SoFi

Think back to the beginning of the pandemic: We were all locked inside our homes, perhaps brewing coffee for Zoom meetings and navigating new food delivery services. And all of us were virtually coming together to watch and then dissect the latest binge-worthy hit we just streamed.

That’s the power of these services: delivering addictive TV (or movies, articles, or audio) that we all can’t stop talking about. If the content is good, we’ll willingly pay a fee every month to consume it. Who wants to be bored, or left out of the cultural conversations?

But now that the average viewer has four to five streaming services, the monthly price tag is on the rise. In 2021, Americans jumped from spending $47 to $55 a month on streaming services, reflecting an increase in both prices and number of subscriptions.

Wondering how to save money on streaming video services, short of just canceling them all? We’ve got 12 tips for cutting costs without cutting (all) the content. Read on to learn about the different techniques, and see which are right for you.

13 Ways to Cut the Costs of Streaming

Monthly subscriptions to Netflix, Hulu, Disney+, Amazon Prime, and HBO Max — not to mention music subscriptions like Spotify, Apple Music, and Pandora — expose us to more content and more choice in terms of entertainment and education.

But the cost of streaming services is on the rise. In an age of price prices, many of us want to protect our money from inflation. Cutting costs and sticking to a budget can be especially important. Also, as life returns to normal after the early stages of the pandemic, it may not be necessary to have quite so much programming on demand.

Those are good reasons to examine how to save money on subscriptions. Here are 12 ways you might be able to save some cash on your streaming habits:

1. Paying Annually Over Monthly

Some streaming services allow you to pay a lump sum once a year instead of monthly payments. This can make it more challenging to build streaming services into a line item budget, but the reward could be worth it. Usually when you pay for a year in advance, streaming services offer you a discounted rate.

If you don’t plan to keep the service for a year — say, you only want Netflix the month that your favorite show releases a new season — paying the annual fee might not make sense. Instead, it could be more cost-effective to pay the monthly fee for one or two months a year when you want to use the service.

2. Setting Renewal Reminders

Whether you pay once a year or month to month, it’s a good idea to know when your card will be charged again. If you set a reminder in your phone or on your digital calendar, you can receive an alert before paying for another month.

When you get the alert and think about how much you and your family used the streaming service over the last pay period, you might realize that it’s not worth it to keep paying. If that’s the case, consider canceling to add $10 to $20 back into your monthly budget.

Recommended: How Much Money Should You Save Each Month?

3. Finding Streaming Bundle Deals

Many streaming services offer bundle deals that allow you to save. If you already plan on subscribing to two separate services, it is a good idea to explore discounts for bundles. For example, if your family wants Hulu and Disney+, you might be able to save money by bundling the two together.

However, if you don’t want one of the services in the bundle, calculating the cost of individual services vs. the bundle could also be helpful. If you are motivated to save money, opting out of a bundle that includes services you don’t really need could be a way to free up funds for, say, retirement savings or a cash cushion. Every bit helps.

4. Utilizing Free Trials Before Paying for a Plan

Several major streaming platforms, including Hulu, Apple TV+, and Amazon Prime, allow you to try out their content before committing. Some people who only want to watch a specific movie or TV series that is released in a certain month might take advantage of free trials — signing up to watch their desired content and then canceling the service before it renews and charges their card.

Even if you aren’t utilizing free trials to game the system, they do get you a month of content without having to worry about fees. It’s a good idea to set a reminder at the end of the free trial to cancel the service if you don’t want to keep it; otherwise, your account may be charged.

Recommended: 27 Fun Things to Do for Free

5. Determining If You Really Need the Services — And Canceling What You Don’t Need

Regularly analyzing your budget is a good idea, especially as the cost of living increases. While reviewing your average monthly expenses, you might want to consider if you really need each of the streaming services to which you are subscribed.

If your family has any services that they rarely use, you can consider canceling those subscriptions to save money.

6. Seeing if a Phone Plan Comes With a Subscription Deal

When’s the last time you changed your phone plan? If you are thinking about upgrading to a new phone or a new plan, you might want to shop around to see what streaming deals phone carriers are offering.

Promotions are subject to change, but often, carriers like T-Mobile, Verizon, Sprint, and AT&T offer free subscriptions to popular streaming platforms like Netflix, Apple TV+, and Paramount+. These are often for a year but sometimes for as long as you keep your phone contract.

Recommended: The Importance of Saving Money for the Future

7. Choosing Plans with Ads

Long before TiVO and DVR, families had to sit and watch commercials during their favorite TV shows and movies. There was no pausing and fast-forwarding, and we hadn’t yet uncovered the beautiful “Skip Ads” invention.

Today, streaming services offer viewers ad-free experiences that allow them to consume content unhindered. But increasingly, that comes at a cost. To save money on monthly subscription services, many families opt in for the lower-tier, less expensive “with ads” plans.

Streaming services like Hulu offer their content at discounted rates if you opt into the “with ads” plan, and even streaming giant Netflix has announced its intentions to roll out a cheaper, ad-supported plan.

If you don’t mind watching ads in between your favorite shows and movies, downgrading to a cheaper, ad-supported subscription could save you money.

