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While bad financial decisions can set you back, it’s important to remember that mistakes can also be an opportunity to learn and grow. While you can’t go back and undo the things you’ve done (or do things you didn’t do), you can acknowledge where you went wrong and change your behavior moving forward.

Below, we look at some of the most common financial missteps people make, as well as what you can do to overcome them.

15 Bad Financial Decisions

Here’s a look at where things can go wrong, and how you set them right.

1. Not Paying Down Your Credit Card Debt

Just making the minimum payment on your credit cards each month can drain your pockets and damage your credit. The reason: When you carry a balance, interest keeps on building, making the total balance higher, and even more challenging to pay off. Debt also shows up on your credit report and can have a negative affect on your scores.

To break the pattern, consider putting any extra money toward the card with the highest interest rate, while paying the minimum on the rest. When that card is paid off, you can tackle the next-highest interest debt, and so, until you’re out of debt.

Recommended: Creating a Credit Card Debt Elimination Plan

2. Putting Important Financial Decisions off to the Side

Delaying important financial decisions, such as saving, investing, and paying off debt, can cost you money and put your goals further out of reach. A good way to stop the procrastination cycle is to break down your financial goals into small to-dos that feel manageable. You might want to set aside time once a month to check in on your finances and make one small change that can help you get closer to your goals.

3. Not Protecting Personal Financial Information From Fraud

Identity theft and financial fraud is all too common these days, and not taking a few steps to protect your personal and financial information can come back to haunt you. The financial damages caused by fraud can last for months or even years. What’s more, the recovery process usually isn’t easy, and may even involve working with the IRS or Social Security Administration to clear your name.

To protect your information, it can be smart to regularly check your credit reports (and report any suspicious activity immediately). You’ll also want to avoid entering your data on websites you don’t trust or giving your account numbers or social security number to someone who contacts you by phone, email or text.

4. Overspending While You Are Young

Overspending means you’re spending everything you earn (and not putting anything into savings) or, worse, you’re spending more than you’re bringing in. This can be a costly financial mistake that puts your goals further from your grasp.

To change course, you may want to take a look at the last three months of financial statements and assess exactly how much you are spending each month and on what. This can be eye-opening, and you may immediately see some easy ways where you can cut back. Any money you free up can then be put toward savings, and little by little, it will add up.

5. Not Having Any Backup Options

A recent Bankrate study found that 56% of Americans could not afford an unexpected expense of $1,000. Without an emergency cushion, many Americans are at risk of going into high-interest debt should they face an unexpected bill or any loss of income.

It’s generally recommended to have enough cash set aside to cover all your living expenses for three to six months. In some situations, this amount should be as much as 12 months. To get there, you may want to put a percentage, say 10 percent for example, of your monthly take-home income into a high interest savings account or online bank account (online banks often offer higher interest rates than traditional banks). If that doesn’t seem doable, it’s fine to start smaller and gradually work up.

6. Paying High Amounts on Multiple Monthly Subscriptions

Subscription streaming services, box deliveries, and apps that bill on a monthly basis can add up to a significant sum. And, since these service providers typically bill automatically, you may not even be fully aware of what you are paying for each month, or that you may be overpaying for some of these services.

To cut down your monthly bills, it can be a good idea to go through your statements and tally up everything you are currently paying for on a recurring basis. Can anything go? Could you get a better deal on some of these services? It never hurts to shop around or call up a service provider and ask for a lower price.

7. Not Investing Any of Your Money

You may think you have to be rich or an expert on stocks to start investing, but this is a common money misconception. And one that can leave you ill prepared for the future. If you’re not making your money work for you in the market, it may be difficult for you to achieve your long-term goals.

While investing can be intimidating (and does come with some risk), there are easy ways to get started. If you don’t want to do the work of picking and choosing investments, for example, you might start investing with a robo-advisor. These are digital platforms that provide automated investment services based on your goals and tolerance for risk. Robo-advisors are typically inexpensive and require low opening balances.

8. Not Planning for Retirement

When you don’t plan for retirement, you forgo the factor of time that is key to achieving your goals. Giving your investments a long time to grow is vital to having a nest egg you can retire on. However, there is more to retiring than starting an IRA or contributing to a 401k. You’ll also want to consider when you want to retire, what kind of lifestyle you will want to lead, and how much money you will need. This can help you determine how much you should be putting away each month starting now.

