A wash sale occurs when an investor sells a security at a loss, and buys a very similar security within a 30-day window of the sale (30 days before or after). The wash-sale rule is an Internal Revenue Service (IRS) regulation that states an investor can’t receive tax deduction benefits if they sell an investment for a loss, then purchase the same or a “substantially identical” asset within 30 days before or after the sale.
While investors may find themselves in a position in which it may be beneficial to sell securities to harvest losses, it’s important to know the wash-sale rule in and out to avoid triggering penalties.
Key Points
• Selling a security at a loss and repurchasing it within 30 days triggers the wash-sale rule.
• The wash-sale rule applies to stocks, bonds, mutual funds, and ETFs.
• Losses from wash sales cannot be used to offset taxable income.
• The wash-sale rule applies across all accounts, not just one.
• A wash sale can result in a higher cost basis in the new investment.
Which Investments are Subject to the Wash-Sale Rule?
The wash-sale rule applies to most common investments, including:
• Stocks
• Bonds
• Mutual funds
• Options
• Exchange-traded funds (ETFs)
• Stock futures contracts
Transactions in an individual retirement account (IRA) can also fall under the wash-sale rule. The wash-sale rule does not apply to commodity futures or foreign currency trades. The rule also applies if an investor sells a security that has increased in value and within 30 days buys an identical security. They will need to pay capital gains taxes on the proceeds.
What Happens When You Trigger a Wash Sale?
Investors commonly choose to sell assets at a loss as part of their tax or day trading strategy, or they may regret selling an asset while the market was down, and decide to buy back in.
The intent of the wash-sale rule is to prevent investors from abusing the tax benefits of selling at a loss, and claiming artificial losses.
In the event that an investor does trigger a wash sale, they will not be allowed to write off the loss when they do their tax reporting to the IRS. This means the investor won’t receive any tax benefit for selling at a loss. The rule still applies if an investor sells an investment in a taxable account and buys it back in a tax-advantaged account, or if one spouse sells an asset and then the other spouse purchases it that also counts as a wash sale.
It’s important for investors to understand the wash-sale rule so that they account for it in their investment and tax strategy. If investors have specific questions, they might want to ask their tax advisor for help.
Unfortunately, the guidelines regarding what a “substantially identical” security is are not very specific. The easiest way to avoid wash sales is to create a long-term investing strategy involving few asset sales and not trying to time the market. Creating a diversified portfolio is generally a good strategy for investors.
Another important thing to keep in mind is the wash-sale rule applies across an investor’s accounts. As such, investors need to keep track of their sales and purchases across their entire portfolio to try and make sure that the wash-sale rule doesn’t affect any investment choices.
What to Do After Selling an Asset at a Loss
The safest option is to wait more than 30 days to purchase an asset after selling a similar one at a loss. An investor can also invest funds into a different asset — a different enough asset, that is — for 30 days or more and then move the funds back into the original security after the wash sale window has passed.
There are benefits to selling an asset at either a profit or a loss. If an investor sells at a profit, they make money. If they sell at a loss, they can declare it on their taxes to help offset their capital gains or income. If an investor has significant capital gains to report, they may decide to sell an asset that has decreased in value to help lower their tax bill. However, if they hoped to reinvest in an asset later, a wash sale can ruin those plans.
In some cases, simply selling a stock from one corporation and purchasing one from another, different corporation is fine. Even selling a stock and buying a bond from the same company may not trigger a wash sale.
Investing in ETFs or Mutual Funds Instead
If an investor wants to reinvest funds in a similar industry while avoiding a wash sale, one option would be to switch to an ETF or mutual fund. There are ETFs and mutual funds made up of investments in particular industries, but they are often diversified enough that they wouldn’t be considered to be too similar to an individual stock or bond. It’s possible that an investor could sell an individual stock and reinvest the money into a mutual fund or ETF within a similar market segment without violating the wash-sale rule.
However, if an investor wants to sell an ETF and buy another ETF, or switch to a mutual fund, this can be more challenging. It may be difficult to figure out which ETF or mutual fund swaps will count as wash sales, and which won’t.
Wash-Sale Penalties and Benefits
If the IRS decides that a transaction counts as a wash sale, the investor can’t use the loss to reduce their taxable income or offset capital gains on their taxes for that year.
However, there can be an upside to wash sales. Investors can end up with a higher cost basis for their new investment, because the loss from the sale is added to the cost basis of the new purchase. In addition, the holding period of the sold investment is added to the holding period of the new investment.
