SoFi

People often use the terms “pending offer” and “contingent offer” interchangeably, but there is actually a difference when you are talking about real estate.

When a property is said to be contingent, that means the seller accepted an offer that is contingent on particular conditions requested by the buyer. These conditions could involve anything from an inspection to financing.

If, however, you see a house on the market switch to pending, there’s a different status involved. The seller has accepted an offer, and all contingencies have either been waived or addressed.

Yes, what is the difference between contingent and pending may be a subtle distinction. However, the bottom line is that neither status actually means a property is sold. If you have found your dream home and the sign says “contingent” or “pending,” there is still a chance you could snag it.

Contingent vs Pending Offers in Real Estate

Here’s a closer look at the difference between contingent and pending offers.

What Is a Contingent Offer?

When a home’s status switches to contingent, also called active contingent, it means the seller has accepted an offer but that contingencies stand in the way before the deal is done. If closing on a home is a race, then buyers still have a few hurdles ahead of them when they enter the contingency process. The kind of contingency and its status can affect how long it takes to close on a house.

Types of Contingent Statuses

There are many types of contingencies buyers can include in their offer that make it easier for them to back out of a real estate deal, but these are some of the most common:

• •   Financing contingency. The buyers put some money or the promise of a mortgage behind their offer, right? This condition ensures that if the buyers aren’t approved for a mortgage, they’re not on the hook for finding cash to buy the property.

◦   Some buyers choose to seek out mortgage preapproval and have a preapproval letter in hand to make the financing process move faster.

• •   Inspection contingency. A home inspector is paid to search the property top to bottom to uncover any issues. With a home inspection report in hand, buyers can ask the sellers to solve the issues or give them a credit against the purchase price of the home.

◦   With this contingency, buyers can also walk away from a deal based on the findings of the inspection. Alternatively, if both parties don’t come to an agreement on repairs or credits, they can terminate the deal.

• •   Appraisal contingency. It’s important to understand home appraisal vs. inspection as both can affect contingencies. In order for a buyer to secure financing for a home, it must be professionally appraised for the value of the offer or more. If the home appraises for less than the offer, the buyer can either make up the difference in cash, negotiate with the seller for a lower price, or walk away from the deal.

Recommended: What Is a Mortgage Contingency?

• •   Home sale contingency. If buyers need to sell their existing home to help finance the purchase of a new home, they may include a home sale contingency in the offer. That means if an offer on their home falls through, they’re no longer on the hook to buy the home they made an offer on.

Contingencies are in place to protect buyers and sellers in the event of snags throughout the negotiation process. As noted above, how long it takes to buy a house will depend to some extent on whether the house is pending vs. contingent and what the contingencies may be.

Prospective buyers can include as many contingencies as they like in an offer, and if the sellers agree, the buyers will need to work through each one before they make it to closing.

For people salivating over a hot property that looks taken, contingencies may signal opportunities for a deal to collapse. If you have your heart set on a home that’s contingent, you can hold out hope. Thanks to contingencies, there’s a chance the existing offer will fall through.

💡 Quick Tip: Don’t overpay for your mortgage. Get a great rate by shopping around for a home loan.

What Is a Pending Offer?

Just because a home is pending doesn’t mean the deal is done. A home often enters pending status once buyer contingencies are cleared, but it can also enter pending status immediately if a buyer makes an offer without contingencies.

A pending home sale may still fall through, but the buyer and seller have worked through most of the contingencies. For a pending sale to fall through, there likely has been an unexpected issue with the inspection or financing.

In fact, a pending home is still on the market. The listing agent and seller can choose to continue showing the home and even accept other offers while its status is pending. However, this is largely up to the sellers and their agents.

Types of Pending Statuses

A home could be marked “pending” or “pending, taking backups”. The latter suggests that the seller is still showing the house and may be more likely to entertain backup offers. Parsing the wording is probably less important than asking your real estate agent to have a conversation with the seller’s agent. Your agent will understand the market, process, and legalities better than most first-time buyers do. An agent can also be an expert in how to navigate a hot housing market.

Recommended: First-Time Homebuyer Guide

Can You Make an Offer on a Contingent or Pending Home?

Once you understand what is the difference between contingent and pending, you might wonder if the status makes a difference in whether you can make an offer on the home. There are some distinctions in the pending vs. contingent status.

