Credit Card Statement Balance vs Current Balance

A credit card statement balance reflects your transactions (and the amount owed) during a billing cycle, while your current balance reveals your real-time activity and how much you may owe at a given moment.

When you buy with credit, it’s like taking out a short-term loan to make a purchase. If you’re putting charges on your credit card throughout the month, the value of that loan — your “current balance” — fluctuates. When your billing cycle ends and the amount due is tallied, that equals your statement balance.

Learn more about how these two numbers can differ, along with a few tips for paying down your credit cards.

Statement Balance vs Current Balance

Each credit card issuer may have a slightly different method of presenting and even calculating the numbers on your monthly statement, whether you get a hard copy or check it online or in your card’s app. Still, you will likely see one number called the statement balance and another called the current balance.

•   The statement balance means all transactions during a designated period, called a billing cycle. If a billing cycle covers one month and starts on the 15th of each month, this statement balance will include all of the activity on an account between, say, January 15 and February 15, in addition to any previously unpaid balances. Until the close of the next billing cycle, the statement balance will remain unchanged.

•   ‘Your current balance means the running total of all transactions on your account. It changes every time you swipe your card to pick up Chinese takeout or return a T-shirt that didn’t fit right.

To understand the interplay between the statement balance vs. the current balance, consider this example:

•   ‘On February 15, the statement balance is $1,000, meaning that the total charges between January 15 and February 15 add up to $1,000.

•   ‘Two days later, you make a $50 charge to the card. Your current balance will reflect $1,050 while the statement balance remains the same.

In this case, the current balance is higher than the statement balance. The reverse can also be true, and the current balance can potentially reflect a smaller number than the statement balance.

Recommended: Personal Loan vs Credit Cards

What to Know About Paying Off Your Credit Card

As each billing cycle closes, you will be provided with a statement balance. You will also likely be provided with a due date. At the time you make a payment, you may decide to pay off the statement balance, the current balance, the minimum payment, or some other amount of your choosing.

Paying the Statement Balance

If you regularly pay your statement balance in full, by its due date, you likely won’t be subject to any interest charges. Most credit card companies charge interest only on any amount of the statement balance that is not paid off in full.

The period between your statement date and the due date is called the grace period. During this period, you may not accumulate interest on any balances. It’s worth mentioning that not every credit card has a grace period. It’s also possible to lose a grace period by missing payments or making them late. If you have any questions about whether your card has a grace period, contact your credit card company.

Paying the Current Balance

If you’re using your credit card regularly, it is possible that you will use your card during the grace period. This will increase your current balance. At the time you make your payment, you will likely have the option to pay the full current balance.

If you have a grace period, paying the current balance is not necessary in order to avoid interest payments. But paying your current balance in full by the due date can have other benefits. For example, this move could improve your credit utilization ratio, which is factored into credit scores.

Paying the Minimum Monthly Payment

Next, you can pay just the minimum monthly payment. Generally, this is the lowest possible amount that you can pay each month while remaining in good standing with your credit card company — it is also the most expensive. Typically, the minimum payment will be an amount that covers the interest accrued during the billing cycle and some of the principal balance.

Making only the minimum payments is a slow and expensive way to pay down credit card debt. To understand how much you’re paying in interest, you can use a credit card interest calculator. Although minimum monthly payments are not a fast way to get rid of credit card debt, making them is important. Otherwise, you risk being dinged with late fees.

Missing or making a payment late can also have a negative impact on your credit score.So, if the minimum payment is all you can swing right now, it’s okay. Just try to avoid additional charges on your card.

Making a Payment of Your Choice

Your last option is to make payments that are larger than the minimum monthly payment but are not equal to the statement balance or the current balance. That’s okay, too. You’ll potentially be charged interest on remaining balances, but you’re likely getting closer to paying them off. Keep working on getting those balances lowered.

Recommended: Credit Card Closing Date vs Due Date

Your Credit Utilization Ratio

The balance you currently carry on your credit card can impact your credit utilization ratio. Credit utilization measures how much of your available credit you’re using at any given time.

This figure is one of a handful of measures that are used to determine your credit score — and it has a big impact. Credit utilization can make up 30% of your overall score, according to FICO® Score.

Not every credit card reports account balances to the consumer credit bureaus in the same way or on the same day. Also, the reported number is not necessarily the statement balance. It could be the current balance on your card, pulled at any time throughout the billing cycle. Again, it may be worth checking with your credit card issuer to find out more. If your issuer reports current balances instead of statement balances, asking them which day of the month they report on could be helpful.

Sometimes, the lower your credit card utilization is, the better your credit score. While you may feel in more control to know which day of the month that your credit balance is reported to the credit bureaus, it may be an even better move for your general financial health to practice maintaining low credit utilization all or most of the time.

If you are worried about your credit utilization rate being too high during any point throughout the month, you can make an additional payment. You don’t have to wait until your billing cycle due date to reduce the current balance on your card.

According to Experian®, one of the credit reporting agencies, keeping your current balance below 30% of your total credit limit is ideal. For example, if you have two credit cards, each with a $5,000 limit, you have a total credit limit of $10,000. To keep your utilization below 30%, you’ll want to maintain a combined balance of less than $3,000.

Some financial experts recommend that keeping one’s credit utilization closer to 10% or less is an even better move.

Recommended: Personal Loan Calculator

3 Tips for Managing Your Credit Card Balance

If you’re struggling to juggle multiple credit cards and make all of your payments, here are some tips that may help.

1. Organizing Your Debt

A great first step to getting a handle on your debt is to organize it. Try listing each source of debt, along with the monthly payments, interest rates, and due dates. It may be helpful to keep this list readily available and updated.

Another option is to use software that aggregates all of your finances, such as your credit card balances and payments, bank balances, and other monthly bills. Your bank may offer financial insights tools as well, which can be a great place to start with this endeavor.