Recommended: How to Save Money From Your Salary Each Month

8. Downgrading to a Cheaper Plan if You Can

Ad-supported plans aren’t the only downgrade you can consider to save money on streaming services. Some services, like Hulu, have top-tier plans with live TV options. Others, like Netflix, allow you to pay more so that you can utilize additional screens at the same time.

Here’s another way to save money on streaming services: Consider whether you are fully utilizing every aspect of a service. (This is a good moment to tap your financial discipline.) If you aren’t truly using a service or realize you can pare down, it’s wise to explore what alternatives the platforms offer that could save you money.

Downgrading your plan could free up cash that you could funnel towards growing your emergency fund or saving for a vacation.

9. Sharing the Account With Your Household

Some streaming services allow you to share your account with friends and family, usually within the same household. Rather than maintaining separate accounts, you might be able to save money by sharing services with roommates.

If you opt to save money this way, you may find that streaming services even allow you to create separate, personalized profiles within your account.

Recommended: How to Save Money in College

10. Using Free Alternative Streaming Services

Not all content requires a subscription. If you have a smart TV or other internet-connected device, you can connect to free services like the Roku Channel and Pluto TV. While this may not give you access to the hot new shows everyone is talking about, it can definitely give you plenty of options for viewing.

11. Rotating Streaming Services Instead of Having Them All at Once

Most consumers have four to five streaming services in a given month, according to a recent J.D. Power survey. Depending on how much TV and music you consume, it’s possible to utilize that many services fully. But for many families, that might be too many. Just watching a few episodes of a show every month may not justify the expense.

If you find that you don’t regularly watch all your services, it could be a good idea to rotate them. For example, you could pay for two in the spring because they’ve got new shows you like, then switch to another two during summer vacation because they’ve got great content for kids, and then switch again in the fall and winter because you enjoy their holiday programming.

Recommended: How to Be Better With Money

12. Using a Cash Back Credit Card

Earning money by spending money can make monthly expenses a little more manageable. For example, say you have a cash-back card that allows you to earn up to 3% back on qualifying purchases. While it might not sound like much, that’s 30 cents cash back for every $10 streaming service each month. It can add up.

Some cash back credit cards are actually designed for people who like streaming services; they might offer special cash back rates specifically for subscription services like Prime Video and Spotify.

13. Swapping Down on Resolution

Some people are obsessed with having the latest, most crystal-clear image as they view their shows; others, not so much. If you fall into the latter category, you might be able to score a cheaper subscription for lesser resolution. For instance, Netflix currently charges $9.99 for a monthly subscription without HD; a standard plan with HD is $15.49 (with perhaps other perks as well); and $19.99 for a premium one with Ultra HD available.

Banking With SoFi

Looking for more ways to lighten your monthly budget? Skip the monthly fees at your current bank, and switch to a SoFi bank account. Sign up with direct deposit, and not only will your Checking and Savings account be fee-free, but you’ll also learn a competitive APY. Combined, these two factors can help your money grow faster. Eligible SoFi accounts, which allow you to conveniently spend and save in one place, can also enjoy no-fee overdraft coverage up to $50, as well as paycheck access up to two days early.

Watch your money work harder for you with SoFi.

FAQ

Are streaming services continuing to increase in price?

Many streaming services have increased their prices in recent years. How their pricing will evolve depends on many factors, but we are at a moment of high inflation with price hikes likely. To save money on monthly subscriptions, consumers might want to cut back on the number of streaming services, look for ad-supported plans, and consider streaming bundles.

Is cable cheaper than streaming?

A J.D. Power study from last year found that the average American uses between four and five streaming services, with an average monthly bill of $55. While higher than it was pre-pandemic, monthly spending on streaming services is still lower than the average cable bill, which is $79. Of course, you can find much cheaper basic cable packages, but you can also have a single streaming service to cut costs.

What streaming services have bundle deals?

You can find bundles with multiple streaming services, such as Hulu, Disney+, and ESPN+. Amazon Prime members get access to video content plus Prime shipping deals on Amazon.com; they can also take advantage of bundles with platforms like SHOWTIME, AMC+, and Paramount+. Bundle deals might not always be available, so it’s a good idea to research before signing up.

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Photo credit: iStock/Brothers91

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% 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 Bank shall, in its sole discretion, assess each account holder’s 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 a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% 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 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 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 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 Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% 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 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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When it comes to changing bank accounts, inertia seems to set in. According to SoFi research from February 2021, a third of 1,600 respondents said they feel no benefit to switching their bank or financial institution. Another 20% said they feel loyal to their current bank.

But is it wise to sit tight with your current banking situation? Big banks may count on you to do so. They know that once you start a relationship with them, it’s hard to change. Maybe you’ve signed up for direct deposit or you’ve had your account since college. You may like that there’s a bricks-and-mortar branch near you and are reluctant to switch to online banking. Or maybe you have an online bank and figure they’re all about the same.

Whatever the case, now may be the time to rethink your banking relationship. Rising interest rates have encouraged some banks to offer more attractive rates as well as plenty of features and services with low or no fees.

Take a look at these five reasons why you may benefit from switching banks.