If a home is contingent and the buyers are still working through the inspection, financing, or selling their current home, a competing buyer can make a backup offer on the property. If the initial offer falls through for any reason, the seller can take the other buyer up on their offer.

It’s up to the sellers whether they will accept a backup offer or not, but if the buyer loves the property, it can’t hurt to ask.

In many markets, a home with pending status means it’s not open to additional offers, but the deal isn’t sealed. It’s not over till it’s over, and the buyers could still back out.

When a home is pending or contingent, it’s not against the law for another buyer to ask for a tour, express interest in the home, or even make a competing offer. But compared with a home that is not under contract, a contingent or pending property is less likely to end up going to a competing buyer.

While you may make offers on these properties, don’t get your hopes up. Depending on how close the buyer and seller are to closing, it may not be legally possible for the seller to accept another offer.

Additionally, the closer a home gets to closing, the more complicated competing offers can be. This is when a seasoned real estate agent may truly come in handy.

Recommended: Guide to Buying, Selling, and Updating Your Home

The Takeaway

Contingent vs. pending: Though some use the words interchangeably, the two statuses are different. A contingent deal may have a long way to go, as buyers firm up financing, await an appraisal, or sell their current home. A pending property is nearer to closing, but the deal still isn’t final.

Buyers eyeing a dream property may hold out hope that contingent or pending deals fall through. In that case, having everything set up for a backup offer — including a home loan preapproval — could pay off.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How long does it take for a pending home to close?

How long it takes for a house to move from pending status to sold depends in large part on what issues are still being resolved. Generally, it can take anywhere between a week to two months. For cash deals, it tends to be on the lower side of that range; for financed deals, more likely the middle to the high end.

Can you still make an offer on a home that is contingent?

You may be able to make an offer on a house that’s already in contingent status, meaning that the sale will go forward if certain conditions are met. The catch is that most likely, if those conditions are successfully met, the sale will go forward with the original buyer. Your offer will be most likely to succeed if the contingencies are not met and the sale falls through. Then you could potentially be next in line as a buyer.

Can a home seller accept another offer while pending?

Generally, no, if the home is pending, the seller has probably accepted the first offer and can’t accept two offers on their home simultaneously. However, they may be open to backup offers, especially if there are obstacles to the sale going through. If you are interested in buying a pending property, just realize that even if the seller is accepting backup offers, it’s a long shot.

What is a kick-out clause in a contingent offer?

A kick-out clause allows a seller to continue showing a home that has an accepted offer with a contingency clause. The seller can “kick out” the buyer with the contingency if another buyer makes an offer with no contingencies. Before doing so, the seller will usually send the first buyer a letter giving them a time frame in which to proceed with the deal.

What does “pending taking backups” mean?

In real estate, pending taking backups is a seller’s way of saying they are still willing to show the house and accept backups. This doesn’t necessarily mean an interested homebuyer has a great chance of landing the deal, but if it’s a home you really like, it may be worth having a look.

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

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

This article is not intended to be legal advice. Please consult an attorney for advice.

SOHL-Q226-077

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, such as 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 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’s 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, such as 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 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 SSI or 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 don’t 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 such as marital status and income, but they’re 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 and earned enough work credits.

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 amyotrophic lateral sclerosis [ALS].)

However, the SSDI benefit can be worth the wait because it has a higher potential monthly payout. As of January 2026, the average monthly SSDI payment was $1,630 vs. $737 for SSI.

How Personal Loans Affect Disability Benefits

Knowing whether you receive SSI or SSDI benefits is important if you’re 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 don’t 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 SSA, 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 engage in any substantial gainful activity 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 up the pros and cons before applying:

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 help in getting through financial hardship.

•   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 ECOA 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. See your rate in minutes.

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, with legal protections 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 (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.

SOPL-Q226-008

When you’re facing a potential recession, financial decisions take on a new weight. But figuring out how to prepare for a recession can be difficult. After all, financial policy may change during a recession, which can leave consumers with questions. For example, if the Federal Reserve lowers interest rates, should you borrow during a recession?

While lower recession interest rates might sound appealing, there are lots of things to consider before borrowing money during a recession.