When it comes to managing your credit card debt, keep in mind that staying on top of your due dates and making all of your minimum payments on time is one of the best ways to stay on track.

You can also ask your credit card providers to change your due dates so that they’re all due on the same day. Pick something easy to remember, such as the first or 15th of the month.

2. Making All Minimum Payments, But Picking One Card to Focus On

While you’re making at least the minimum payments on all your cards, pick one to focus on first. There are two versions of this debt repayment plan:

•   ‘With the debt avalanche method, you attack the card with the highest interest rate first.

•   ‘With the debt snowball method, you go after the card with the lowest balance.

The former strategy makes the most sense from a mathematical standpoint, but the latter may give you a better psychological boost.

If and when you can, apply extra payments to the card’s balance that you’re hoping to eliminate. Once you’ve paid off one card, you can move to the next. Ultimately, you’re trying to get to a place where you’re paying off your balance in full each month.

3. Cutting Up Your Cards

Whether you do this literally or not, a moratorium on your credit card spending can be a great strategy. If you are consistently running a balance that you cannot pay off in full, you may want to consider ways to avoid adding on more debt.

A word of warning: Don’t be tempted to cancel all your cards. This can negatively affect your credit score. However, if you feel you really have too many credit cards to manage — say, more than three or four — cancel the newest credit card first. This will ensure your credit history length is unaffected.

In addition to these steps, there are other options for dealing with credit card debt, such as debt consolidation, which can involve taking out a personal loan (typically, at a lower rate than your credit card interest rate), working with a certified credit counselor, and/or negotiating with your creditors to see if you can pay less than your full balance.

The Takeaway

Your credit card statement balance is the sum of all your charges and refunds during a billing cycle (usually a month), plus any previous remaining balance. It changes monthly with each statement. Your current balance is updated almost immediately every time you make a purchase. It is the sum of all charges to date during a billing cycle, any previous remaining balance, and any charges during the grace period. Whenever you can, pay off the full statement balance to avoid interest charges.

Trying to pay off credit card debt? Taking out a personal loan can consolidate all of your credit card balances.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.


SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Should I pay my statement balance or current balance?</h3>

It can be wise to always aim to pay off your statement balance every month by the due date to avoid pricey interest charges. While not necessary, paying off the current balance can help lower your credit utilization ratio, which can in turn help build your credit score.

Why do I have a statement balance when I already paid?

Your statement balance reflects all the charges you have made, any interest and fees, and credits that occurred during a single billing cycle. Once that statement balance has been captured, it likely won’t be updated until the next billing cycle. Your credit card’s balance may well change, however, during this period as you use your card.

What happens if you don’t pay the full statement balance?

If you don’t pay your total statement balance before the end of what’s known as your grace period (the days between the end of your billing cycle and your payment’s due date), both your current balance and any new purchases that you make will start to accrue interest right away.


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


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 .

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

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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

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

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fireplace white

How to Winterize a House

As winter approaches, it may make sense — practically and financially — to prepare for the season ahead. Seasonal weather can transform minor issues into major ones, and cracks and holes around doors and windows can allow the money you spend on heating to literally fly away.  

Here, some smart moves for protecting your home, from the top of the chimney to the water heater in the basement. Plus, you’ll learn ways to finance improvements that will help get (and keep) your property in top condition.

Ways to Winterize a House

While the steps to winterize a home may differ in Alaska vs. Texas, it still helps to get ahead of any issues that may arise. No one wants to wind up with a leaky roof or an ice-cold home during a cold snap. 

It can be a smart move to start planning to winterize several months before the season arrives. The timing of the first frost varies from state to state, and of course, there are some regions of the U.S. that enjoy mild temperatures year-round. It may help to check the National Weather Service’s data that forecasts the first frost for each state to assist in your winterization preparation timeline. 

The following tips for winterizing a house may help you reduce future repair costs and heating bills. 

Protect Pipes or Pay the Piper

When deciding how to winterize a house, you may first consider how to address plumbing leaks and other issues.

Angi.com reports that the average burst pipe repair costs $500, but charges of up to $3,000 are not uncommon. Pipes in unheated areas of a home, including basements, attics, and garages, are among the most likely to sustain damage. But pipes running through exterior walls (including those in kitchens and bathrooms) in the heated parts of your home can also freeze.

Protecting the plumbing is clearly a situation where being proactive may save you a bundle. Pipe insulation can range from $0.50 to $1.50 or more per foot depending on whether you opt for tubular foam, spray foam, fiberglass, rubber or other kinds of insulation. Compare that to the $3,000 figure above to repair a significant leak, and the rewards of winterization can quickly become clear.

Adding insulation to attics (typically a $1,500 to $6,000 job), crawl spaces, and basements can help to keep those areas warmer, which can also help to keep pipes from freezing. (Yes, many houses have pipes in the attic.) What’s more, the E.P.A. says that homeowners can save up to 15% on heating and cooling costs by pumping up their home’s insulation. The higher an insulation’s R value, the better it may keep your home toasty. It can be a wise move to check the U.S. Department of Energy’s map and guide for more details on this topic.

Address HVAC Maintenance and Repair

Nobody wants the heating system to perform poorly during the winter — much less have it break down.

It’s a good idea to schedule a professional maintenance appointment (about $300 on average), including a filter change, before freezing temperatures arrive. Afterward, it’s best to change the filter at least every 90 days to keep your system operating optimally.

Additionally, maintenance and repairs to the heating, ventilation, and air conditioning (HVAC) system and cleaning out vents can improve airflow in your home.

One good move (if you haven’t already made it) can be to install a smart thermostat. If people in a home are away during reasonably regular times of the day or you want to lower the thermostat at night, it can make sense to install a programmable thermostat to save on energy costs. You could quickly shave $140 off your annual energy bill and plunk that into a high-yield savings account or your emergency fund.