Smart Reasons to Switch to a New Bank

1: Higher Rates

The Federal Reserve has raised the federal funds rate — a key borrowing benchmark — several times this year and is expected to continue to do so. Some, but not all, banks have increased the annual percentage yield (APY) they pay on their savings and checking accounts. That means some banks out there, usually online banks, are offering rates closer to 2% or possibly more after years of near zero interest rates. An increase like that can add up over time and boost your savings.

It’s important to remember that your bank won’t automatically raise rates in line with the Fed. Some banks find that an increase doesn’t fit with their business plan. Or they may figure they won’t lose many customers if they don’t offer an increase.

Online banks, with lower overhead costs and more incentive to attract new customers, often offer much higher rates than traditional banks. It makes sense to check what APY vs. interest rate you’re currently earning on your bank account and see how that compares with other banks. That’s a tip for both checking accounts and savings accounts; there’s no reason not to earn top dollar.

Recommended: All About Interest Rates and How They Work

2: Low or No Fees

You may also want to make sure any extra interest you’re earning isn’t eaten up by fees. In fact, avoiding the usual fees can be a good reason to switch banks. Minimum balance fees, maintenance fees, paper statement fees, savings withdrawal fees, out-of-network ATM fees, and overdraft and NSF fees (that last one is for non-sufficient funds) can add up over time and take a chunk of your savings.

Fees you pay will depend on the way you bank. People who have a high monthly balance or who link their checking and savings accounts may never incur fees. Or, if your bank offers a wide network of ATMs in your area, out-of-network ATM fees will hardly ever apply. That said, many institutions, particularly online banks, offer no-fee banking with competitive APYs, so you can avoid paying any account fees at all. This can be a wise move if you are being charged costly banking fees.

3: Better Online and Mobile Banking

When it comes to how to manage a bank account, consumers want it to be fast and simple. Many have gotten accustomed to 24/7 banking. It used to be that online banks offered the most advanced electronic services. To compete, many bricks-and-mortar banks have improved their websites and mobile apps. But whether it’s an online or traditional bank, not all portals are the best they can be.

Make sure the banks you’re considering offer a secure, easy-to-use, state-of-the-art platform. Can you pay bills, scan mobile deposits, check your real-time balance, change your password, report possible fraud, and complete other functions at any time and almost anywhere you have a secure connection? Is there a chat or phone function available to get help if you need it? If possible, talk to other customers to see if they’ve experienced any glitches or compromised security.

If you are lacking the convenience of online and mobile banking, you may want to rethink where you bank for these reasons. There are many pros to online and mobile banking, and you should be enjoying them.

4: More Banking Features

Many banks offer lots of extras when you open a new account or agree to maintain a certain minimum deposit. Waiving fees is common. So is a monthly reimbursement for out-of-network ATM fees. Some banks may offer a limited amount of no-fee overdraft protection coverage.

Also available: Connected checking and savings accounts with combined interest, discounts on personal loans from the same institution and budgeting tools included in the banking app. In addition, many banks offer incentives for setting up direct deposit and early pay options that offer faster access to your paycheck.

Once you’ve created a list of banks with favorable APYs, compare the various features each bank offers to help determine which is the best fit for your needs.

Recommended: Checking vs. Savings Accounts: Which is Better for You?

5: Sign-Up Incentives

How to switch banks isn’t necessarily complicated, but it’s probably not a good idea to do so solely because of a temporary sign-up promotion. If the fees are high or the bank lacks other features you need, you may find no bonus or other incentive is worth the trouble.

That said, if you’re shopping for a new bank, whether it’s a small or a large bank, and all other things are equal, it may make a lot of sense to take advantage of special promotions. Who wouldn’t want some extra cash or a higher interest rate?

Recommended: 8 Ways to Make Your Money Work for You

The Takeaway

How to switch banks does entail some time and paperwork. It’s easy to understand why consumers often avoid this task. But additional banking features, low or no fees, and a higher interest rate are some of the reasons why making the switch can make sense. Choosing a bank that’s a better fit can help improve your overall financial picture.

If the signs are pointing you in a new direction, you might consider trying SoFi Checking and Savings. Open an online bank account with direct deposit, and you’ll enjoy a competitive APY, no fees, and the Allpoint network of 55,000+ fee-free ATMs. What’s more, there’s the convenience of spending and saving in one simple place, plus SoFi recently announced that deposits may be insured up to $2 million through participation in the SoFi Insured Deposit Program¹.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

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Photo credit: iStock/NicolasMcComber

¹SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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 members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% 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 Bank shall, in its sole discretion, assess each account holder’s 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 a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% 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 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 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 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 Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% 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 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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While there’s no official guideline on what makes a salary “good,” a $20,000 salary is not typically enough for a household to live comfortably in most parts of the United States. Certainly, each person’s situation is unique in terms of their assets and expenses, but an individual making $20K a year may have a hard time making ends meet. They might need to rely on assistance from family, friends, and/or the government to afford basic necessities.

A $20,000 salary puts a single person above the poverty threshold for 2022. An individual supporting themselves plus two or more people on $20K a year, however, will live below the poverty threshold. With the record-high inflation we’ve seen in 2022, affording basic needs on a $20,000 salary is becoming even more challenging.