9. Making Unnecessary and Frivolous Purchases

An iced cappuccino here, a pay-per-view there. These little extras may not seem like a big deal, but they add up. Consider that spending just $50 a week eating out costs you $2,600 a year. That sum could go a long way toward paying off your credit card or car, and help you make a big step toward achieving financial freedom.

To curb impulse buys and cut back on spending, you might want to set a weekly spending limit for “extras.” To keep to your limit, consider taking out that amount of cash at the beginning of the week and leaving your credit card at home. That way, when the money’s gone, you can’t spend any more.

10. Allowing Your Credit Score to Drop

A low credit score can keep you from obtaining loans, credit cards, housing, and even employment. Poor credit can also be costly, since the financing options available to you will be more expensive.

To start building a better credit profile, you may want to put all your bills on auto-pay, so you never make a late payment. Paying down any credit card debt can also be helpful, since how much of your available credit you are using also factors into your score. If you have an old credit card you rarely use, it can be a good idea to still keep that account open, since the length of your credit history is another factor that impacts credit scores.

11. Not Making Budgeting an Important Priority in Your Life

Budget may sound like a bad word. But not tracking how much money you’re making versus how much you’re spending can be a bad financial decision with many repercussions, including never getting ahead and feeling constantly stressed about money.

Practicing budget management on the other hand, can mean the difference between staying in debt vs. getting out of it, remaining in your apartment vs. becoming a homeowner, and working overtime vs. going on vacation. Convinced? You can start budgeting by assessing what’s currently coming in and out of your bank each month, and making a plan for how you want to allocate your income, making sure that some money goes to savings each month.

12. Financing for Purchases Rather Than Saving

While some purchases, such as a house, usually require financing, many others can be achieved through saving instead of going into debt. Whether you want a new laptop or a high-end refrigerator, financing can make that purchases more expensive. Plus, the ease of buying on credit can make you think you can afford a lot more than your income allows.

A wiser strategy is to determine what you want to buy, how much it will cost, and when you, ideally, want to get it. You can then start putting money aside each month and when you meet your goal, buy the item with cash.

13. Using Savings to Pay Off Debt

It may seem counterintuitive, but paying off debt with your savings is not always a good idea. Draining your bank account can leave you vulnerable to financial emergencies, causing you to plunge back into debt.

A better strategy is to use a debt repayment method such as the snowball method. This involves putting extra money toward the smallest revolving debt balance each month, while continuing to make minimum monthly payments on your other debt. When the smallest balance is paid off, you can move on to the next-smallest balance, and so on. This can help you start saving money right away and motivate you to keep going.

14. Withdrawing From Retirement Early

It can be exciting to watch your retirement account grow throughout your career. And, it can be tempting to want to touch that money before you are officially “retired.” However, taking early distributions from your retirement account can be among the worst money mistakes you can make. For one reason, you will likely have to pay penalties and income tax on the amount you withdraw. For another, you will lose the opportunity to continue making gains on that money.

Remember: The main benefit of a retirement account is to let your money compound and grow over time. When you take that money out, you lose that opportunity to secure your future and take a big step backward.

15. Falling For Money Scams

You may think you’re immune to money scams, but a recent study by the Federal Trade Commission found that younger people report losing money to fraud more than older people. Some common scams include:

•   Fraudulent pet purchases

•   Emails claiming to be from Amazon asking for new payment information

•   Fake job postings requiring personal information and advance payments for training

•   Fake loan forgiveness offers

To avoid unknowingly falling for a scam, you’ll want to be suspicious of any email or offer that seems too good to be true, and avoid clicking on any links in an email or text claiming to be from one of your financial institutions. A smarter move is to call customer service or log onto your online accounts to see if the information in the email or text is correct.

Tips for Recovering From Bad Financial Decisions

If you’ve made some poor financial decisions, it might feel embarrassing or scary. It can help to remember that one accident or blunder doesn’t spell doom for your financial state forever. Here are some ways you can start turning things around.

Acknowledging Bad Financial Decisions and Taking Action

Even if you’ve made one of the worst money mistakes, a smart first step is to simply acknowledge your misstep, take a step back, and – at first – do nothing. A rash attempt to fix a problem can actually make it worse. Once you’ve accepted and assessed the damage, you can put a recovery plan into action.