The benefit of having a higher cost basis is that an investor can choose to sell the new investment at a loss and have a greater loss for tax reporting than they would have. Conversely, if the investment increases in value and the investor sells, they will have a smaller capital gain to report. Having a longer holding period means an investor may be able to pay long-term capital gains taxes on a sale rather than short-term gains, which have a higher rate.
The Takeaway
The wash-sale rule is triggered when an investor sells a security at a loss, but then turns around and buys a similar security within 30 days — either before, or after. It’s a bit of an opaque rule, but there can be consequences for triggering wash sales. That’s why understanding regulations like the wash-sale rule is an important part of being an informed investor.
Part of making solid investing decisions is planning for taxes and understanding what the benefits and downsides may be for any particular transaction. This is just one aspect of tax-efficient investing that investors might want to consider.
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Legal fees can get expensive. Whether you need to hire an attorney for a divorce case, to represent you against criminal charges, or to guide you through the adoption process, the cost can be prohibitive — but that doesn’t mean you should move forward without legal counsel.
Instead, there are a few different ways to pay for a lawyer, including personal loans. We’ll review how to get a loan for legal fees, as well as other options available to you.
Key Points
• Personal loans can cover legal fees, providing access to legal help despite financial constraints.
• Personal loan interest rates and fees vary by lender and are often higher for borrowers with bad credit.
• Credit cards, payment plans, and crowdfunding offer alternative methods to cover legal fees.
• Pros of personal loans include fixed monthly payments and potentially lower costs compared to credit cards.
• Cons include high interest rates with bad credit and the risk of financial strain from additional monthly payments.
What Are Loans for Legal Fees?
While you cannot find a loan designed specifically for legal fees, you can take out a personal loan to cover your legal costs. If your lawyer mentions taking out a loan for payment, they’re likely referring to a personal loan.
How Do Loans for Legal Fees Work?
Personal loans for legal fees work much like any other personal loan. You borrow a sum of money, and pay it back — with interest — over a period of time.
Loan rates and terms vary by financial institution. In general, the longer the loan term, the higher your annual percentage rate (APR) will be. However, because the repayment is spread out over more years, the monthly payments tend to be lower. Personal loan terms usually range between two and seven years.
When you get a personal loan for legal fees, you’ll get the lump sum from the lending institution to pay your lawyer. Some banks offer same-day funding. Then, rather than owing the lawyer, you’ll owe the lender until the loan is paid off in full.
Keep in mind that, in addition to interest, some personal loans include origination fees and prepayment penalties.
Typical Legal Loan Requirements
When you go to apply for a personal loan, the lender may have a few requirements you’ll have to meet. These may vary by financial institution.
Credit Score
A key factor in getting approved for a legal loan is your credit score. In general, the higher your credit score, the better your chances of approval and at a lower interest rate.
The credit score you need for a personal loan will vary by institution. Some lenders may even grant personal loans to borrowers with bad credit. In those cases, fees and APRs are typically very high.
Speaking of your credit score, most lenders offer soft pulls for personal loans to see if you’re qualified. But once you apply, expect a hard inquiry on your credit report, which will temporarily lower your score.
Debt-to-Income Ratio
Lenders also factor in your debt-to-income (DTI) ratio when considering your loan application. Your DTI ratio is the total amount of your monthly debts (think car payment, student loan payments, credit card bills, mortgage, etc.) divided by your monthly income.
The lower your DTI ratio, the better your chances of getting approved for a personal loan for legal fees with favorable rates and terms.
Proof of Income and Employment
To get a legal fee loan, you’ll need to demonstrate your ability to repay it to the lender. That means that lenders may want to see proof of income and employment, such as a signed letter from your employer, pay stubs, and/or W-2 forms.
Some lenders charge a loan origination fee when you take out a personal loan. This is a one-time fee at the start of the loan that covers the administrative costs of processing the loan. (If you’ve ever bought a house, you likely paid a mortgage origination fee as part of your closing costs.)
Personal loan origination fees might be flat fees or a percentage of the loan amount. Not every lender charges these fees.
Collateral
Loans for legal fees are usually unsecured personal loans, meaning they’re not backed by any collateral. Other examples of unsecured loans are traditional credit cards and student loans, where you can borrow money without putting up assets as collateral. Because there’s no collateral, fees and interest rates tend to be higher.
In some instances, personal loans can be secured, meaning you’d have to put up some kind of collateral, like a car or house. Secured personal loans may have lower fees and interest rates, but costs vary by lender.
If you get a secured personal loan for your legal fees, you’ll need to offer some kind of collateral to the lender.