So is $20K a year good? While a $20,000 salary averages out to more than the federal minimum wage of $7.25/hour for full-time work, it is likely not an adequate income for anyone living independently and especially those with a family. In this piece, we’ll cover:

•   The current American median income.

•   Is $20K a year good?

•   A breakdown of a $20,000 salary.

•   The best and worst places to live on $20,000.

•   Tips for living on $20K a year.

Factors to Determine if a $20,000 Salary Is Good

A $20,000 salary will be challenging for anyone to live on, but a few factors may determine if it can be done — or if it’s impossible:

•   Taxes: If you are filing singly, a $20,000 salary will put you at the 12% federal income tax bracket. You may owe additional taxes for your state, city, and/or school district. For the sake of example, assume a flat 15%. That means, although you make $20,000, you only bring home $17,000 after taxes.

•   Family size: Single individuals without children can make $20,000 stretch more easily. Two or more people living off a $20,000 salary will face more challenges.

•   Location: Money goes further in some places more than others. If you live in an area with a low cost of living, a $20,000 salary may be more manageable. But if you live in a popular city, $20,000 a year may not even cover rent.

•   Debt: If you have debt, it can be more challenging to allocate your limited money to basic necessities and important financial goals, like an emergency savings fund. If you are dealing with high-interest debt (say, trying to lower your credit card debt), you probably know how quickly this debt can grow when you are only paying the minimum amount due.

How Does a $20,000 Salary Compare to the American Median Income?

After the 2020 Census, the U.S. Census Bureau reported that the median household income was just over $67,500. More recent data from the Bureau of Labor Statistics suggests that the number has gone down; the median weekly income for a full-time worker is $1,037, which comes out to about $54K a year.

Either way, $20,000 is far below either estimate for a median income. If you earn $20,000 and have a domestic partner or spouse who earns additional income, your salaries together might get you closer to the median income level.

$20,000 Salary Breakdown

Again, no judgment here: It’s not a matter of if a $20,000 salary is good or bad. It’s a number, albeit at the lower end of the earning spectrum. To someone just out of high school, $20K a year might look like a good entry-level salary. But anyone who has handled monthly bills like rent and utilities will likely recognize that a $20,000 salary may be insufficient. This year’s rising inflation makes living on $20,000 even more of a challenge.

Here’s how a $20,000 annual salary breaks down:

•   Monthly income: $1,666.66

•   Biweekly paycheck: $769.23

•   Weekly income: $384.62

•   Daily income: $76.92 based on working 260 days a year

•   Hourly income: $9.62 based on working 2,080 hours a year

These estimates do not account for taxes. In the example above, a $20,000 salary may shrink to $17,000 after Uncle Sam has taken his cut.

Recommended: Is Making $100K a Year Good?

Can You Live Individually on a $20,000 Income?

It is possible to live individually on a $20,000 income, but you will likely only be able to afford the items on your basic living expenses list if you aren’t able to supplement your income. Living comfortably — with easy access to good health care (including mental health), balanced nutrition, safe housing, and efficient transportation — may be far more challenging on $20,000 a year.

If you make $20,000 a year, you might be able to minimize monthly expenses by looking for government assistance, getting a roommate or moving in with family, cooking at home, and using an online bank account with a high interest rate and automatic savings features.

Recommended: Typical Monthly Expenses for a Single Person

How Much Rent Can You Afford Living on a $20,000 Income?

Wondering how much you can afford to spend on rent? Researchers have long argued that you should spend no more than 30% of your income on housing. With rising inflation and increasing rent prices, however, that’s not always possible.

If you were to stick to the 30% rule (and forget about income taxes for the sake of the example), that means you can spend $6,000 a year on rent, or $500 a month. But earlier this year, the median cost of rent in the U.S. surpassed $2,000 a month for the first time, marking a 15% year-over-year increase. That’s four times what you could afford on $20K a year.

To afford rent on a $20,000 salary, it’s a good idea to live in a place with a very low cost of living and to have one or more roommates who can help share living expenses of rent and utilities with you. Moving in with family is also a solution if you cannot afford rent on your salary.

Best Places to Live on a $20,000 Salary

If you are making $20,000 a year (or $9.62 an hour), it might be a good idea to explore cities and states cost of living and look for those that are cheapest.

These are the five least expensive cities to live in 2022, per U.S. News:

•   Hickory, North Carolina

•   Green Bay, Wisconsin

•   Huntsville, Alabama

•   Quad Cities (Davenport-Bettendorf, Iowa and Moline-Rock Island, Illinois)

•   Fort Wayne, Indiana

Living outside a city altogether is usually more affordable. Consider a rural location in one of these five cheapest states to live in:

•   Mississippi

•   Kansas

•   Oklahoma

•   Alabama

•   Arkansas

Worst Places to Live on a $20,000 Salary

On the flip side, there are some major cities that are exorbitantly expensive to live in. If possible, it’s a good idea to avoid living in the following locations when you are living on $20,000 a year:

•   Los Angeles, California

•   Miami, Florida

•   San Diego, California

•   Salinas, California

•   Santa Barbara, California

California cities clearly carry a high cost of living, but other states are also expensive. If you have a $20,000 annual salary, it’s a good idea to steer clear of any of the five most expensive states to live in:

•   Hawaii

•   New York

•   California

•   Massachusetts

•   Oregon

Is a $20,000 Salary Considered Poverty?