It may be time to consider a new HVAC system for some people. The Department of Energy’s Energy Star program provides tips to homeowners to decide if replacing an HVAC system would be a good move.

Signs that it might be time to replace the unit include:

  •   The heat pump is more than 10 years old.
  •   The furnace or boiler is more than 15 years old.
  •   The system needs frequent repairs, and/or energy bills are increasing.
  •   Rooms in the home can be too hot or too cold.
  •   The HVAC system is noisy.

    And if you are contemplating making a move to, say, a heat pump or other new system, definitely do an online search about rebates and tax deductions that may be available. The Internal Revenue Service (IRS) shares some details on the IRS website.

    Check the Roof, Gutters, and Chimney

    Before winter hits, clearing the roof and gutters of leaves and other debris will help prevent snow and ice from building up and damaging the gutters — or, worse, the roof.

    If ice or snow gets beneath roof shingles, it can lead to leaks and interior water damage. You may want to check if you need to replace your gutters. Do any shingles need to be glued down or replaced? Do any small leaks in these areas need to be repaired before they become big ones?

    Plus, a chimney inspection can make sense before winter arrives. A chimney could have an animal nest lodged within, and there can also be structural problems. If the home has a wood-burning fireplace, creosote buildup can create both a fire and health hazard, so keeping up with regular cleaning is also important. With a gas fireplace, a blocked chimney could lead to carbon monoxide backup, which can be life-threatening.

    Prices for these services can range widely, with a chimney inspection costing an average of $450 and a cleaning costing $254 on average.

    Addressing all these issues before winter comes can help you prevent damage, reduce future repair costs and energy bills, and avoid a potentially hazardous situation.

    Examine the Water Heater

    You may want to check your water heater before temperatures plunge to avoid a chilly shower during winter. The usual lifespan of a heater is eight to 12 years, but various factors can impact that. Rust and corrosion can occur and lead to leaks, so it’s in your best interest to check on it regularly. 

    A professional can examine your water heater, bleed the system to remove trapped air and mineral deposits, clean the pipes, and recommend and do repairs.

    How much could this important aspect of home maintenance cost? The average repair can cost $600, according to Angi.com, and a replacement can run from $882 to $1,800 or higher.

    Think About Outdoor Equipment and Plants

    Preventive winterization isn’t just about your home. It can also be a good time to take care of your outdoor equipment, like a lawn mower or other power tools, to protect them as well. Another smart move: Take care of plants that could benefit from moving indoors. Some pointers:

    •   Draining the oil from the appropriate equipment and taking it to a local recycling or hazardous-waste site can be your first step.

    •   You also want to take care of general maintenance on equipment, including replacing old parts. That way, when spring rolls around and you need to mow your lawn or trim your bushes, you should be ready to go.

    •   Additionally, inspect gas caps to ensure O-rings are intact on this kind of equipment. If not, get replacements from the manufacturer. Also, replace filters and lubricate what needs lubricating.

    •   You may need to bring in the plants you initially placed outside to enjoy the summer sun when temperatures drop. Before doing so, check the plants for mealybugs, aphids, and other insects. Remove them and treat plants as needed so the problem doesn’t spread to other plants. Read up on how to get plants acclimated to the indoors and give them the best shot at survival over the winter. 

    •   You may want to prune and repot some plants too. An online search of reputable sources, specific to the kinds of plants you have, will likely provide good advice. 

    Recommended: How HELOCs Affect Your Taxes

    What’s the Cost of Winterizing a Home?

    The cost of winterizing your home will vary greatly depending on your home’s size, age, needs, location (pricey suburb vs. a more affordable one), and climate. You might spend a couple of hundred dollars or (if you need a major roof repair or HVAC replacement) several thousand dollars or more.

    Pipe insulation, as noted earlier, can be relatively cheap: as little as 50 cents per linear foot. If a homeowner decides to insulate further, perhaps an attic, costs can range between $1,500 to $6,000 or more.

    To hire someone to clean gutters, you may pay an average of $167. An HVAC inspection might cost $300, while the cost to replace an HVAC system averages $7,500 but could tip into a five-figure price tag, depending upon the size of the home and type of system, among other factors.

    Yes, there is a huge variation in prices, but you probably want to protect your home. It’s not only your shelter; it’s also likely to be your biggest financial asset. To that end, there are websites that allow a homeowner to enter a ZIP code and get an estimate of what a winterizing activity may cost. It can make sense to get quotes from local professionals to get an exact price, compare proposals and references, and then budget accordingly once you are ready to take the next steps.

    Financing Winterization Projects

    Some people pay for their home winterization costs out of pocket, while others may decide to get a home improvement loan

    If you’re leaning toward a loan, there are options, such as different types of home equity loans. These secured loans — which include a home equity line of credit (HELOC), a home equity loan, and a cash-out refinance — use your home as collateral for the loan. 

    Another option is to get an unsecured loan, such as a personal loan, to finance your costs. 

    Here, take a closer look at two popular options, a HELOC and a personal loan.

    A HELOC, as noted, uses your home as collateral. For this to be an option, there needs to be enough equity in the property to borrow against it. The equity is your property’s current value minus the amount remaining on your mortgage. Some points to consider: 

    •   Usually, you will need at least 15% to 20% equity. If you have that much, and the loan amount required is large, it could make sense to apply for a HELOC

    •   You can typically borrow up to 85% of your equity.

    •   The way a HELOC works is you have a draw period (typically 10 years) during which you withdraw funds up to your limit as needed. Then, you enter the repayment period, which is often up to 20 years, during which you pay back the amount you’ve used. 

    •   Typically, HELOCs have variable rates, but fixed-rate options may be available. Also, since these are secured loans, meaning your property acts as collateral, the interest rates may be lower than those for a personal loan. 