Pros and Cons of Using a Loan to Cover the Cost for Legal Fees
Thinking about using a personal loan to cover legal fees? Here are the pros and cons to consider:
Pros of Legal Fee Loans
Cons of Legal Fee Loans
You get access to the legal help you need, even if you can’t afford it right now.
You’ll pay more over time because of interest and fees.
Personal loans for legal fees may be cheaper in the long run than paying with a credit card.
Interest rates are typically high if you have bad credit.
You can often get same-day funding.
Your budget may be strained with another monthly payment to manage for several years.
Unlike credit card APRs, personal loan interest rates are usually fixed; you can count on the same monthly payment until it’s paid off.
Missing a payment can have financial consequences.
Unsecured loans don’t require collateral, so you don’t have to put your house or car at risk.
You may be overlooking cheaper alternatives, like a payment plan through the law office or crowdfunding online.
How Legal Fees Are Billed
Legal fees can run the gamut. Your attorney may charge you several types of fees during the course of their representation. Here’s a quick look at some of the fees you might incur when hiring a lawyer:
• Hourly fees: A lawyer will likely charge you by the hour for their services — and that’s not just the hours you spend consulting with them. Lawyers do a lot of work on your case behind the scenes, and they’ll bill you for it. Hourly rates can range from as little as $100 an hour to as much as several thousand dollars an hour, depending on the lawyer’s experience, the complexity of the case, and geographic location. The average hourly rate for a lawyer in 2024 was $341, according to the Clio 2024 Legal Trends Report.
• Flat rates: Sometimes, a lawyer might charge you a simple fixed fee for a specific service. This is typically for less involved work (i.e., no court representation). For instance, they may charge a set rate to prepare your will or help you with a real estate transaction, bankruptcy filing, or uncontested divorce.
• Contingency fees: As the name implies, these fees are contingent. You’ll only pay them if you win your case and are awarded a monetary sum. Often, a lawyer’s contingency fees are a percentage of that sum.
• Litigation fees: Your lawyer may include this as a line item on your invoice, but really, it’s a catch-all for several fees. These include court filing fees, attorney’s fees, expert witness fees, fees for re-creating an accident or accessing records, copy fees, and others.
Alternatives to Legal Loans
A legal loan is not your only option for covering legal fees. If you don’t want to take out a personal loan or don’t qualify, consider these other options. Just make sure to steer clear of predatory lending.
Credit Cards
Many lawyers accept credit cards as a payment method for their services. If that’s your preferred payment method, ask a lawyer if they accept credit card payments. If they say no, keep looking for a different option.
Just keep in mind that credit cards may have higher interest rates than a personal loan. Check your credit card’s APR to calculate how much you might owe in interest if you don’t pay off your credit card balance quickly.
Legal Payment Plans
Some law offices may offer payment plans to their clients. In this case, you would pay your lawyer in monthly installments rather than in one lump sum.
While not every lawyer offers this option, it never hurts to ask. This is another question you can ask upfront before hiring a lawyer.
Crowdfunding
Asking friends and family for financial help is never easy, but loved ones may chip in if you’re in a bind.
Alternatively, you can seek a wider net of potential benefactors by crowdfunding on social media or using official crowdfund platforms. Just keep in mind that such platforms often keep a percentage of the funds as payment.
The Takeaway
Whether you’re adopting a child, getting a divorce, fighting criminal charges, or suing a person or business as a victim, enlisting the help of a lawyer can give you peace of mind. But it will cost you — the average lawyer charges $341 an hour. The good news is, you have options when it comes to paying for costly legal fees, including paying with a credit card, going on a payment plan with your attorney, or asking loved ones for the money. A personal loan may also be a worthwhile avenue to explore.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
Is it legal to take out a loan for legal fees?
Yes, it is legal to take out a loan for legal fees. Legal funding loans are simply personal loans that you take out with a lender to cover the cost of hiring a lawyer.
Can legal fees be tax deductible?
If you’re a business owner who incurs legal fees for your business, you can deduct the cost on your taxes. This applies to property owners who incur legal fees when renting out their property to tenants. In addition, legal fees related to adopting a child are tax-deductible through the federal adoption tax credit.
Can legal fees be paid in installments?
Many law firms offer payment plans to their clients that allow them to make payments in installments. If your lawyer doesn’t offer this and you can’t pay out of pocket, you can also look for a legal finance loan (a personal loan) to cover the cost. While you’ll pay the lawyer in a lump sum, you’ll pay off the loan in installments.
Photo credit: iStock/Andrii Yalanskyi
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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.
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.