A $20,000 salary is above the poverty line for an individual or a couple, but if you are a family of three or more people living on a $20,000 salary, the government considers you to be below the poverty line.

These numbers do not consider factors like variable cost of living. A localized poverty line could be more telling, especially if you live in a place with a high cost of living. If you are, say, living in a pricey city and earning $20,000 a year, you might be feeling the financial pinch more.

Tips for Living on a $20,000 Budget

While advocating for a higher salary can infuse your line item budget with more funds, it’s not a good idea to wait for your employer to dole out raises. Taking other steps now may make it easier to live on your $20,000 salary.

Finding Out What Assistance You Qualify For

If you are making $20,000 or less, you may qualify for government assistance. Here are a few actions to consider taking:

•   Work with the U.S. Department of Housing and Urban Development for assistance with rent, including the Section 8 program.

•   Determine if you are eligible for assistance with grocery bills through the Supplemental Nutrition Assistance Program (SNAP).

•   Research the Low Income Home Energy Assistance Program (LIHEAP) to help with utilities.

•   Lower your phone bill through the Lifeline Modernization Order .

•   See if you are eligible for free or low-cost health coverage through Medicaid and the Children’s Health Insurance Program (CHIP).

Coming Up With a Housing Plan

If you do not qualify for rental assistance from the government, you may need to come up with another plan to avoid high rent costs. Roommates can be a good way to keep rent low.

Alternatively, family and friends may be willing to offer free lodging while you save money. While it can be hard to lean on others in this way, it can be a form of financial self-care to do so until you are able to be out on your own. If you do move in with a loved one, just remember to be helpful around the house and chip in with utilities and groceries if you’re able.

Cutting Costs

After reducing your largest cost (rent), it may be possible to remove even more items from your budget. For example, a car payment, gas, and car insurance can be costly monthly expenses. If you live in an area with great public transportation or are comfortable walking and riding a bike, you may be able to get around without owning your own vehicle.

Other costs you might be able to cut include streaming services, gym memberships, and bills from dining out.

Getting on a Budget

After finding low-cost housing and cutting out unnecessary expenses, it’s a good idea to make a monthly budget that accounts for your post-tax income and your monthly expenses.

Not sure how to budget on a $20K salary? Taking care of all necessary bills (housing, utilities, groceries) is the perfect first step. Once you’ve accounted for those monthly expenses, see how much you can allocate to paying down debt or building your savings.

Recommended: How to Save Money From Your Salary

Avoiding the Wrong Kinds of Debt

Taking on debt is often necessary — when buying a house, purchasing a car, or even going to college. But when you make a low salary and struggle to pay the bills, it can be tempting to take out a payday loan or overuse a high-interest credit card.

When possible, it’s a good idea to avoid high-interest loans. In fact, instead of taking on more credit card debt, you may be able to take control of your bad debt by applying for a debt consolidation loan. These are typically personal loans that charge an interest rate that is significantly lower than your credit cards’ rates (which are hovering between 15% and 19% these days). You use the loan to pay off the cards and then you work to eliminate the personal loan.

You might also meet with a counselor from a nonprofit debt counseling organization like the National Foundation for Credit Counseling, or NFCC .

Recommended: Debt Repayment Strategies

Supplementing Your Basic Income

You might also consider ways to bring in more income to pump up your spending power. This could include seeing if additional hours are available at your primary workplace as well as taking on a seasonal part-time job or starting a side hustle. These are all ways to use some of your leisure time to bump up your income.

The Takeaway

A $20,000 is usually not enough for a family to live on, and it may be difficult for individuals to get by on this salary too. It may be wise to research government assistance, look for roommates to lower housing costs, and build (and stick to) a monthly budget that prioritizes paying down debt and building an emergency savings. These steps can help you live on a $20,000 annual income.

When you’re earning a lower income, it can be wise to keep your money where it can grow faster. When you open an online banking account with SoFi, we can be your partner in reaching that goal. Our Checking and Savings account has no monthly fees and, even better, earns a competitive APY when you sign up with direct deposit. Members also have a suite of budgeting and saving tools at their disposal. Plus, eligible accounts can benefit from no-fee overdraft coverage and paycheck access up to two days early.

Put your money to work for you with a SoFi bank account.

FAQ

Can you live comfortably on $20,000 a year?

It can be difficult for an individual to live comfortably on $20,000 a year. With the right assistance from friends, family, and the government, however, it may be possible to meet basic needs. Families will face more challenges living off $20,000 a year.

What can I afford making $20K a year?

A $20,000 salary leaves room in your budget for the most basic expenses: rent, utilities, transportation, and groceries. Even then, getting government assistance and a roommate might be necessary for managing monthly expenses on $20K a year.

Is $20,000 a year middle class?

Pew Research considers middle class to be $56,000 to $156,000 for families of three. Thus, a family of three on $20,000 is not middle-class; it’s actually below the poverty level. While an individual on $20,000 a year is not below the poverty line, they are still not considered middle-class.