Understanding Recessions

A recession is a period of time when economic activity significantly declines. In the U.S., the National Bureau of Economic Research defines a recession as more than a few months of significant decline across different sectors of the economy. We see this decline in changes to the gross domestic product, unemployment rates, and incomes.

Spending drops during a recession. As a result, businesses ramp down production, lay off staff, and/or close altogether, which in turn causes a continued decrease in spending.

There are many possible causes of the recession — they can be economic, geopolitical, and even psychological. All coincide to create the conditions for an economic downturn. For example, a recession could be caused by a major disruption in oil access due to global conflict, or by the bursting of a financial bubble created by artificially depressed interest rates on home loans during a financial boom (as was partially the case with the 2008 financial crisis in the U.S.). Consumers can recall the deep but fortunately brief recession of early 2020 caused by the pandemic, which created supply chain disruptions, forced businesses into failure, and changed spending habits.

As for how psychology plays a role in recessions, financial actors might be more likely to invest in a new business or home renovation during boom years when the market seems infallible. But when an economic downturn or recession starts, gloomy economic forecasts could make people more likely to put off big purchases or financial plans out of fear. In aggregate, these psychological decisions may help control the market. Many people avoiding spending out of fear could cause a further contraction, and consequently further a recession.

Financial Policy During a Recession

Economic policy might temporarily change in an effort to keep the market relatively stable amid the destabilization a recession can bring. The Federal Reserve, which controls monetary policy in the U.S., often takes steps to curb unemployment and stabilize prices during a recession.

The Federal Reserve’s first line of defense when it comes to managing a recession is often to lower interest rates. The Fed accomplishes this by lowering the interest rates for banks lending to other banks, called the Federal Reserve Rate. That lowered rate then ripples throughout the rest of the financial system, culminating in reduced interest rates for businesses and individuals.

The Federal Reserve also may take other monetary policy actions in an attempt to curb a recession, like quantitative easing. Quantitative easing (QE) is when the Federal Reserve creates new money and then uses that money to purchase assets like government bonds in order to stimulate the economy.

The manufacturing of new money under QE may help to fight deflation because the increase in available money lowers the value of the dollar. Additionally, QE can push interest rates down because federal purchasing of securities lowers the risks to lending institutions. Lower risks can translate to lower rates.

Recommended: Federal Reserve Interest Rates, Explained

How Interest Rate Changes During a Recession Affect Consumers

As we’ve seen, during the early phase of a recession, the Federal Reserve typically cuts interest rates in an effort to jumpstart the economy. During the Great Recession of 2007-2009, for example, the Fed did a total of 10 rate cuts that brought the Federal Funds Rate to almost zero.

The Federal Funds Rate is used by banks to guide interest rates on savings accounts, certificates of deposit, and by credit card companies and other lenders as well. Lowering the interest rate could help to stem a recession by decreasing costs for businesses and allowing consumers to take advantage of low interest rates to buy things using credit. The increase in business and purchasing might in turn help offset a recession.

Auto loans and student loan rates are also affected by changes in the rate. Although mortgage rates don’t directly follow the Federal Funds Rate, changes in the rate do impact the bond market and may thus have a downstream effect on home loans.

Risks of Borrowing Money During a Recession

How do you prepare for a recession? And should you borrow during a recession? It might seem smart to borrow during this time, thanks to sweet interest rates on personal loans during recession, for example. But there are other considerations that are important when deciding whether borrowing during a recession is the right move. Keep in mind the following potential downsides:

•   There’s a heightened risk of borrowing during a recession thanks to other difficult financial conditions. Disruptive financial conditions like furloughs or layoffs could make it more difficult to make monthly payments on loans. After all, regular monthly expenses don’t go away during a recession, so borrowers could be in a tough position if they take on a new loan and then are unable to make payments after losing a job. Missed payments could negatively impact a borrower’s credit score and their ability to borrow in the future.

•   It may be harder to find a bank willing to lend during a recession. Lower interest rates may mean that a bank or lending institution isn’t able to make as much money from loans. This may make lending institutions more hesitant.

•   Lenders could be reluctant to lend to borrowers who may be unable to pay due to changes in the economy. Most forms of borrowing require borrowers to meet certain personal loan requirements in order to take out a loan. If a borrower’s financial situation is more unstable due to a recession, lenders may be less willing to lend.