Taking Steps One at a Time

Repairing your credit or paying off a mountain of credit card debt won’t happen overnight. And, if you set our sites too high, you might be tempted to give up before you even get started. A better bet is to break your larger goals into a series of small, achievable steps. Each time you accomplish one of these mini-goals, you’ll likely feel a sense of accomplishment. This can motivate you to keep going and, little by little, make it to the finish line.

Do Not Shame Yourself, but Forgive Yourself

Everyone makes mistakes. Even if you have been doing your best, it’s possible to have a credit card balance get out of hand or have your identity stolen after you accidentally clicked on a fishing link in an email.

Forgiving yourself is crucial to your emotional health and will help you take positive action to undo your mistake. A bad decision doesn’t have to define you; instead, it can be something you learn from and overcome. The mental energy spent beating yourself up can be better used to help address the problem.

Improving Your Money Mindset

If you have a positive outlook on money, you will likely make better money decisions. Having a negative view, on the other hand, can keep you from setting goals and taking positive action. For example, if you think you will never get out of debt, you may not feel motivated to even try. However, putting a positive spin on the situation – that, with a plan, you will be able to one day be debt-free – can motivate you to start (and keep) attacking your debt.

Managing Your Finances With SoFi

Though everyone tries to do their best with their money, mistakes happen all the time. No one likes losing money, but it’s vital to remember that one, or even several, financial slipups can be overcome by keeping a positive mindset and taking the recovery process one step at a time.

If you want to gain better control of your finances, help is available. With a SoFi Checking and Savings account and direct deposit, you can earn a competitive APY on your money, take advantage of automatic savings features, and avoid paying any account fees.

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

What are the consequences of poor financial decisions?

Poor financial decisions can lead to a low credit score, lack of savings, and overreliance on debt. It can also make you vulnerable to financial emergencies and limit your access to loans and credit cards with favorable rates and terms.

Do bad financial decisions lead to bad financial habits?

Yes, if left unaddressed, bad financial decisions can lead to bad financial habits. Not putting money aside for emergencies, for example, can cause you to rely on your credit card to cover a large, unexpected expense, and lead to a cycle of high interest debt that can be hard to get out of.

Can bad financial decisions be overcome?

Yes, you can overcome bad financial decisions by recognizing where you went wrong and coming up with a realistic plan to address the problem moving forward.

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Photo credit: iStock/bob_bosewell

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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.

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 .

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Using a credit card can be easy — almost too easy. And should a financial emergency pop up, or you reach for your credit card to make a cascade of purchases, before you know it, you’re faced with a maxed out credit card.

When you’ve maxed out on your card — or reached your credit card spending limit — it can have a negative impact on your finances. Let’s take a look at what happens if you max out on a credit card and how it can affect your credit score, as well as how to prevent maxing out in the first place and tips to bounce back if you already have.

When Is a Credit Card Maxed Out?

So, what is a maxed out credit card? Maxing out on a credit card simply means that you’ve reached the credit limit on your credit card. For instance, if you have a $20,000 credit limit on a card, and your balance hits that $20,000 mark, it’s maxed out. As such, you may not be able to put any more purchases on that card.

Recommended: What is a Charge Card

What Happens If You Max Out Your Credit Card?

There are a number of financial impacts of a maxed-out credit card. For starters, your card will likely get declined if you try to make a purchase. This is because rather than overdrafting a credit card, your credit card is typically just turned down (though in some cases, you could instead face fees for exceeding the limit, and the charge will go through).

Additionally, you could end up paying quite a bit in interest if you can’t pay off your entire statement balance in full. Plus, it could take you a long time to pay off your balance, further increasing the interest you pay over time. Your minimum payment due may also increase, depending on how it’s calculated by your issuer.

A maxed-out credit card also means that your credit score will take a hit. That’s because your credit utilization — how much of your available your credit you’re using — makes up 30% of your credit score. If you’re maxing out a credit card, it looks as if you’re overextended financially, which signals to lenders that you’re a risk.

Recommended: When Are Credit Card Payments Due

Guide to Prevent Maxing Out Your Credit Card

To avoid maxing out on your credit card, here are some steps to take:

•  Establish an emergency fund: Without an emergency fund, you’ll likely resort to using your credit card in a pinch, which could lead you to max out your credit card. To avoid ending up in this situation, aim to stash away at least three to six months of living expenses. If that seems like a tall order, start with one month of living expenses, and go from there.