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Photo credit: iStock/svetikd

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® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% 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 Bank shall, in its sole discretion, assess each account holder’s 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 a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% 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 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 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 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 Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% 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 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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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Sticking to a budget can be challenging, but one of the best ways to succeed is to find a system that works for you. Following the right method that meets your needs and preferences can go a long way to getting your spending and saving on track.

One Japanese budgeting method that’s gaining a lot of attention these days is the kakeibo (pronounced kah-keh-boh) method. Essentially, this budgeting method involves keeping a journal of all incoming and outgoing money to encourage a more mindful approach to spending.

Let’s take a closer look at how this unique Japanese money management method works, including:

•   What does kakeibo mean?

•   How does the kakeibo method work?

•   What are the kakeibo categories?

•   How can you properly use kakeibo to budget better?

What Is the Kakeibo Method?

So, what is the kakeibo method? Kakeibo translates to “household financial ledger” and is a very simple budgeting method. All you have to do to embrace the kakeibo method is keep a journal and log all of your incoming earnings and all of your outgoing expenses. By keeping this journal, you, the spender, will become more mindful of each purchase you make. This can help you focus more on your goals than on impulse purchases.

At its most basic, the kakeibo method could be thought of as “slow budgeting,” meaning it slows down the pace of managing your finances. In a world of apps and websites, it may suit those who want to unplug a bit and let the details of a budgeting program really sink in by working with pencil and paper, although there are digital tools that can make kakeibo work for those who love one-click convenience.

How Does Kakeibo Work?

The kakeibo method works by creating a kind of detailed line item budget at the beginning of each month based on your projected income and spending, while keeping savings goals in mind. As you spend money throughout the month, you will keep a diary or journal of sorts where you track every single penny you spend.

At the end of the month, you can review your journal to see the progress you’ve made on your savings goals and if you stuck to your original targets. This reflection period can also help you adjust your monthly budget or behaviors as needed in the upcoming month.

History of Kakeibo

Kakeibo was invented in 1904 by Hani Motoko, who is often referred to as Japan’s first female journalist. She designed this system as a way to make a budget for beginners. Specifically, she was creating a budget system for homemakers to keep track of their household spending. The concept she designed is simple and gives people control over their budgets while helping them become more aware of their spending habits.

Properly Using Kakeibo

There are four important questions you can ask yourself in order to use this Japanese budgeting method properly.

How Much Money Do You Have to Spend?

First, it’s important to write down how much income you expect to come in. If you are a W2 employee, you can simply look at past paychecks to figure out how much you bring home after taxes in a month. If you are self-employed or work variable hours, you can look at multiple months of past income to get a general idea of how much you earn.

How Much Would You Like to Save?

An important part of any budget that’s easy to forget is adding savings goals as a fixed expense. You can ask yourself how much you want to save each month and add it into your budget so you don’t accidentally spend that money.

If you’re wondering how much money to save each month, financial experts typically recommend 20% should go towards funding your savings goals. This is part of the popular 50/30/20 budget rule, which you’ll learn more about below.

How Much Money Are You Spending?

While it can be hard to nail down exactly what you spend in a month, you can start with the “needs” in life. What are the basic expenses of living? These include the basic things you need to survive, such as:

•   Housing

•   Food

•   Basic clothing

•   Utilities

•   Healthcare

•   Transportation for work and school

•   Debt payments

As you watch your budget, kakeibo encourages you to see how your discretionary spending is evolving. For instance, you may realize that during the start of the pandemic, you signed up for a variety of streaming services which you forgot about. You might opt to unsubscribe for one or more of them.

However, it also (as you will see from how expenses are categorized, below) encourages you to think about how to use your dollars to make your life more enjoyable.

How Can You Improve Next Month?

Any budget is a work in progress. A key element of the kakeibo method is journaling spending to encourage mindfulness. At the end of the month, you can look back at your spending to see where you can improve.

In this way, you become more intentional with your money. By getting granular with your understanding of your spending, you will better realize the impact of unplanned, impulsive or compulsive spending. And you will hopefully be better able to rein it in.

Kakeibo’s Category System

The kakeibo method involves tracking spending in four different budget categories. Here’s how they stack up:

1. General

This category consists of essentials that you can’t cut from your budget like food, utilities, healthcare, rent, and transportation. Now, while it’s true these expenses can’t be cut entirely because they are necessities, they could be decreased if needed. You could look for ways to decrease your heating bill in winter, or even move to a smaller home or one in a less expensive neighborhood.

Recommended: How Much Should I Spend on Rent?

2. Wants

Wants are purchases someone enjoys like travel, clothing, and dining out, but that aren’t essentials. Sometimes, it’s easy to blur the lines between needs vs. wants and believe that discretionary expenses are musts. A few examples:

•   Thinking you need your fancy takeout latte every morning when you really could have made a cup of joe at home for a fraction of the price.

•   Saying you “had” to take an Uber when, if you’d woken up a bit earlier, you could have used public transportation.

•   Insisting that you “must” buy new clothes every fall, even though you might have a closet full of wearable garments.

Do a little soul-searching as you categorize your spending, and properly identify your purchases.

3. Culture

This unique budgeting method carves out space for cultural activities. These could include:

•   Museum admission or membership

•   Tickets to a concert, play, or dance performance

•   Books

•   Admission to a local garden or zoo

Thanks to this category, the kakeibo budgeting method can get you thinking about spending towards quality of life and valuable experiences, rather than just material goods.