Benefits of Borrowing During a Recession

If you are well positioned to withstand the economic hits of a recession, borrowing money can have some benefits. Borrowers who take out a personal loan during a recession often benefit from low interest rates.

If you already have debt, perhaps from existing credit cards or personal loans, you may be able to consolidate your debt into a new loan with a lower interest rate, thanks to the changes in the Fed’s interest rates. Consolidation doesn’t necessarily increase the total amount of money you owe. Rather, it’s the process by which a borrower takes out a new loan — with hopefully better interest rates and repayment terms — in order to pay off the prior debts.

When to Consider Borrowing During a Recession

As we have seen there are situations where personal loans during recession or other forms of borrowing might make sense. If you’re hit with unexpected expenses or have the opportunity to buy quality stocks for a lower price, for instance, it could make sense to have extra funds available. Personal loans tend to have lower interest rates than credit cards, so opting for a personal loan could be a better financial choice than running up credit cards trying to cover expenses during a downturn.

Another scenario where it might be a good idea is if you’re consolidating other debts with a consolidation loan. Why trade out one type of debt for another? Credit cards often have high interest rates. So if a borrower has multiple credit card debts with high interest rates, they may be able to refinance credit card debt with a consolidation loan with a lower interest rate. Trading in higher interest rates loans for a consolidation loan with potentially better terms could save borrowers money over the life of the loan. It also streamlines bill paying.

It’s important to understand how debt consolidation works before proceeding with this option. When considering consolidation, focus on consolidating only high-interest debt. Comparing the interest rates of your current debt with that of a potential consolidation loan can guide your decision.

Note that interest rates on consolidation loans can be either fixed or variable. Fixed-rate recession loans allow borrowers to potentially lock in a lower interest rate. With variable-rate recession loans, the interest rate could go up as rates rise after the depths of the economic downturn.

Additionally, as with other loan types, consolidation loans require that borrowers meet certain requirements. Available interest rates may depend on factors like credit score, income, and creditworthiness.

Recommended: How to Apply for a Personal Loan

When You Should Avoid Borrowing During a Recession

Borrowing money in a recession has its risks. If your ability to repay the debt you take on is dependent on your employment income, you’ll want to take steps to ensure your job is solid before adding to your debt burden. Unemployment during the Great Recession of 2007 surged to 10% and many people who never thought twice about job security were blindsided by layoffs.

If taking on new debt involves collateral, as it would if you guaranteed a loan with your home, for example, you’ll want to double- and triple-check your ability to make those payments. An unsecured loan may be a safer bet at this time.

Alternatives to Borrowing During a Recession

Whether you are trying to keep a small business afloat, helping out a family member who has been laid off, or just need additional cash on hand for your own expenses during a recession, there are other options besides borrowing.

Tap Emergency Savings

If you’ve saved money in an emergency fund, a recession is the time to set it free. “An emergency fund is intended to be used at a moment’s notice. For the most part, you’ll hear that a healthy emergency fund should cover between three and six months worth of living expenses — which would include rent, mortgage, bills, food, and other essentials. And since you never know when an emergency might happen, it’s best to keep your fund relatively liquid,” notes Brian Walsh, CFP^®\ and Head of Advice & Planning at SoFi.

Adjust Your Budget

Spending cutbacks are common in a recession, and now’s the time to examine where your money goes and look for extras you might trim back to stretch your income or any savings you are tapping. This could be anything from quitting streaming services and getting a library card to making your own coffee and taking your lunch to work. If you have a sizable chunk of your monthly budget devoted to paying down credit card debt, examine those costs vs. the cost of a monthly payment on a debt consolidation loan. Renting? Don’t renew your lease without a careful examination of the market. Lowering housing costs is a way to free up cash.

The Takeaway

It can be challenging to navigate any economic downturn, and it’s natural to wonder how to prepare for a recession. Borrowing money in a recession, such as by taking out a personal loan, is a decision that depends on your specific circumstances. There are downsides to consider, such as the general economic uncertainty that can increase risk and heightened risk-aversion from lenders. But if you have high-interest debt and can secure a lower rate by consolidating, then taking out a consolidation loan during a recession could make sense. Weigh the risks and benefits carefully as you make your decision.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Is it good to have money in the bank during a recession?