•  Keep tabs on your spending: A golden rule of using a credit card responsibly is to check your credit card statements to monitor usage. Aim to check your balance at least once a week, if not more frequently.

•  Know how much of your credit you’re utilizing: Another of the golden credit card rules is to know what a reasonable balance to keep is and how much of your credit card is being utilized at any given time. For instance, if 30% is the maximum amount you’d like to maintain on your card, and your credit limit is $5,000, then $1,500 is the highest balance you should aim to carry.

•  Request an increase to your credit limit: If you increase your credit limit, it would lower your credit use. However, keep in mind that you also run the risk of racking up a higher credit bill. When considering requesting a credit limit increase, you’ll want to make sure you won’t end up simply spending more.

How Maxed-Out Credit Cards Can Affect Your Credit Score

If you’re wondering if it is bad to max out on your credit card, know that it absolutely can have a negative impact on your credit score due to how credit cards work.

When you carry a high balance on a card, it drives up your credit utilization ratio, which can drag down your score. It’s generally recommended to keep the amount of your total credit you’re using at around 30%; if your cards are all maxed out, your ratio is closer to 100%.

However, you can save your score from the negative effects of a maxed-out credit card if you can pay off the balance in full before the statement period closes. If you do this, the maxed-out balance would not get reported to the credit bureaus.

Recommended: How to Avoid Interest On a Credit Card

Tips on Bouncing Back from a Maxed-Out Credit Card

If you’ve hit your credit card spending limit, it is possible to recover. Here are some tips for how to bounce back from what happens when you max out your credit card.

Consider a Balance Transfer Card

Transferring your existing balance to a balance transfer card with a 0% APR interest rate could help you save money on interest. However, you’ll need to have a plan in place to pay off the balance in full before the interest rate kicks in and you’re back in the same place once again. Also note that balance transfer fees may apply, which are generally 3% to 5% of the amount you’re transferring.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Request Help

If you’re really struggling to keep your credit card spending down or are having trouble making payments, consider working with a professional. A credit counselor or non-profit credit counseling organization can sit down with you to learn about your debt situation and the state of your finances. From there, they can suggest a game plan to help you manage your debt.

Consider Personal Loans

Another way to bounce back from maxing out on a credit card is to take out a personal loan to pay off your credit card debt. This might make sense financially if you qualify for a lower interest rate with the loan than you have on your credit cards. It could also simplify the payment process by rolling all your debts into a single loan.

Recommended: Can You Buy Crypto With a Credit Card

The Takeaway

If you’ve hit your spending limit on your credit cards, it can negatively impact your credit score and translate to paying more in interest over time. While it’s best to avoid, should you max out on your cards, there are ways to recover and rebuild your credit.

FAQ

What happens if I max out my credit card but pay in full?

If you max out your credit card but pay off your balance in full before the statement period ends, your credit utilization ratio won’t be impacted. In turn, it won’t have a negative impact on your score.

Can I still use my card after reaching the credit limit?

After you’ve reached the credit limit on your card, you generally won’t be able to make purchases on it. Your card won’t go through, and transactions will be declined. In some cases, however, your transaction may go through and you’ll instead owe a fee.

Is it bad to max out your credit card?

Hitting the spending limit on your credit card can have a negative financial impact. First, it can bump up your credit utilization ratio, which can bring down your credit score. It also could equate to a higher monthly minimum payment, and more interest paid over time. Plus, you likely won’t be able to put any more purchases on that card.

How can maxing out your credit card affect your credit score?

When you hit the spending limit on a card and don’t pay it off before the statement period ends, it impacts your credit utilization ratio, which makes up 30% of your credit score. In turn, your credit score will take a hit. On the flip side, decreasing the balances on your card can help boost your score by lowering your credit utilization.

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Photo credit: iStock/nensuria

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.

¹See Rewards Details at SoFi.com/card/rewards.

¹Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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Whether you’re renting a car to use while on vacation or because your usual vehicle is temporarily out of commission, you might have been asked if you’d like to purchase additional car rental protection. If you paid for your car rental reservation using a credit card, your card may already offer some form of rental protection. However, not all credit cards offer this benefit, and those that do provide varying car rental insurance benefits.

Learning the requirements and limits of your credit card’s car rental insurance coverage — if any at all — can help you make an informed decision when booking or picking up your car rental.

Recommended: What is the Average Credit Card Limit

What Is Credit Card Rental Car Insurance?