    •   Another plus is that in some cases, interest payments may be tax-deductible if the funds are used in the way specified by IRS guidelines.

    •   An important note: A major downside of a HELOC (or any loan with your property as collateral) is that if you default on your loan, the lender could seize your house. 

    •   Also, the process of securing a HELOC can take weeks, as it usually involves a home appraisal and other steps.

    A personal loan can make sense for recent homebuyers who haven’t built enough equity or those who don’t want to use their home as collateral. Details to note:

    •   For people contemplating both small and large projects, a personal loan may make sense; the amounts available typically run from $1,000 or $5,000 to $100,000. 

    •   Unlike with a HELOC, there is typically no tax deduction possible for the interest you pay on these loans. 

    •   A personal loan for home improvements (aka a home improvement loan) typically has a fixed interest rate, but variable-rate loans are often available, too.

    •   The loan usually provides a lump sum, and then principal and interest are paid off (most often with monthly payments) over a term of one to seven years.

    •   Applying for and receiving money from an unsecured personal loan is typically much faster than with a HELOC, partly because no appraisal is required for the loan. Lenders may offer same-day approval, with funds becoming available just a few days after.

    •   Having an excellent credit score can help a borrower get approved or receive favorable loan terms. Those with lower credit scores will likely pay a higher interest rate.

    Deciding which type of funding might be best for your home winterization needs will depend on many factors. It’s worthwhile to shop around and compare offers so you can find the right financial product to suit your situation. It’s also wise to familiarize yourself with how to apply for a loan so you can know what to expect and how long the process will take.

    Recommended: Personal Loan Calculator

    The Takeaway

    Preparing your home for winter weather can be an important step to protect your property, hopefully heading off major repairs and potentially reducing your energy bills. Such steps as cleaning your gutters, having your HVAC system inspected, and adding insulation can be worthwhile. 

    Winterizing your house can involve a wide range of costs. Fortunately, there are usually ways to finance home improvement projects, such as home equity loans (including HELOCs) and personal loans, depending on your needs.

    Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.


    SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

    FAQ

    What do I need to do to winterize my house?

    Some important steps to winterize your house can include cleaning the gutters, inspecting the roof and attic, adding insulation (both to prevent heat loss and protect pipes), having your chimneys checked, servicing your HVAC system, and prepping your outdoor equipment and plants for the colder weather.  

    How do you close up a house for the winter?

    If you are closing up a house for the winter, it’s wise to get necessary inspections done (such as the roof and HVAC system); clean out gutters; shut off the water wherever possible to avoid pipes freezing and bursting; set the thermostat to no less than 55 degrees Fahrenheit; unplug appliances; fill exterior holes that could allow critters inside; and move plants and outdoor equipment inside.

    How do you winterize a house so pipes don’t freeze?

    It’s wise to set your home’s thermostat to no lower than 55 degrees Fahrenheit at any time of day. Insulating pipes well, especially ones near the home’s exterior, can also help prevent pipes from freezing.


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


    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 .

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


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

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

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

    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.

    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.

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  • 7 Tips for Paying Off a Large Credit Card Bill

    Credit card debt can go from zero to thousands with one quick swipe. Or it can build slowly like rising water — a nice dinner here, some retail therapy there. Before you know it, your balance is uncomfortably high. You’re not alone. Almost half of American households carry credit card debt. Of those consumers, the average balance is $6,501, according to recent Experian® data.

    If you’ve vowed to pay off your credit card balance, you’re making a smart financial move. Doing so can save you money on interest, build your credit history, and help you achieve other financial goals. Here, learn the top tips and strategies for getting it done, from the snowball strategy to hardship plans to the boring but effective debt-focused budget.

    What Is a Realistic Payoff Schedule?

    If you’ve been carrying a balance on one or more cards, it may take longer than you’d like to pay off the debt. Determine how long you need to become debt-free while still covering your monthly bills comfortably. 

    You’ll want to consider these facts:

    •   A longer payoff term can allow you to continue to save and invest while paying down debt. 

    •   A shorter payoff term can save you a considerable amount in interest.

    Worth noting before moving on to tactics: If there’s no scenario in which you can cover your living expenses and pay off your credit card debt in five years, the standard payoff strategies may not be enough. It may be time to consider applying for credit card debt forgiveness.

    7 Credit Card Payoff Strategies and Tips

    There are numerous ways to tackle debt and pay off credit cards. The approaches below may work best when you mix and match several to create your own custom debt payoff plan.

    1. Create a Debt-Focused Budget

    Achieving financial goals usually starts with a budget. Making a budget is designed to help you discover extra cash you can put toward your credit card bill.

    •   First, make a list of your monthly bills that reflect the “musts” of your life. Along with your rent or mortgage, phone, gas, food, and other required living expenses, include your credit card payment and other minimum debt expenditures. You can leave the amount blank for now. This is your “Needs” column.

    •   Next, look at your “wants.” These are things that you can survive without — restaurant meals, new clothes, gym membership, travel — but that often make life better. Which items can you do without temporarily so you can put their cost toward your credit card bill? The idea is to trim spending so you can pay down your debt.

    It’s OK if your budget isn’t the same from month to month — flexibility is good. While you’re at it, build the following into your budget:

    •   Look ahead for unavoidable big purchases (that upcoming destination wedding) and occasional bills (annual home insurance premiums, for instance, or holiday gift shopping). 

    •   Leave some wiggle room for unexpected expenses. You might need to dip into your emergency savings for this kind of cost, but it’s good to have a cushion in your budget (say, for a rent increase).

    •   Recognize that your credit card payment may be lower some months to accommodate the fluctuating costs noted above. Just always pay at least the minimum payment.

    Your new budget should prioritize your credit card payment on par with other bills and above nonessential treats. One way to make budgeting easier on yourself is to download a financial insights app, which pulls all of your financial information into one place.