Many people hit a period of financial hardship at some point in their lives. Maybe there’s a medical emergency and big bills, a job layoff, or a family member in serious need: These and other scenarios can put your money management in a precarious position.
Approximately 73% of Americans report feeling stressed about money, according to an April 2025 CNBC/SurveyMonkey poll. Financial stress can be triggered by anything from the high cost of living to excess debt to worrying about saving for one’s (and one’s family’s) future.
Here, you’ll learn more about what happens when financial hardship hits and how to take steps to improve the situation, from applying for assistance to negotiating with lenders to discovering new sources of income.
Key Points
• Financial hardship can be temporary or long-term, and often requires tailored strategies to address.
• Creating a budget and cutting nonessential expenses can help manage financial difficulties.
• Consolidating debt with a personal loan can simplify and potentially reduce the total interest paid.
• Turning hobbies into side hustles can provide additional income to support financial recovery.
• Contacting lenders and service providers for assistance can help prevent further financial strain.
What is Financial Hardship?
Everyone probably has their own definition of “economic hardship” that’s based on their own needs and wants. And the federal government has its own criteria for what counts as a “hardship” when it comes to taking an individual retirement account (IRA) distribution, looking for tax relief, or requesting a student loan deferment.
But generally, a financial hardship is when an individual or family finds they can no longer keep up with their bills or pay for the basic things they need to get by, such as food, shelter, clothing and medical care.
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Warning Signs
Sometimes financial difficulties can sneak up on a person, and catch them completely off guard. Other times, the warning signs have been there for a while, but were missed or ignored.
Identifying the root cause of financial distress can help give you a head start on working through your money issues. What follows are some red flags that may signal you are headed for financial difficulty or hardship.
Having Credit Card Balances at or Above the Credit Limit
While using credit cards may seem like a good way to get around a short-term lack of funds, the practice could lead to extra fees and negatively impact your credit. The percentage of available credit someone is using — known as a credit utilization ratio — can indicate to lenders how heavily they’re depending on credit cards to get by. And because it’s one of the major factors in determining a person’s overall credit score, financial advisors typically recommend keeping card balances at or below 30% of the limit.
Juggling Which Bills Get Paid Each Month
It may be tempting to skip a payment from time to time, hoping to catch up eventually — but there can be short- and long-term consequences for juggling bills. Insurance coverage may be lost. There may be a late fee, or a bill could be turned over to a collection agency.
Utilities can also be shut off, and a deposit might be required to restart the account. Making late payments on a credit card could lead to a higher interest rate on the account. And late payments and defaults can hurt credit scores.
It may be necessary to make minimum payments if times are especially tight, and there likely won’t be any short-term harm. But even if you stop making purchases, just the interest charged will keep the account balance growing, possibly extending the amount of time it takes to pay down that debt by months or years.
Often Paying Late Fees or Overdraft Fees
A one-time mistake may serve as an annoying reminder to be more cautious with money management, but if late fees, overdraft and non-sufficient funds fees, and overdraft protection transfers become a regular thing, they can add another layer of worry to your financial burden. (Using alerts, automatic payments, and apps from your financial institution may offer a more effective method to track bills as well as deposits and withdrawals.)
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Having a High Debt-to-Income Ratio
Lenders often use a person’s debt-to-income ratio — a personal finance measure that compares the amount of debt you have to your income — to determine if a borrower might have trouble making payments. If a person’s debt-to-income ratio is high, it could make it more difficult to borrow money, or to get a good interest rate on a loan.
Tapping Retirement Savings to Pay Monthly Bills
In certain cases, the IRS will allow an account holder to withdraw funds from a 401(k) or IRA to cover an immediate and heavy financial need (such as medical expenses, payment to avoid eviction or repair home damage) without paying the 10% early withdrawal penalty. But taxes will still have to be paid on those distributions. And taking that money now, instead of letting it grow through the power of compound interest, could have serious repercussions for the future.
Dealing with Financial Hardship
For those who’ve been struggling for a while, or who’ve had a sudden but substantial financial loss, it might feel as though you’ll never recover. But there are several options you might consider taking to get back on track. Some you can do for yourself, while others might require getting financial hardship help from others. And while some might be temporary, others take a longer view. Here are a few:
Reducing Monthly Spending
Creating a monthly budget can help guide your spending decisions and make the most of the money you have. This may involve prioritizing your monthly expenses, starting with the essentials and going down to the “nice to haves.” Once you’ve established which expenses are the most important, you can then look for places to cut back or things to cut out of your budget altogether. Cutbacks may not feel fun, but they can help jump-start your recovery.