Rental car insurance through a credit card is also called an “Auto Rental Collision Damage Waiver.” It generally states that if a rental car that was purchased using the card sustains damage due to an automobile collision or theft, you can file a reimbursement claim through your credit card issuer.

This might include a range of damage, from a smashed window due to theft to a car accident involving another vehicle. An Auto Rental Collision Damage Waiver typically covers damage-related costs of the vehicle itself, but it doesn’t cover stolen personal items resulting from the theft, like a laptop, or costs related to bodily injury. Knowing these ins and outs can be especially helpful given the recent rental car rebound.

Understanding Your Credit Card’s Coverage for Rentals

Not all credit card car rental insurance terms offer the same level of coverage. For example, some credit card rental car insurance only kicks-in after your personal auto insurance coverage and with reimbursement limitations.

Credit card car insurance generally falls into one of two categories: primary or secondary coverage.

Related: How Much Auto Insurance You Need.

Primary Coverage

Certain issuers offer credit card rental car insurance as primary coverage. Primary coverage means that, in the event of damage or theft, you can file a claim directly through the card issuer for reimbursement. You’re not required to file a claim through other insurance sources, like your personal auto insurance company, before the primary credit card car rental insurance benefit applies.

Secondary Coverage

Unlike primary coverage, secondary coverage rental car insurance protection through a credit card offers supplemental reimbursement. With secondary coverage, you’ll first need to file a claim through your personal insurance coverage policy or other sources, such as supplemental insurance through the rental company.

Let’s say you’ve reached your maximum reimbursement through other insurance sources, but you have a remaining reimbursable amount. In this scenario, your credit card rental car insurance benefit can then be used to claim the remaining amount.

How Does Credit Card Rental Insurance Work?

If you’ve rented a car using a credit card that offers rental insurance benefits, you’ll need to follow certain steps to claim a reimbursement. Requirements might vary slightly between card issuers, but below are the general steps you can expect to follow:

1.    Use a credit card with rental insurance protection. The first question you’ll need to answer is, does my credit card cover rental car insurance? If it does, put the entire cost of the rental on your credit card. Keep that card on file with the rental company in case any eligible damage occurs.

2.    Opt out of the car rental company’s collision insurance coverage. If you purchase coverage through the rental company, that becomes the primary source of coverage instead of your credit card issuer.

3.    Pay for damages out-of-pocket. If an incident occurs involving the rental vehicle, your credit card will be charged. You’ll then file a reimbursement claim for the amount of any applicable repair costs through your credit card rental car insurance coverage. Some card issuers allow claim payments to go directly to the rental company, upon request.

4.    Maintain documentation. This includes police reports, if available, as well as rental receipts, damage charges from the car rental agency to your credit card, towing receipts, and any other documentation or proof of expense as a result of the incident.

5.    Submit your claim ASAP. File a Auto Rental Collision Damage reimbursement claim as soon as possible, as it can take weeks to settle a claim. If your card issuer’s benefits administrator reaches out for additional information or documents, submit those details within their designated timeline to avoid issues or possible denial of your claim.

Recommended: What is a Charge Card

Questions to Ask Your Credit Card Issuer

In addition to learning what your own car insurance covers, it’s important to know your credit card’s rules around its Auto Rental Collision Damage Waiver benefit. If you’re unclear about how your card can protect you while using a rental car, contact your issuer’s customer support number. Here are some important questions to ask:

•   Does the rental car insurance benefit offer primary or secondary coverage? The answer to this question can help you choose the best payment option to use for your next rental car. It will also give you a sense of what to expect if you need to file a claim.

•   What is included and not included in the coverage? In addition to reimbursements for damage, you’ll want to know if the card’s rental car insurance covers loss-of-use charges from the rental company, for example. Be clear on what isn’t eligible for reimbursement, too.

•   What are the coverage timelines? Depending on your credit card issuer, the number of days when your rental coverage is in effect might be limited.

•   Are there any countries in which the coverage is ineligible? Rental car insurance coverage might not be offered if the incident occurred in certain countries.

•   What do I need to do to ensure I’m covered? Ask what you can do on your end to ensure your rental car is covered by the credit card’s insurance benefit. This may include putting the entire purchase on the card, declining supplemental rental insurance coverage from the rental company, or other requirements stipulated by your insurer.

•   What’s the process for filing a claim? Knowing how to swiftly file a claim after an incident can offer some peace of mind during an already stressful situation.