    2. Zero-Interest Credit Card

    The frustrating thing about credit cards is how interest can take up more and more of your balance. Zero-interest credit cards, also known as 0% APR cards, allow card holders to make payments with no interest on transfers and purchases for a set period of time. The promotional period on a new credit card can usually last from 12 to 21 billing cycles, long enough to make a large dent in the card’s principal balance.

    Consolidating your credit card debt on one zero interest card serves to simplify your monthly bills while also saving you money on interest payments. The key here, of course, is to avoid racking up even more credit card debt.

    One drawback to these cards is that you often need a FICO® Score of 670 or above to qualify. And once the promo period expires, the interest rate can climb to 29% or higher. In an ideal world, you’ll want to achieve your payoff goal before the rate rises.

    A credit card interest calculator can give you an idea of how much your current interest rate affects your total balance.

    3. The Snowball, the Avalanche, and the Snowflake

    The snowball and avalanche debt repayment strategies take slightly different approaches to paying down debt. Both involve maintaining the minimum payment on all but one card.

    •   The debt snowball method focuses on the debt with the lowest balance first, regardless of interest rate, putting extra toward that payment each month until it’s paid off.

    Then, that entire monthly payment is added to the next payment — on top of the minimum you were already paying. Rinse and repeat with the next card. It’s easy to see how this method can quickly get the snowball rolling.

    •   The debt avalanche is based on the same philosophy but targets the highest-interest payment first. Getting out from under the highest debt can save a lot of money in the long run. Just like the snowball method, applying that entire payment to the next highest interest debt can lead to quick results.

    •   The third snow-related strategy, the debt snowflake, emphasizes putting every extra scrap of cash toward debt repayment. If you have extra money to throw at your debt, even $20, that can still make a difference in your overall amount owed. So this method encourages you to chip away at debt with any small amounts available.

    4. Make More Money

    Sure, increasing your income is easier said than done. But if you have the time to spare, it can make paying down debt a whole lot easier. Here are the top ways that people can bring in more cash:

    •   Start a side hustle (or monetize an existing hobby)

    •   Get a part-time job (on top of your current job). Two shifts a week can help you bring in another $500 to $1,000 per month.

    •   Sell your stuff. Reselling clothes, books, old electronics, and jewelry can help bring in cash.

    •   Negotiate a raise. In some cases, labor shortages may give workers extra leverage to ask for more.

    5. Negotiate with Your Credit Card Company

    If your large credit card balance is the result of unemployment, medical bills (yours or a loved one’s), or another financial setback, inform your credit card company. You may be able to negotiate a lower interest rate, lower fees and penalties, or a fixed payment schedule.

    Hardship plans have no direct effect on your credit rating. However, the credit card company may send a note to the credit bureaus informing them that you’re participating in the program. 

    One point to be aware of: Your credit card issuer may also close or suspend your credit card while you’re paying off the balance. This can leave you without a means to pay for purchases and could also ding your credit score.

    6. Change Your Spending Habits

    Changing how you spend your money is key to paying down debt — and to avoid racking up more in the future. You can approach this in two ways: as a temporary measure while you pay off your cards or a permanent downsizing of your lifestyle.

    •   The advantage of the temporary approach is that people are generally more willing to give things up when it’s for a limited time. For instance, can you suspend your gym membership during the warmer months when you can work out outdoors? Perhaps you can challenge yourself to cook at home for 30 days to save on restaurants. Or you might go without paid streaming services for six months.

    String enough of those small sacrifices together to cover a year or two, and see how quickly you might be able to increase your credit card payments. That in turn can make your payoff term shrink.

    •   Downsizing your lifestyle for the long term has its own appeal, even for people who aren’t paying down debt. Living below your means is key to accumulating wealth. How exactly you accomplish that isn’t important. For instance, you can frequent cheaper restaurants, reduce the number of times you go out each month, or merely avoid ordering alcohol and dessert. The bottom line is to save money, avoid debt, and enjoy the financial freedom that results.

    7. Personal Loan

    Similar to a zero-interest credit card, a personal loan is a form of debt consolidation. Personal loans tend to have lower interest rates than credit cards, saving you money. And if you’re carrying a balance on multiple credit cards, a personal loan can allow you to simplify your debt with one fixed monthly payment.

    Personal loans can be a great option for people with good to excellent credit. That’s because your interest rate is determined largely by your credit score and history. You can typically borrow between $1,000 and $100,000, and use the money for just about any purpose, from paying off debt to funding travel or a home renovation.

    You will usually find fixed-rate personal loans, though some variable-rate ones are available as well. Terms usually run from two to seven years for personal loans.

    The Takeaway

    Credit card debt can sneak up on you. If you’re carrying a balance on one or more cards, there are numerous ways to approach paying down your debt. You might start with a new budget that prioritizes your credit card payment along with your other monthly bills, and trim your spending accordingly. You could then combine a broad payoff strategy (the snowball, the avalanche) with other tips and tactics (zero-interest credit cards) to minimize your interest payments and shorten your payoff term. And remember: You’re not alone, and you can do this!

    Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.


    SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

    FAQ

    How to pay off a huge credit card bill?

    There are a variety of ways to pay off a large credit card bill. These include making (and sticking to) a budget, trying the debt avalanche or snowball method, applying for a zero-interest balance transfer card, or taking out a personal loan.

    How to get rid of $30,000 credit card debt?

    To pay off a $30,000 credit card debt, it’s wise to create a smart budget, look into cutting your expenses, develop a repayment plan, and see about consolidating your debt. If these don’t seem likely to lead to getting rid of your debt, you might talk to a certified credit counselor and/or consider a debt management plan.

    What is the best tip to pay off credit cards?