The general consensus is that banks are a safe place to keep your cash during a recession. If your account is insured by the Federal Deposit Insurance Corporation (FDIC), then individual deposits up to $250,000 are protected. Banks also protect funds against theft or loss.

Is it better to have cash in a recession?

It’s a good idea to have some of your money in cash during a recession. That’s because if you’re laid off from your job or an emergency arises, it can be helpful to have a cushion of readily accessible money.

Should I withdraw all my money during a recession?

If you’re thinking about how to prepare for the recession, it can be tempting to want to take out all of your money from a bank. But there’s good reason to reconsider. Many banks are FDIC insured, which means deposits up to $250,000 are protected.

Is it a good idea to take out a loan during a recession?

If you are confident that you can make loan payments even if the downturn is sustained and you lose your job, you may be fine taking out a loan during a recession. And if taking out a loan helps you consolidate high-interest debt into a lower-interest personal loan, it could help you save money.

What types of loans are best during a recession?

An unsecured personal loan may be a safer bet during a recession than a loan that is secured by your home, such as a home equity loan. Being unable to keep up with payments on a secured loan could put your home at risk of foreclosure.

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.

SOPL-Q226-026

Debt is a slippery slope. You can be doing just fine when an unexpected bill starts a slide. Maybe you use a credit card or three to keep up for a while. But one setback — such as a major car repair — throws you off balance again, and eventually debt begins to swallow you up.

But there’s good news. First, you’re not alone. Second, millions of people like you have dug themselves out of debt using the debt avalanche method. This debt reduction strategy focuses your efforts on the debts with the highest interest rates. Keep reading to learn the advantages and disadvantages of this strategy, as well as some proven alternatives for paying off debt.

Understanding the Debt Avalanche Method

The debt avalanche method is all about the interest rate. Essentially, you’ll make the minimum payments toward all of your debts but put anything extra you can (bonuses, tax refunds, that $20 your grandma stuck in your pocket) toward paying off the high-interest debt at the top of the list. When it’s paid off, move on to the debt with the second-highest interest rate and so on.

Fans of the debt avalanche method laud its efficiency. The most expensive debt is ditched first, which can be a big money saver. And the amount of time it takes to get out of debt overall is cut, too, because less interest accumulates every month.

Debt Avalanche Method vs Other Payoff Strategies

The avalanche method is for rational thinkers. But when it comes to money — and life in general — humans tend to follow their guts. That’s why some people prefer the avalanche method’s more emotionally available cousin, the snowball method.

With the snowball method, the steps are much the same, but you start your list with the smallest balance and work your way toward the largest, disregarding the interest rate. The idea is that those first targets can be knocked down quickly, creating a sense of accomplishment that helps keep you on task until it becomes a habit.

There are pros and cons to each method. If you use the avalanche method, it may take longer to move from one debt to the next. Also, this method assumes that paying off debt as quickly as possible is always the right thing to do. But there are other factors to consider, such as your credit score. That said, if you have a larger balance with higher interest rates, you could save money over time.

If you plan to pay off debt with the snowball method, you’re more likely to experience quick wins, which could help you stay motivated. But you probably won’t save as much on overall interest as you would with the avalanche method.

If you have multiple high-interest balances, you may want to consider a debt consolidation loan. These personal loans roll several debts into a single loan, which ideally has a lower interest rate. This approach can be a smart move if you’re able to stay on top of monthly payments and have a strong credit score.

Implementing the Debt Avalanche Method

Interested in trying the debt avalanche method? It helps to get your finances organized first.

First, make a budget. Find ways to trim the fat from anything you can — dinners out, streaming services — so you’ll have more cash to pay toward that smothering debt. If you need help, here’s a guide to the 70-20-10 rule of budgeting.

Then, make a list of all your debts. Start with the loan or credit card that has the highest interest rate and work your way down to the one with the lowest interest rate. Continue to make the minimum payments on all your debts, but put anything you can (bonuses, tax refunds, that $20 your grandma stuck in your pocket) toward paying off the high-interest debt at the top of the list.

When the first debt on your list is paid off, cross it off, and move to the next debt on your list. Roll whatever payments you were making on the first debt into the second debt, adding it to the minimum payment. When that debt is paid off, do the same with the third on the list. As you continue paying off outstanding debt, you should have more and more money to put toward the next target balance. Keep going until you’ve plowed through each debt on your list and can declare yourself debt-free.