Recommended: When Are Credit Card Payments Due

Guide to Choosing the Right Credit Card for Car Rental Insurance

If you have multiple credit cards in your rotation that offer differing levels of credit card car insurance protection, consider using the card that offers primary coverage. This helps you avoid the added step of going through your own auto insurance company before being able to successfully file a claim through the card issuer.

The next factor for consideration is coverage amounts. Your maximum reimbursement amount will vary between insurance coverages, so be mindful about how high or low this limit is. Also, pay attention to the exclusions for coverage, including ineligible countries, activities (e.g. off-roading in the rental vehicle), and restrictions on vehicle type.

Other Ways Your Card Can Protect You When You Travel

When a credit card is used responsibly, it can offer many travel-related benefits. In addition to rental car insurance coverage, some credit cards provide protection for lost luggage expenses and trip interruptions. Credit card travel insurance is especially useful if your travel plans are canceled due to reasons like severe weather or illness.

Keep in mind that many premium travel credit cards will have higher credit score requirements, which is another reason why good credit is important if you’re interested in accessing these benefits.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

The Takeaway

If your credit card covers rental car insurance, in many cases, you can decline the duplicative car rental company’s offer for collision coverage. However, it’s worth learning whether your credit card car rental insurance coverage is primary or secondary and what its coverage limits are in case you need to file a claim

If you’re comfortable using a credit card strategically when renting a car, compare the rental car insurance credit card benefits offered by different credit cards. Depending on your credit card, you might even be able to earn cash back rewards on your next car rental.

For example, the SoFi credit card offers cardholders 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back rewards when redeemed for a statement credit.1 Plus, the SoFi credit card offers cell phone protection, and the incentive to lower your APR by 1% when you make on-time payments of at least the minimum amount that’s due for 12 months.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.¹

Take advantage of this offer by applying for a SoFi credit card today.

FAQ

Do you need a credit card to rent a car?

No, you generally do not need a credit card to rent a car through many national car rental companies, like Enterprise, Hertz, and Avis. Major car rental companies often accept a debit card to secure your rental. Depending on the rental company, your debit card may need to have the logo of a credit network, such as Visa, MasterCard, Discover, or American Express.

Do all credit cards have car rental insurance?

No, not all credit cards provide car rental insurance benefits. However, many credit cards offer this protection to some extent, whether as a primary or secondary coverage. If you’re interested in accessing this benefit, make sure to familiarize yourself with what credit cards cover rental car insurance.

How do I know if my card comes with primary or secondary insurance?

You can refer to your credit card’s terms and conditions to learn whether your credit card offers car rental insurance protection, and if it does, whether it’s primary or secondary coverage. You can also contact the customer support phone number listed on the back of your credit card to speak to a representative about your specific card’s car rental insurance benefits.

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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.

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.

¹See Rewards Details at SoFi.com/card/rewards.

¹Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

A career in medicine can be rewarding, but the high cost of medical school means many students take on additional student debt on top of their existing undergraduate student loans.

Some students defer student loan payments while they’re in medical school and others choose to refinance their student debt. The right choice for you depends on a number of factors, such as whether you have federal or private student loans. Here’s what to know about refinancing student loans during medical school.

What You Can Expect to Pay

Going to medical school is expensive: The average cost of medical school is $330,180 for four years at a private institution, according to a 2020 report from the Association of American Medical Colleges (AAMC). For a public medical school, it’s $250,222.

Many students need loans to cover the high cost of medical school tuition and other educational expenses. In fact, 73% of those surveyed in the AAMC report said they had education debt, with students in 2020 carrying an average medical school loan debt of $200,000 (including existing undergraduate loans).

If you don’t have the option for in-school deferment for your undergraduate loans while you’re enrolled in med school, refinancing your undergraduate student loans might be worthwhile and may help lower your medical school loan payments. Here’s what you need to know to decide if refinancing loans as a medical student is right for you.

Can You Refinance Student Loans During Medical School?

Whether you have federal or private student loans, you can technically refinance them at any time along your journey toward becoming a physician.

During a student loan refinance, you can combine multiple student loans of any type — federal and private — into one new refinance loan. This new loan is from a private lender, and comes with a new interest rate and different loan term.

The lender will repay your original loans that were included in the refinance process. You’ll then repay the lender, based on the details of your refinance loan agreement, in incremental monthly payments.