    The best tip for paying off credit card debt will depend on a variety of factors, such as how much debt you have vs. your available funds. For some people, the debt avalanche method of putting as much available cash toward the highest interest debt can be a smart move. For others, consolidating debt with a personal loan may be a good option.


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


    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 .

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

    SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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

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

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    Disability Loans: Everything You Need to Know

    Disability Loans: Everything You Need To Know

    Not only can you get a loan while on disability, sometimes this kind of funding becomes crucial for a borrower’s financial wellbeing. Such personal loans, often coined “disability loans,” can be useful for bridging the gap before benefits kick in or for financing medically important purchases, like a wheelchair.

    However, you may wonder whether a personal loan could impact your disability benefits and what requirements you might need to meet to access cash this way. This disability loan guide answers these personal loan questions and more.

    Can You Get a Loan While on Disability?

    You can get a loan on disability as long as you have the credit score and income to qualify. The exact requirements vary from lender to lender.

    Lenders cannot use your disability as a reason to deny you a loan. The Equal Credit Opportunity Act (ECOA) expressly prohibits lenders from denying loans or charging higher fees because you receive help from a public assistance program.

    The ECOA protection extends to all loan types, including mortgages, car loans, credit cards, student loans, small business loans, and personal loans.

    What Is a Disability Loan?

    While “disability loan” is a common term used throughout the industry, there is technically no such thing. Instead, applicants and lenders use the term to refer to a type of personal loan for which a person applies while waiting for or actively receiving disability benefits from the government.

    Often, a disability loan more specifically refers to loans that people take out to:

    1.    Cover living expenses while waiting for disability benefits to kick in.

    2.    Pay for medical equipment, like wheelchairs or medication, related to the disability.

    In other words, you would put what is known as a personal loan toward expenses that are tied to the disability.

    Recommended: Personal Loan Calculator

    Who Qualifies for a Disability Loan?

    The ECOA protects consumers from being discriminated against by lenders on the basis of race, sex, disability status, and public assistance, such as Social Security Disability Insurance (SSDI). That means lenders cannot deny your personal loan application just because you’re on disability.

    A number to note: If you believe a lender is violating the ECOA guidance, you can contact the Consumer Finance Protection Bureau at (855) 411-2372.

    As with any loan, you can improve your chances of approval for a personal loan with a good credit score and steady source of income. That said, even borrowers with bad credit or no credit history may be able to get approved for a loan, though it will likely have less favorable terms.

    Recommended: What Is a Share Secured Personal Loan?

    SSI vs SSDI

    As a person with a disability, you may be receiving Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) from the Social Security Administration (SSA) — or maybe both. Knowing which type of disability benefit you receive is important, as loans can impact those benefits differently.

    Supplemental Security Income

    SSI eligibility is solely based on age, blindness, or disability. Recipients do not need to have contributed to Social Security via taxes on past income. Both adults and children with a qualifying disability and limited income and resources may receive SSI.

    SSI benefits typically kick in quickly — the first full month after your disability claim has been accepted. Maximum monthly benefits vary based on factors like marital status and income, but they are generally lower than SSDI.

    Social Security Disability Insurance

    To be eligible for SSDI, you must meet the SSA’s definition of disability — and you must also have paid Social Security taxes on past earnings. 

    Recipients may be more likely to need a disability loan when anticipating SSDI benefits because they likely don’t kick in until the sixth full month of disability. (There are exceptions for those with certain conditions, such as ALS, or amyotrophic lateral sclerosis.) 

    However, the SSDI benefit can be worth the wait because it has a higher potential monthly payout. As of January 2024, the average monthly SSDI payment was $1,537 vs. $698 for SSI.

    How Personal Loans Affect Disability Benefits

    Knowing whether you receive SSI or SSDI benefits is important if you are considering applying for a personal loan.

    •   SSI: Your loan doesn’t count as income. That said, if you don’t spend your personal loan in the same month that you receive it, the SSA will count the remaining funds toward your SSI resource limit for the month. The limits are currently $2,000 for an individual and $3,000 for a couple. This could therefore reduce your overall benefit for the next month.

    •   SSDI: These restrictions do not apply to nor impact your SSDI benefits.

    Recommended: Guide to Unsecured Personal Loans

    The SSA Process: What Is a Disability?

    To earn either disability benefit from the Social Security Administration, you’ll have to meet its strict definition of “disability.” Here it is in a nutshell:

    Your medically determinable physical or mental disability must prevent you from being able to work and must be expected to result in death or last continuously for at least 12 months. Children have separate criteria that they must meet to qualify.

    To earn SSDI specifically, the SSA will also determine whether you have enough work credits (i.e., if you’ve made enough tax contributions from past income) to be eligible. The number of work credits can vary depending on your age when the disability began.

    If you have enough credits, the SSA will then utilize five questions to determine if you qualify:

    •   Are you working?

    •   Is your condition “severe”?

    •   Is your condition found in the list of disabling conditions?

    •   Can you do the work you did previously?

    •   Can you do any other type of work?

    Head to the SSA website to learn more about qualifying for disability benefits.

    Pros and Cons of Getting a Loan on Disability Benefits

    Wondering if taking out a personal loan while waiting for or receiving disability benefits is the right option for you? It can be helpful to weigh the pros and cons before applying:

    thumb_upPros of Getting a Loan

    •   You can get financial assistance to help with bills while waiting for benefits to start paying out.

    •   Responsibly managing a personal loan can help build your credit score.

    thumb_downCons of Getting a Loan

    •   Receiving a personal loan and not spending all the money within a specific timeframe can impact your SSI benefits.

    •   Personal loans carry the potential for high interest rates and unfavorable terms, especially if you have a low credit score.

    How to Apply for a Disability Loan

    On disability and need a loan? Applying for a personal loan on disability benefits should follow the same process as applying for a personal loan under any other circumstances. Typical steps include:

    •   Check your credit score: Knowing your score before you start looking for lenders can help you know the interest rate and other terms you can expect. It might also guide you to narrow the field of possible lenders.