For example, could you cut costs if you cooked meals yourself more often? Are you trying too hard to keep up with what friends and family are spending on clothes, vacations, and cars? Are there monthly bills that could be reduced? (For example, you might be able to save money on streaming services, internet, and phone services; manicures and other beauty treatments; or even rent, insurance, or car payments.) It may help to start by tracking expenses for a month or so to get an idea of where money is going, and then sit down and map out a more realistic path for the future.
Creating a Debt Reduction Plan
Along with a budget, it also may be useful to come up with a plan for paying down credit card balances, student loans, and other debt. It’s important to always make the minimum payment on all these bills, if possible, but a personal debt reduction plan could help with prioritizing which bill any leftover money might go toward after all the household expenses are paid each month — or the money might come from a tax refund, bonus check from work, or a gift. Knocking down debts that include high amounts of interest can eventually free up more cash to put toward short- or long-term savings goals.
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Looking for Ways to Earn Extra Income
Is there a way to turn a hobby, skill, or interest into some extra funds? Maybe a favorite local business could use some part-time help. Or, if a second job is out of the question, perhaps a side hustle with flexible hours is a possibility. Writers, artists, and designers, for example, may be able to turn their talents into a side business. Babysitting the neighbor’s kids or running errands for an older person are also options. And, of course, on-demand services like Uber and DoorDash are employing drivers, delivery persons, and other workers.
Considering a Loan to Consolidate Bills
Getting a personal loan for debt consolidation won’t make money problems go away completely — but it might make managing payments a little simpler. With just one monthly payment (instead of separate bills for every credit card or loan) it can be easier to keep tabs on how much is owed and when it’s due.
Because interest rates for personal loans are typically lower than the interest rates credit card companies offer (especially if a rate went up because of late payments), the payoff process for that debt could go faster and end up costing less. (Generally, lenders offer a lower interest rate to those who have a higher credit score; borrowers who are already behind on their bills may pay a higher interest rate or have more trouble getting a loan.)
Student loan borrowers also may want to look into consolidating and refinancing with a private lender to get one manageable payment and, possibly, save money on interest with a shorter term or a lower interest rate. Refinancing may be a solution for working graduates who have high-interest, unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans.
Just keep in mind: Federal loans carry some special benefits that private loans don’t offer, including public service forgiveness and economic hardship programs, so it’s important for borrowers to be clear on what they’re getting and what they might lose if they refinance.
Notifying and Negotiating
Ignoring credit card payments and other debts won’t make them disappear. Borrowers who can clearly see they’re headed for financial trouble may wish to notify their credit card company or lender and try to work out a more manageable payment arrangement. (There are debt settlement companies that will do the negotiating, but they charge a fee for their services.)
A credit card issuer may agree to a reduced, lump-sum payment or a repayment plan based on the borrower’s current income, or it may offer a hardship program with a lower interest rate, lower minimum payments, and/or reduced penalties and fees. The options available could depend on why a customer fell behind, or if they’ve had problems before.
Financial hardship assistance is sometimes offered by mortgage lenders. Because these lenders generally don’t want their borrowers to foreclose on their homes, it’s in their best interest to work with borrowers when they get in trouble. The lender may be willing to help the borrower get caught up by forgiving late payments, or they may change the interest rate of the loan or lower the payment.
If you have federal student loans and are experiencing financial hardship, you might qualify for a special repayment plan, such as pay-as-you-earn, or an income-based repayment plan.
It can also be helpful to reach out to service providers (such as water, electricity, internet) and let them know you are experiencing financial difficulties. Providers may be willing to work with you and you may be able to come to an agreement well before any shut-off actions go into effect. This can also save you from late fees, or going into collections.
Getting Financial Help
There are also a number of government programs designed specifically to help people overcome sudden financial hardships. Those who’ve lost a job may be entitled to unemployment benefits. If that job provided health insurance, you may want to look into COBRA to see if you can maintain affordable health insurance. Those who were injured at work may be entitled to workers’ compensation.
Also, some people facing financial hardship may qualify for state or federal benefits like Medicaid or Social Security Disability.
Though not free, a financial professional who specializes in planning, saving, and investing may be a worthwhile investment. They may be able to offer a fresh perspective and help create a path to financial freedom. There may also be free or low-cost debt counselors available via non-profit organizations.