Another Option for Federal Student Loans During Medical School

It’s important to know that if you have federal student loans, refinancing them will remove you from the federal student loan program.

Keeping your federal student loans within the Department of Education’s loan system gives you access to benefits and protections that can be useful while in medical school, like extended deferment or forbearance.

Generally, automatic student loan deferment is applied to federal Direct Loans of borrowers who are enrolled at least half-time at an eligible school. If your federal student loans from your undergrad program weren’t placed on in-school deferment status, reach out to your school and ask them to report your enrollment status.

This student loan refinancing alternative can postpone your monthly payment requirement until after you leave school. However, if you borrowed Direct Unsubsidized Loans or Direct PLUS Loans, you’re responsible for repaying interest that accrues during this time.

Pros of Refinancing During Medical School

A student loan refinance during medical school can offer benefits.

Extend Your Loan Term

Generally, once you’ve signed your student loan agreement you’ve committed to a specific repayment term. For example, if your private student loan has a 5-year term, you’ll need to repay the loan’s balance, plus interest, in that time period.

However, repaying your loan balance while attending medical school might be difficult. With a student loan refinance, you can choose to prolong your repayment timeline over a longer term, like 10 or 15 years.

Lower Monthly Payments

By extending your student loan refinance term, your monthly installment payments become smaller since they’re stretched over a longer period. Prolonging your loan term can result in paying more interest over the life of the loan. However, it affords you a lower monthly payment so you have more funds in your budget toward the day-to-day cost of medical school.

Some Refinancing Lenders Offer Deferment

Some refinancing lenders, like SoFi, offer borrowers the option to defer their student loan refinance payments while in medical school. Generally, you’ll need to meet the lender’s minimum enrollment status and possibly meet other requirements.

This benefit, however, isn’t offered by all lenders so always confirm with the lender before finalizing any student loan refinance offer.

Cons of Refinancing During Medical School

Although there are benefits to refinancing your student loans, there are downsides to this repayment strategy as well.

You Could Pay More Interest Over Time

Extending your loan term causes you to pay more interest throughout the life of the loan, assuming you don’t make extra monthly payments. This means that you’ll ultimately pay more overall for your undergraduate degree.

You’ll Lose Access to Loan Forgiveness

If you refinance federal student loans, you’ll lose access to federal benefits and protections. Physicians who expect to work in the government or nonprofit sector might be eligible for loan forgiveness under the Public Service Loan Forgiveness (PSLF) program.

To be eligible for forgiveness, you must have eligible Direct Loans, and have made 120 qualifying payments toward your federal loan debt while working for a qualifying employer. After PSLF requirements are met, the program forgives the remainder of your eligible federal loan balance.

You’ll lose access to this significant benefit if you refinance federal loans into a private refinance student loan.

Should You Refinance Your Student Loans?

Student loan refinancing is a strategy that can be advantageous for certain borrowers in specific circumstances. For instance, it might be a good option for borrowers who already have a private undergraduate loan and simply want to lower their interest rate to save money.

It can also be a strategy to extend your term if your main goal is to lower your monthly undergraduate loan payments. Borrowers who have adequate savings, reliable income while in medical school, and who are confident that they won’t participate in programs, like PSLF, might benefit most.

Assess your current financial situation, and talk to your loan servicer or undergraduate loan lender to get a full understanding of your repayment options during medical school.

Refinancing Student Loans With SoFi

If refinancing your student loans is the right choice for you, consider SoFi Student Loan Refinancing.

SoFi offers low fixed or variable rates with flexible terms, no fees, no prepayment penalties — and you can view your rate in two minutes.

Learn more about a SoFi student loan refinance today.

FAQ

Can you refinance student loans in residency?

Yes, you can refinance student loans while in residency. However, if you refinance federal loans, it will make that portion of your student debt ineligible for federal loan forgiveness in the future.

Do doctors ever pay off their student loans?

Yes, doctors pay off their student loans, though how they do so can vary. Some also make extra payments toward their debt or take on extra shifts at their hospital, while others refinance or pursue loan forgiveness programs.

When should I refinance my medical student loans?

Exploring a private student loan refinance can be done at any time, especially if your income is stable and your credit has improved since you first took out the loan. If you have federal student loan debt, consider whether you’ll pursue loan forgiveness at any point along your career journey. If you might, your student loans must be kept within the federal loan program to be eligible for forgiveness.

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SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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

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