon dragging you down? Overspending on new clothes? Food? Whatever it is, understanding your spending vices can help you get them under control.

As a part of this improved (or new) budget, detail your plan for reducing your debt. There are a few strategies, including the “debt avalanche” and the “debt snowball” methods.

In order to accelerate the debt repayment process, both methods encourage debt holders to overpay on certain debts each month, while making the minimum payments on all other debts.

The main difference is how each strategy organizes the debts. In the debt avalanche method, the debts are organized by interest rate. The idea here is to focus on the debt with the highest interest rate. When that debt is paid off, you’d roll the payment previously allocated to it into the payment for the debt with the next highest interest rate. You’d do this until the debts are repaid completely.

In the debt snowball method, the debts are organized by balance amount. Here, efforts are focused on the debt with the smallest balance. When that is paid off fully, payments previously allocated to that debt are rolled into the debt with the next smallest amount. Continue until all the debts are paid in full.

Both strategies have pros and cons, so consider which method you’ll be most able to stick with and create a strategy that will work for you.

Finding Help (If You Need It)

If you’re still struggling with credit card debt, consider getting help from a qualified professional. A debt or credit counselor may offer resources to put you in a better position to repay your debt. They may be able to offer personalized advice or help you create a plan to achieve your goal.

How Do You Lower Your Credit Card Interest?

In addition to crafting a debt repayment plan, if you’ve accumulated a large amount of credit card debt, then it might make sense to consolidate it all with a lower-interest loan or credit card.

Balance transfer credit cards allow you to transfer your credit card debt onto a lower-interest or no-interest card, usually for a promotional period of six to 12 months, and then pay off that card.

However, these cards often come with fees and a much higher interest rate that kicks in after the promotional period has ended. So essentially, you may be setting yourself up to face the same problem all over again unless you can pay off your debt within the promotional period.

Another option is to take out an unsecured personal loan with (ideally) a lower interest rate. Essentially, you’d use the personal loan to consolidate and/or pay off your credit card(s) balances, and then you’d pay off the personal loan.

You could choose a fixed interest rate on most personal loans, which means the interest won’t compound and the rate won’t change over the life of the loan. Personal loans just require you to make one simple monthly payment, over a set period of time (no revolving debt here); you can typically work with the lender to find a repayment timeline that works for you.

Learn more about how a SoFi personal loan may be able to help you tackle your credit card debt.

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