Depending on how much you owe, it could take some time before you’re able to move from one debt to another. Adopting sound financial habits, such as tracking spending and using a budget app, can help you stick to your payoff plan.

Is the Debt Avalanche Method Right for You?

Using the avalanche method to pay off debt isn’t necessarily a good fit for everyone. The method is great for disciplined, analytical thinkers who get excited by the knowledge that they’re playing the long game. To make this approach a success, it helps to be the type of person who is self-disciplined, self-motivated, self-aware, and capable of celebrating self-made milestones.

Alternative debt payoff strategies, such as the snowball method or a personal loan, may make more sense for your lifestyle, financial situation, and personal preferences.

Here are some questions to ask yourself as you weigh your options:

•   What are my short- and long-term financial goals?

•   Do I have high-interest debt?

•   Do I need a series of quick wins to stay motivated?

Maximize the Benefits of the Debt Avalanche Method

Before you begin tackling debt with the avalanche method, consider some strategies to get the maximum benefits:

•   Accelerate debt repayment. Paying off your balance doesn’t just relieve stress — it can also save on interest. Kick in more than the minimum payment each month. And if your lender and budget allow, make extra payments.

•   Build an emergency fund. While whittling down debt is the priority, it’s also a good idea to sock away money into an emergency fund. Determine a target amount — a good rule of thumb is to have enough to cover three to six months of expenses. Then, open a high-yield savings account, and add to it regularly.

•   Seek the help of a professional. Looking for personalized guidance? Consider meeting with a financial advisor who can examine your current finances, discuss your financial goals, and help you create a plan to achieve them.

The Takeaway

Using the debt avalanche method is a great way to pay off debt for disciplined, logical personalities who want to maximize their savings on interest. The avalanche method works by paying down the highest-interest debt first, regardless of balance, while making minimum payments only on other debts. It’s not for everyone, though, especially if your highest-interest debt is also your biggest balance.

If quick wins help you stay motivated, consider paying off debt with the snowball method. Instead of focusing on the interest rate, borrowers prioritize the lowest balance first. A debt consolidation loan is another potential avenue to explore, as you can roll multiple high-interest debts into a single loan with (hopefully) a better interest rate.

The key to any debt payoff strategy is to know yourself and choose the method that best fits your preferences and financial goals.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

How long does it take to pay off debt using the avalanche method?

While the avalanche method tends to whittle down debt faster than making minimum payments each month, the time it takes for you to pay off your balance will depend on several factors. These include the amount you owe, your interest rate, and how much extra you’re able to pay each month.

Can the debt avalanche method be used for all types of debt?

The avalanche method isn’t suited for every type of debt. Consider using it to pay off credit cards, personal loans, student loans, and car loans, but don’t include your mortgage, as financial experts consider this “good” debt. One day, you may decide to put extra money toward paying down your mortgage principal, but for now, focus on your other debts.

What should I do if I have multiple debts with similar interest rates?

When faced with paying down multiple debts with similar interest rates, the snowball method may be your best approach, as it involves paying off your lowest balance first while making minimum payments on your other debts. If the interest rates are high, you may want to explore a debt consolidation loan. That’s where you take out one loan or line of credit (ideally with a lower interest rate) and use it to pay off other debts.

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.

SOPL-Q226-007

Living frugally means spending less than you earn. Frugal living can involve elements of a simplified lifestyle and eco-friendliness.

Fortunately, living a frugal life doesn’t mean giving up all your favorite things. By adopting some basic money-saving moves, you can save cash without a lot of effort or sacrifice.

Read on to learn eight frugal living tips that will help you streamline your spending.

8 Essential Frugal Living Tips

Ready to learn how to be frugal? The following strategies will help you live frugally and save money — without giving up all the fun and rewards in your life.

1. Trim Fixed Expenses

The expenses you pay regularly come in two general varieties: fixed expenses vs. variable expenses.

With fixed expenses, you pay the same amount every month. These expenses are consistent, and they include rent and insurance payments. Variable expenses are those whose amounts aren’t fixed. They change, based on certain variables such as your behavior or the weather. Your gas and electric bills likely cost more when the weather is very hot or very cold, for instance. Your water bill changes depending on how much water you use.