    •   Find a lender: Your bank or credit union may offer personal loans, but you can also search online to find personal loans that offer good terms for your specific credit score.

    •   Compile your info: The application process will typically require some basic info. Having identification, income verification (paystubs or a W-2 form), and proof of address handy can be helpful.

    If you’re approved, the lender will work with you to ensure you receive funds as quickly as possible. Some personal loan lenders advertise same-day approval and funding in just a few days.

    Disability Loan Alternatives

    A disability loan isn’t your only option as you wait for disability benefits to kick in. If you need money while waiting for your SSDI, consider these alternatives:

    •   Disability insurance: Some employers offer short- and long-term disability insurance as part of their benefit packages. Employees without such benefits or self-employed small business owners can also purchase individual policies through a broker. Either way, this insurance can be extremely helpful should you become disabled.

    •   Worker’s compensation: If your disability originated from a workplace injury, you may be eligible for compensation through this government program. Benefits vary by state.

    •     Other government assistance: Disability benefits are just one way the government is set up to help you out in your time of need. You may also be eligible for unemployment benefits, the Supplemental Nutrition Assistance Program (SNAP), or similar benefits that can offer financial assistance for the disabled.

    •     Family and friends: Family and friends may be willing to offer monetary assistance — or even temporary housing — as you learn to manage a disability.

    •     Credit cards: It may be tempting to put purchases on credit when a disability occurs or get a cash advance. Keep in mind that credit card debt is high-interest debt, and cash advances typically charge a still higher interest rate than your usual annual percentage rate, or APR. Proceed with caution.

    •     Payday loans: If you need cash fast, personal payday loans may sound like the answer. But they can have annual interest rates of more than 400%. Protect yourself by staying away from these potentially predatory short-term loans.

    The Takeaway

    Disability loans are personal loans that can help someone with a disability get by until benefits kick in. The Equal Credit Opportunity Act protects people receiving public assistance from discrimination by lenders. Before applying for a disability loan, it’s important to determine how it might impact your disability benefit eligibility — and to shop around until you find a personal loan with favorable terms.

    Are you ready to take out this kind of personal loan? See what SoFi offers.

    Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.


    SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

    FAQ

    What kind of loan can I get on disability?

    People who receive disability benefits are eligible for the same kinds of loans as anyone else, including home loans, auto loans, personal loans, and credit cards. Legal protections are in place to help prevent discrimination in this situation. In fact, some people take out personal loans to cover expenses until their Social Security Disability Insurance (SSDI) benefits kick in. Just be sure you understand the impact that a loan could have on Supplemental Security Income, or SSI, benefits.

    Can you get loans on disability?

    Getting a loan while on disability is possible. The Equality Credit Opportunity Act ensures that people on disability cannot be rejected for any type of loan, including a mortgage, auto loan, credit card, or personal loan based on their disability status.

    Can I get a personal loan if I’m on disability?

    You can still get a personal loan while receiving disability benefits. Like any other applicant, your approval will depend on your credit score or income. A lender cannot deny a loan based on your disability status. Be aware, however, that a loan could impact your SSI benefits.


    Photo credit: iStock/monstArrr_

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


    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 .

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

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

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

    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.

    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.

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    Exploring the Pros and Cons of Personal Loans

    Exploring the Pros and Cons of Personal Loans

    A personal loan can be a useful option when you need to borrow money to cover a medical bill, fund a home repair, or consolidate debt. This kind of loan can offer a considerable lump sum of cash at a relatively low interest rate, but you may need at least a good credit score to qualify and fees can be charged.

    Before you decide that a personal loan is right for you, it’s important to understand the pros and cons that come along with them. Here, the information that can help you make a wise choice. 

    What Are Personal Loans?

    What is known as a personal loan is money that you borrow from a bank, credit union, or online lender. Typically, it’s a lump sum amount you receive and, since it’s an installment loan, agree to repay the loan principal and interest at regular intervals — usually monthly.

    The interest rate for a personal loan is likely to be fixed-rate, and the loan’s term is usually between two and seven years. 

    When you apply for a personal loan, your lender will run a hard credit check, which will help determine your interest rate. Generally speaking, borrowers with higher credit scores have a better chance of being offered lower interest rates. The higher your interest rate, the more money it will cost you to borrow.

    With many lenders, you will need a FICO® credit score of at least 580 to qualify, and a higher score will probably allow you to get more favorable rates. 

    Recommended: 11 Types of Personal Loans

    The Benefits of Personal Loans

    Personal loans are a flexible option for borrowers looking to accomplish a variety of goals, from consolidating other debts to remodeling their home. Here’s a look at some of the advantages.

    Comparatively Low Interest Rate

    Personal loans offer relatively low interest rates when compared to other methods of short-term borrowing. The average personal loan interest rate is 12.38% as of August 2024. 

    Credit cards by comparison have average interest rates of 22.76% for accounts with balances as of May 2024 according to the Fed. A personal line of credit, which allows the borrower to withdraw funds up to a limit during the draw period, may have interest rates that vary between 9.30% and 17.55%, depending on credit score and other variables.

    Some forms of predatory short-term lending, such as payday loans, can charge the equivalent of many times these rates to borrow. Some even have annual percentage rates (APRs) of 300% to 400%, so it can be wise to proceed with caution and see what lower-cost sources of funding may be available.

     

    Average Interest Rates

    Personal Loans

    12.38%

    Credit Card

    22.76%

    Personal Line of Credit

    9.30% – 17.55%

    Comparatively High Borrowing Limits

    Small personal loans are usually for amounts of $3,000 or less. (Smaller loans often come with lower interest rates.) However, some lenders will offer large personal loans of up to $100,000 to cover major expenses and life events, which may be quite a bit more than other credit options.