4. Unexpected Extras

This category includes purchases that aren’t recurring and may come as a surprise. Some examples are:

•   Birthday or holiday gifts

•   Car repairs

•   Unexpected medical bills

These kakeibo categories can help you get a clearer understanding of where your money is going. This can, in turn, make it easier to adjust spending habits and meet savings goals. While it can feel a bit tedious to write down every single purchase, doing so will help make spending become much more mindful.

How Kakeibo Is Different From Other Budgeting Methods

Each budgeting method puts its own spin on money management. The kakeibo method is different from other types of budgets because it focuses more on creating better spending habits than strictly sticking to a budget.

By making you aware of your spending in detail, you become better attuned to your money and more aware of how impulse spending can derail your budget.

Benefits of Kakeibo

Having a budget that illuminates your financial situation and helps you avoid overspending can be a key step in financial self-care. Kakeibo has helped many people with this. Some of the specific benefits associated with this method include:

•   Makes spending more mindful

•   Simplifies budgeting into four distinct categories

•   Encourages realistic savings goals

•   Emphasizes making slow but steady progress

•   Celebrates small achievements.

Disadvantages of Kakeibo

There are also some disadvantages associated with kakeibo that some budgeters may find discouraging.

•   Can be time-intensive

•   Detailed record-keeping is required, which can be tedious to some people

•   May not provide enough structure to motivate some

Who Is Kakeibo Suited for?

The kakeibo method is best suited for someone who wants a simple budgeting method, who needs to make their spending habits more mindful, and who wants to work towards savings goals.

It may also be best for people who don’t get impatient with record-keeping, as it does involve very detailed tracking of expenses.

Alternatives to Kakeibo

If you feel the kakeibo method isn’t the right budgeting system for you, try one of these budgeting systems instead:

•   Envelope budgeting method. This technique relies on budgeting out purchases for the month in cash envelopes labeled with each intended spending category. So you’d distribute your income into envelopes marked with things like food, clothing, etc. When you’ve spent the money allocated in a given envelope, that’s it; no more is available.

•   The 50/30/20 rule. With this type of budget (briefly mentioned above), 50% of expenses go toward necessities, 30% goes toward lifestyle spending, and 20% goes toward saving for financial goals. There’s also a similar budgeting principle called the 70/20/10 rule for those who have higher living expenses.

•   Zero-based budget. This budgeting method requires budgeting out every single dollar of income that comes in a month. This doesn’t mean someone has to spend all of that money; it’s possible to allocate money towards a savings goal.

Banking With SoFi

The kakeibo method is a simple budgeting technique that can help consumers break bad spending habits and become more mindful with their money. It may not work for everyone, but it’s worth a try if someone is ready to devote time and energy towards spending less and saving more.

If you’re looking to save more, see how a SoFi Checking and Savings account could help. When you open our bank account with direct deposit, you’ll earn a competitive APY and pay no fees, which can help your money grow faster. Plus, you’ll spend and save in one convenient place and have access to tools that can help organize your money, set savings goals, and save your change with Vaults and Roundups.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

How do you do kakeibo?

The kakeibo budgeting method is fairly simple. All someone has to do is write down all of the money they have coming in each month (income) and, as they spend it, record where it goes. This method involves tracking spending in four different spending categories: general, wants, culture, and unexpected extras.

Is there an app for kakeibo?

While it’s possible to manage a kakeibo budget with good old-fashioned paper and pen, some people might want to record their spending digitally. There are a variety of apps on the market designed to help people manage their kakeibo budget.

How do you make a kakeibo journal?

All anyone needs to create a kakeibo journal is to grab an empty notebook they have on hand or buy an inexpensive one. There’s no need to get fancy here; a blank or lined notebook does the trick.

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Photo credit: iStock/mphillips007

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® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer 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, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% 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 Bank shall, in its sole discretion, assess each account holder’s 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 a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% 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 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 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 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 Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% 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 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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Your credit utilization is the percentage of your overall credit limit that you’re using, and it can have a major effect on your credit score. As your credit usage decreases, it can positively affect your score since it shows you’re responsible with credit. On the flipside, high credit utilization can ding your score as it suggests you’re overspending

If you’re wondering how to lower credit card utilization, there are some steps you can take to do so and help your credit score bounce back.

What Is Credit Card Utilization?

Credit card utilization, or simply credit utilization, is how much of your credit limit you’re using on your revolving credit accounts. You can calculate this percentage by taking the total of your credit card balances and dividing it by your total credit limit.

For instance, let’s say you have two credit cards with limits of $3,000 and $5,000. You have a balance of $600 on the first card and $1,000 on the second card. By taking the total of your balances — $1,600 — and dividing it by your overall credit limit — $8,000 — you’d end up with a credit utilization rate of 20%.

Why Does Your Credit Utilization Matter?

When it comes to your credit score, scoring models look at various factors, including your credit utilization on both individual accounts and overall. In other words, if your overall credit utilization is high, or one of your revolving accounts has a high balance, your score could be negatively affected.