Preparing for Current and Future Challenges
Once you’ve developed your personal plan for overcoming financial hardship, you can begin working on your goals of becoming more financially independent. If the cause of your hardship is temporary (you were out of work but quickly found a new job, for example), it may take just a few months to get back on your feet. If the problems are more difficult to overcome (you’ve lost income through a divorce, or you or a loved one has an ongoing medical condition that requires expensive treatment), the timeline could be much longer. Once you’ve put your plan in place, you may want to review it on a regular basis, and perhaps do some fine-tuning.
The Takeaway
Many people go through periods of financial hardship, and often for reasons that are beyond their control. But that doesn’t mean they are out of options. There are many simple and effective steps you can take. Cutting monthly expenses, consolidating debt, and getting outside assistance are moves that can help you get back on the right financial track.
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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. *Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
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Your income is one of your biggest assets, and losing it can quickly take a toll on your financial wellbeing. Disability insurance can offer an important safety net because it pays you a percentage of your salary if an illness or injury ever prevents you from working.
There are two main types of disability insurance: short-term disability insurance, often offered through employers, and long-term disability insurance, which may be purchased separately. As their names imply, short-term disability insurance lasts for a shorter period of time than long-term disability insurance.
But there are other key differences between short-term and long-term disability, including how quickly coverage kicks in and cost.
Here, we’ll take a close look at both types of disability insurance.
Key Points
• Short-term disability insurance covers a few months, with benefits starting after a 14-day elimination period.
• Long-term disability insurance provides benefits for years or until retirement, with a longer elimination period.
• Short-term disability insurance is often available through employers at low cost, typically 1% to 3% of annual salary.
• Long-term disability insurance is widely available from private insurers, with costs and options varying based on policy terms.
• Combining both types of insurance helps ensure continuous financial support and minimize income gaps during extended disability periods.
What Is Short Term Disability Insurance?
Short-term disability insurance (also called short-term disability income insurance, or STDI) is a type of insurance that will provide supplemental income in the event of an injury or illness that keeps you from working. The length of time you can receive benefits (or supplemental income), is known as the benefit period.
Short term disability policies typically have a benefit period of three to six months, though some may last up to a year. The shorter the benefit period, the less you or your employer will pay in premiums for coverage.
Benefits vary by plan, but these policies typically pay anywhere between 50% to 70% of your pre-disability salary during that time.
Disability policies also have specific start dates when your payments begin. The waiting period is typically referred to as the elimination period.
Short-term disability policies often have an elimination period of 14 days, though it can range from 7 to 30 days. That means payments would start 14 days after your disability occurs, or from the last day you were able to work.
Some employers have policies that require employees to take all of their sick days or, if the injury happened on the job, workers’ compensation benefits, before short-term disability is paid. Employers may also require you to show proof from a doctor that you have undergone an illness or injury that prohibits you from working.
They also may require you to see an approved healthcare provider for regular updates on your condition while you are out of work. Many of the rules for short-term disability coverage are determined by your state.
How Do I Purchase Short Term Disability Insurance?
Most commonly, people get disability insurance through their employer. Companies often offer this benefit for no or very low cost.
In some states it’s mandatory for employers to offer this. Employees may pay a small fee from payroll deductions. Your employer is generally the easiest and most cost-efficient way to get short-term disability insurance.
If you are self-employed, or your employer doesn’t offer this benefit, you may be able to purchase short-term disability insurance from a private insurer. The hitch is that few carriers offer private short-term insurance and, if they do, it tends to be costly.
You could pay anywhere from 1% to 3% of your annual salary for a benefit that may only last a few weeks or months. You may find it makes more sense to invest in long-term disability insurance.
What Is Long Term Disability Insurance?
Long-term disability insurance — also known as long-term disability income insurance or LTDI — is an insurance policy that protects employees from loss of income in the event that they are unable to work due to an illness, injury, or accident for a long period of time.
The benefit period, or the amount of time you’ll receive benefits, for long-term disability insurance is often a choice of 5, 10, or 20 years, or even until you reach retirement age, depending on the plan. In general, the longer the benefit period, the more you’ll pay in premiums.
Long-term disability insurance typically pays about 50% to 70% of your pre-disability salary, depending on the policy. In most cases, the higher that number, the higher the premium. Some policies will also make up the gap in your income if you must return to work at a lower-wage job because of an illness or injury. That coverage may also come with a higher premium.
The elimination period (the amount of time you must wait until benefits begin) for long-term disability insurance usually includes several options, including 30, 60, 90, 180 days, or a full year. In general, the longer the elimination period, the less you will pay in premiums. The most common elimination period is 90 days. But if you can’t afford a policy with that elimination period, you may be able to reduce your premium costs by electing a longer period of time until benefits start.