    The average credit limit for credit cards, by comparison, is $29,855, according to credit reporting bureau Experian®. 

    Personal lines of credit often have a range of limits from $1,000 to $50,000, which can be more than a credit card but less than a personal loan.

     

    Borrowing Limits

    Personal Loans

    Up to $100,000

    Credit Card

    Average limit of $29,855

    Personal Line of Credit

    Up to $50,000

    Personal Loans Can Be Used for Many Things

    Some types of loans must be used for designated purposes. Auto loans must be used to buy a car, and a mortgage must be used to finance a home. Personal loans, on the other hand, have few restrictions on how you must use the money, and you can generally use it for any legal purpose. 

    Popular uses for personal loans can include:

    •   Medical, dental, or car repair bills

    •   Home improvement projects

    •   Debt consolidation

    •   Travel

    •   Weddings or other major celebrations

    •   Holiday shopping

    •   Summer camp or other expenses for children

    No Collateral Necessary

    Unsecured personal loans are the most common type of personal loans. They are not backed by collateral, such as your car or home.

    Some personal loans are secured, however, and require you to borrow against the equity in your personal assets, like a home or your savings. With a secured vs. unsecured personal loan, the lender can seize your collateral if you default, selling it to recoup their loss. As a result, secured loans present less risk for the lender and often come with lower interest rates than unsecured loans.

    Simple to Manage

    You can use personal loans to consolidate other higher-interest debt, for example, by paying off the balance on several high-interest credit cards. A single personal loan can offer less expensive interest, lowering the cost of your debt over time. And it may be easier to manage, since you only have one bill to pay each month.

    Can Be Quick to Obtain

    Policies will vary, but some lenders may offer same-day approval and funding within just a few days. 

    Can Help Building Credit

    Your lender will likely report your personal loan and payment history to the three credit reporting bureaus — Experian®, TransUnion®, and Equifax®. In fact, 35% of your FICO® score — the most commonly used credit score — is determined by your payment history. 

    You can help build a strong credit history over time by avoiding late or missed payments.

    Recommended: Personal Loan Calculator

    The Disadvantages of Personal Loans

    These loans do have some downsides, which can potentially make personal loans a bad idea for some borrowers. Here’s a closer look.

    Higher Interest Rates Than Some Alternatives

    Personal loans may carry higher interest rates than some alternatives. For example, if you’re looking to remodel your home, you might consider taking out a home equity loan or a home equity line of credit (HELOC). Keeping in mind the current average interest rate of 12.38% for personal loans, consider the following:

    •   A home equity loan uses your home as collateral to offer you a lump sum of money to use. As of August 2024, the average interest rate on a 10-year fixed home equity loan was 8.62%  

    •   A HELOC, on the other hand, is a form of revolving credit line that uses your home as collateral. You draw against your limit as needed during the draw period and, after a set number of years, enter the repayment period. As of August 2024, the average interest rate on a HELOC was 9.28%.  

    Also, your rate will likely vary depending on your credit score: The higher your score, the lower your interest rate may be.

    Fees and Penalties

    Some lenders may charge fees and penalties in association with personal loans. For instance, an origination fee helps pay for the processing of your loan application and is usually equal to a percentage of the loan amount. Fortunately, it’s possible to avoid origination fees.

    Lenders may also charge prepayment penalties if you pay off your loan ahead of schedule, to make up for profit they are losing on interest payments.

    Can Increase Debt

    Take out a personal loan only if you are sure you can pay it off and if it makes financial sense. For example, a home remodel could increase the value of your home, and consolidating credit card debt could save you money in interest payments. But taking out a personal loan to fund a lavish wedding could wind up interfering with your ability to save for the down payment on a house.

    Avoid taking out a loan that is for more money than you need to avoid the risk of taking on more debt than necessary.

    Alternatives to Personal Loans

    In addition to personal loans, you may wish to explore other forms of credit that can help you finance big and small expenses.

    •   Credit cards allow users to make purchases using credit. Borrowers must make minimum payments and owe interest on any balance they carry from month to month.

    •   A personal line of credit (PLOC) is similar to a credit card. It allows you to tap your credit line as needed. Credit is replenished when you pay back your loan.

    •   A home equity loan uses a borrower’s home as collateral. The value of the property contributes to determining the loan amount that is transferred to the borrower as a lump sum.

    •   A home equity line of credit is a revolving source of credit, like credit cards and PLOCs. As with home equity loans, HELOCs use the borrower’s home as collateral.

    The Takeaway

    A personal loan is a type of installment loan, usually unsecured, that allows you to obtain a lump sum of money, typically at a fixed interest rate and to be repaid in up to seven years. The pros of these loans can include their flexibility (you can use the money as you like), lower interest rates than some other sources of funding, and the speed, high limits, and convenience they offer. Among the cons: the possibility of having to pay fees and penalties and the fact that you might be able to get a lower rate with a secured loan elsewhere.

    If you’ve explored your options and decide that a personal loan is right for you, it’s wise to shop around to find the right loan. 

    Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.


    SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

    FAQ

    What is a personal loan?

    A personal loan is a loan you receive from a bank, credit union, or online lender and can use for a variety of purposes. Borrowers pay back the principal and interest in regular installments. These loans are typically unsecured (meaning collateral is not needed) and offer a lump sum payment, usually at a fixed rate of interest, with a term of up to seven years.  

    What can you use a personal loan for?

    Personal loans have few usage restrictions. You can use them for everything from covering an unexpected medical bill to remodeling your kitchen to paying for a vacation or consolidating credit card debt.

    How much money can you get from a personal loan?

    Personal loan amounts typically range from $1,000 to $100,000, though some lenders may offer lower or higher amounts.


    Photo credit: iStock/Anchiy

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


    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 .

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

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

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

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