Considering that credit utilization determines 30% of your FICO score, which is the scoring model used by most lenders, it’s a major factor that affects your credit score.

What Is a Good Credit Card Utilization Rate?

As a credit card rule, you should aim to keep credit utilization under 30%. While this is the baseline, the lower your credit utilization is, the better.

A lower credit utilization rate demonstrates to lenders that you are responsible with your credit and don’t appear to rely on credit too heavily.

Tips for Lowering Your Credit Card Utilization

The good news is that you can raise your credit score relatively quickly just by lowering your credit utilization. Here’s how to lower credit utilization.

Paying Down Your Balance

Making payments before the due date arrives or the billing cycle ends could mean your balance goes down before your credit card issuer reports the amount to the credit bureaus. You could even make a payment right after your purchase goes through.

Having a lower credit card balance lowers your credit utilization, even if your credit limit remains the same.

Recommended: When Are Credit Card Payments Due

Cutting Down on Spending

Budgeting carefully and reducing your spending could prevent you from racking up excessive credit card debt and getting stretched too thin financially.

However, that’s not to say you can’t use your credit card. Rather, limit your spending to what you can afford to pay off in full that billing cycle. Additionally, if you find your debt starting to balloon, consider pausing your credit card usage until you’ve gotten your balance under control so your credit utilization isn’t pushed higher.

Paying off Credit Card Balances With Personal Loans

If you’re carrying a balance on a credit card, one option to pay it off is taking out a personal loan. You could qualify for a lower interest rate, which can make the debt easier to get a handle on paying off. Plus, a personal loan is an installment loan, which means it won’t count toward your credit utilization.

However, you need to make sure you can still afford the payments and can qualify for competitive rates and terms. Some lenders may charge an application or origination fee — take this amount into consideration when deciding whether it’s worth going this route.

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Requesting a Credit Limit Increase

Increasing your credit card limit can lower your credit utilization even if your outstanding balance remains the same. To get a credit limit increase, contact your credit card issuer to request one, either by calling the number listed on the back of your card or logging onto your online account.

Keep in mind that your credit card issuer may not approve your request. You may have to meet certain criteria to qualify, such as having a history of on-time payments and responsible credit usage.

Opening a New Credit Card

Opening a new credit card can increase your overall credit limit, and therefore potentially lower your credit utilization. Keep in mind that you most likely won’t know what your credit limit will be until you’ve been approved for the card. Plus, submitting an application generally triggers a hard credit inquiry, which could have an effect on your credit score.

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Avoiding Closing Unused Cards

It might sound logical to close credit cards that you haven’t been using, but doing so could have negative consequences. More specifically, closing a credit card lowers your overall credit limit, which could increase your credit card utilization even if your credit card balance remains the same.

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Becoming an Authorized User

You could ask your spouse, family member, or close friend to add you on their credit card as an authorized user. If the primary cardholder maintains a low balance and has a high credit limit, it could lower your overall credit utilization.

Before going this route, however, speak with the primary cardholder to determine whether becoming an authorized user will help your credit score. You’ll also want to be clear on how you plan on using the card, or if you’d rather be a cardholder in name only.

Finding Out Whether Your Issuer Reports to Credit Bureaus

Most credit card issuers will report your payment activity and account balance every 30 days to the credit bureaus, though the reporting date might not coincide with your payment due date. If your card issuer reports your payment activity before you make a payment, it could look like you have a high balance, which could increase your credit utilization rate.

To remedy this, contact your card issuer to determine when it reports to the credit bureaus. Aim to pay off as much of your balance as you can before that, or request a new due date that’s ahead of when your issuer reports to the bureaus.

How Will Lowering Credit Utilization Affect Your Credit Score?

The lower your credit utilization, the higher your credit score could be. Remember, your credit utilization is one of the major factors that affects your credit score. Aim to keep your credit utilization well below 30% — try using any of the methods mentioned above to do so — in order to help your score.

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The Takeaway

Credit utilization — the percentage of your overall credit limit you use — has a major effect on your credit score. It’s best to keep your utilization as low as possible, but the benchmark generally recommended is that it should reach no higher than 30%. If your credit utilization rate has crept up, there are some tactics you can try to lower it, from paying down your balance to getting a new card.

If you’re looking to open a new credit card to try and lower your utilization, consider applying for a credit card with SoFi. The SoFi credit card is designed to help you save, invest, and pay down debt. Plus, it offers generous cash-back rewards.

Sign up for the SoFi credit card today.

FAQ

How can I fix high credit utilization?

You can decrease your credit utilization by paying off your balances early, asking for a credit limit increase, applying for a new credit card, and cutting down on spending.

How can I keep my credit utilization below 30%?

You can keep your credit utilization below 30% by watching your spending and balances across all your credit cards.

How low should I keep my credit utilization?

It’s best to keep your credit utilization below 30%. That being said, the lower your credit utilization rate, the better.

Does zero utilization hurt your credit score?

Zero utilization doesn’t hurt your credit score. However, 0% utilization doesn’t necessarily help your credit score either, as you can’t demonstrate on-time payments and other positive credit behavior.

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Photo credit: iStock/Farknot_Architect

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SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, a statement credit, or pay down eligible SoFi debt.

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.

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 .

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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