You may want to keep in mind, however, that a longer elimination period means that you would have to go without income for a longer period of time, and might need to have savings or other resources to cover living expenses.
Each long-term disability insurance policy has different conditions for payout, diseases or pre-existing conditions that may be excluded, and various other conditions that make the policy more or less useful to an employee. Some policies, for example, will pay disability benefits if the employee is unable to work in his or her current profession. Others expect that the employee will take any job that the employee is capable of doing — that’s a big difference and could be consequential to the employee.
Some employers offer subsidized long-term disability insurance policies to employees at discounted group rates. If your employer doesn’t offer this, you may be able to purchase long-term disability insurance from a private insurer. Unlike short term disability insurance, these policies are widely available. Also, unlike short-term disability insurance, private insurers typically offer individuals a range of long-term disability policies to choose from.
Long-term disability insurance is also sometimes available for purchase through professional associations, potentially at discounted group rates. The cost of long-term disability insurance can vary depending on the benefit period, the elimination period, your age, health, occupation, along with other factors. In general, these policies tend to run between 1% and 3% of your annual salary. This is about the same as if you purchased a short-term disability policy outside of your employer.
If you were to use the insurance, however, you would benefit for years, not months, making long-term disability insurance more cost-efficient than short-term disability insurance.
Do I Need Short Term Disability if I Have Long Term Disability?
When possible, it can be beneficial to pair short term and long term disability insurance together.
Short-term disability is intended to cover you immediately following a serious illness or injury, and long-term disability insurance is intended to maintain supplemental income if your condition keeps you out of work past the end of your short-term disability benefit period, even to retirement, depending on your plan.
If you have both short-term and long-term disability policies in place, short-term disability can pay you benefits during the elimination or waiting period before your long-term disability coverage begins, at which point you would transition from one policy to the next to receive benefits.
The combination can help you achieve the smallest possible income gap should you need to use disability insurance.
The best combination for you will depend on what options your employer offers, how much money you have saved in an emergency fund, and what you may be able to afford to purchase on your own.
The Takeaway
Disability income insurance offers an important way to protect your livelihood should you find you can no longer work at the same capacity you were expecting. The primary distinction between short- and long-term disability insurance is the coverage period.
Short term policies generally cover just the first few months you’re unable to work. Long-term policies, on the other hand, can last for years — decades even — after you’re unable to work and may see you through retirement. Because long term disability insurance benefits don’t start right away, it can be beneficial to pair long term disability benefits with short term disability insurance.
When the unexpected happens, it’s good to know you have a plan to protect your loved ones and your finances. SoFi has teamed up with some of the best insurance companies in the industry to provide members with fast, easy, and reliable insurance.
Find affordable auto, life, homeowners, and renters insurance with SoFi Protect.
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.
A cash diet, meaning using just cash for daily spending, can help you avoid ringing up more credit card debt.
These days, many people’s spending habits are ruled by plastic. Debit cards, credit cards, and mobile wallets make transactions easy and effortless, but they can also make it easy to wind up with a mountain of debt and risky financial habits. As of 2025, U.S. consumers owed more than $1.21 trillion in credit card debt, according to the Federal Reserve Bank of New York. For some people, it might be worth trying out an all cash diet to help develop healthier spending habits.
Read on to learn some of the pros and cons of a cash diet plan, and how using cash may help you think about your money habits in a new way.
Key Points
• A cash diet involves using cash for daily expenses to increase awareness of spending, help control a budget, and avoid credit card debt.
• A cash diet promotes mindful spending through the immediate impact of each dollar spent; it meshes well with the envelope method.
• Challenges of a cash diet include the risk of loss or theft and the inability to access credit card purchase protection.
• Credit card rewards such as points, miles, and cash back are not available when using a cash diet.
• Effective cash diet management involves creating a budget, using the envelope method, and saving any leftover cash for emergencies or debt payments.
What Is a Cash Diet?
A cash diet plan involves using only cash for all of your day-to-day expenses. This could include paying for your groceries, filling up your gas tank, or covering the bill for a meal out with a friend. Fixed expenses, such as rent, bills, or any existing debt payments, generally aren’t included.
For people who are dealing with debt, a cash diet may provide an opportunity to develop more transparent spending — which may help in getting a handle on existing debt and manage money better.
Get up to $300 with eligible direct deposit when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 3.80% APY on savings balances.
Up to 2-day-early paycheck.
Up to $3M of additional FDIC insurance.
What Are Some Pros of a Cash Diet?
Here are some advantages of a cash diet:
• One of the biggest potential benefits of an all cash diet is seeing what you spend. When using cash to pay for daily expenses, you can feel the immediate loss of a dollar spent. When using credit or debit cards, the impact of the money you’re spending is delayed, potentially making it easier to overspend or rack up debt.
• Another possible benefit of a cash diet is that it may provide more oversight over your expenses and budget. If you take out a specific amount of money, it’s easy to keep track of how much you’ve spent by simply looking at the amount of cash you have left. This could help you learn how to be better with money.
• Overall, adopting an all cash diet could provide you with more control and awareness over your spending decisions. Even though you are likely dipping into your cash reserves more often, it could help you manage the money in your bank account more wisely.
Next, consider the potential downsides of a cash diet:
• In some places, restaurants and other businesses are increasingly going cashless. Depending on which establishments you usually go to, an all cash diet could prove to be a challenge.
• Additionally, unlike many major credit cards and debit cards, cash isn’t covered in case of theft or loss. This is something worth considering depending on how much money you plan to carry with you at a time. (Or you might use your debit card as a way of paying in cash.)
• Your purchases will not be covered by your credit card’s protection plan.
• Credit cards often offer perks that can incentivize signing up and spending, such as credit card rewards points and miles, and cash back programs. Using cash comes with no such rewards. If you’re considering switching over to an all cash diet for the long term, it’s worth considering how losing access to these kinds of benefits may impact you.
• With this diet, you’ll need access to cash. If it’s challenging for you to get to ATMs or retailers that offer cash back, this could be an issue.
• It’s also worth noting that an all cash cash diet may not build your credit score. That’s because your credit score is derived from data on how you manage credit month to month and over time.
Starting a Cash Diet
If you’ve decided to try out an all cash diet, you might want to start by creating a budget. Once you’ve determined your average monthly net income, outline the fixed expenses you have — such as rent, bills, and debt payments — and figure out how much money you have left over after paying them.
Whatever money is left over represents the maximum you’re able to spend on day-to-day costs, such as food and gas. Cash dieters typically withdraw this amount in cash. Some might prefer to budget for the amount of time between pay periods or to stick to a monthly cash diet plan. The choice is up to you.
From there, a common way of organizing a cash diet is to use the envelope method. This includes outlining each of your spending categories — such as social activities, food and groceries, and shopping — and distributing your money across each area based on how much you typically spend. The cash for each of these categories is put in a separate envelope, which may make it easier to stay on top of your spending.
Since life isn’t exactly predictable, you might want to consider creating an additional envelope for unexpected expenses that may not fall into a regular category. An emergency fund could help cover unexpected costs like a car repair.
Managing an All Cash Diet
Though it may sound simple in principle, using a cash diet isn’t always smooth sailing. For instance, if you run out of cash before it’s time to replenish your envelopes — whether that’s at your next paycheck or at the beginning of the month — a cash diet dictates that you won’t be able to buy anything else.
Though an all cash diet may be helpful in improving your understanding of your spending habits and helping to curb impulse spending, it can also mean that you may have to get creative about how you deal with cash shortages without reaching for your credit card.
On the other end of the spectrum, there is a chance you may have some cash left over. If this happens, you could consider depositing it in your emergency savings account.
If you don’t already have a fund for emergencies, you may want to start one with any cash you have left over. If you have enough to save and put towards your current debt, then you might consider using the cash to make an extra payment on your highest interest debt.
Depending on your individual situation and goals, a cash diet may be a temporary experiment or a long-term strategy. You could try it out for a month to see how you feel.
Whether you’re in it for the short-term or the long haul, you may find that a cash diet gives you space to reflect on your money habits and develop a better understanding of where your money is going. A cash diet plan can be a valuable experience and can make it easier to build a more sustainable financial future.
The Takeaway
A cash diet involves using only cash for daily spending to help you control the outflow of money and avoid credit card debt. It can be a good solution for some people trying to manage their money better. The tradeoffs include the challenge of using cash at businesses that prefer plastic and the possibility of losing cash (or having it stolen), among others. If you do try a cash diet, it can be helpful to partner with a bank that has a robust network of ATMs.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with 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.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.
FAQ
What are the pros of using a cash diet?
A cash diet can be helpful as it encourages mindful spending and helps you avoid racking up high-interest credit card debt.
What are the cons of a cash diet?
Cons of a cash diet include the risk of losing cash or having it stolen, not earning credit card rewards, and not earning credit card rewards.
What is a cash diet?
A cash diet involves using cash for most or all of your daily spending, rather than relying on credit cards. It can help you better track your spending and avoid credit card debt.
SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.
As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.
Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.
Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. *Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.
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.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