Cutting back on fixed expenses with their regular, consistent costs can lead to regular, consistent savings. There are a number of ways to do this, some more radical than others.

For example, moving to a less expensive neighborhood or splitting bills with a roommate might cut your rent in half; deciding not to buy a car and use public transportation instead can eliminate a monthly car payment and insurance cost, as well as parking, maintenance, and gas. These kinds of major lifestyle changes can take a lot of effort to set up at the start, but the payoff is months or years of significant savings without too much ongoing effort.

There are plenty of ways to cut fixed expenses without making such big shifts to daily life, however. For instance, switching to a less expensive cell phone carrier can lower your monthly bills, as can giving up a pricey gym membership in favor of running. To save on streaming services, you could eliminate one or two subscriptions that you don’t use as frequently.

Cut back on spending on a few of these things and the savings can really add up.

2. Gear Up Your Grocery Game

Groceries count as a variable expense because the cost of your grocery bills changes. Fortunately, there’s a big potential for savings when it comes to stocking up on food each month.

Some smart ways to save on groceries include:

•   Choosing discount grocers and chains. Aldi, Lidl, and Walmart are known for their low prices and value, particularly when compared to upscale grocery chains.

•   Coupon clipping can lead to substantial savings. These days, apps like Ibott, Flipp, and Checkout 51 make it easy to score savings on the items you’re already shopping for. Also, be sure to check the digital coupons at your grocery store of choice and clip them regularly (you can do this through your grocery store’s app).

•   When cooking meals, make extras to eat for lunch or dinner the next day. If fresh vegetables are too expensive, consider frozen veggies, which are generally just as nutritious and cost less. Use healthy and budget-friendly ingredients like beans to add protein to meals. Buy generic and store brands rather than well-known more expensive brands to save even more. Strategies like these can help stretch your grocery store dollars so you’ll have extra money to stash in your savings account.

3. Decide to Do It Yourself

Maintaining the things you own can be expensive. For instance, going in for an oil change vs. doing it yourself can be a pricey undertaking. And calling a plumber when the sink is clogged can cost a lot more than doing it yourself.

Home improvement skills can easily help save money over the course of a lifetime. And learning how to fix things is easier than ever these days. YouTube is full of free video tutorials that can walk you through everything from fixing a dishwasher that won’t drain to rotating your tires.

Other high-cost services to consider DIYing: mani/pedis, facials, pet grooming, landscaping, housecleaning, moving, and more. Basically, anytime you could spend money on hiring a professional, think seriously about whether you really need the help. By tackling it yourself, you won’t have to deplete the funds in your checking account.

4. Enjoy Free Entertainment

While some events are worthy splurges — like a once-in-a-lifetime concert — it’s also important to consider all the free forms of entertainment at your fingertips. For example, your local library may offer streaming movies along with books and audiobooks (or try services connected to libraries, like Kanopy and Hoopla), and many museums offer cost-free admissions on specific days of the week or month.

Even the national parks offer free admission from time to time. Free national park entrance days vary slightly from year to year, but generally include Memorial Day in May, Flag Day in June, and Veterans Day in November.

5. Take Frugalism With You Wherever You Go

Speaking of national parks: Travel is another big ticket item as far as discretionary expenses are concerned. Seeing the world can be enriching — and it doesn’t have to cost a fortune.

Finding ways to be a frugal traveler, such as choosing budget-friendly destinations and scoring the cheapest flights possible, can mean saving money without sacrificing this major life experience. You might even try a home swap or being a house-sitter in a foreign country to make your journey as affordable as possible.

Reuse and Recycle

The idea of reusing and recycling can go in many directions. It can mean buying a reusable water bottle and filling at home and at work instead of buying pricey bottled water and contributing to the global single-use plastic problem.

It can mean offloading your gently used items (laptop, clothing, kitchenware) and making a little bit of spending money. You can also donate these things to charity, which could help you reduce your taxable income if you can claim them as charitable deductions on your taxes.

Another way to reuse items is to find them at your local thrift shop, or pick them up for free (or low cost) on Facebook Marketplace. And it can mean recycling items for money like bottles and cans when you return them to your grocery store.

Not only are these actions wallet-friendly, but they are also planet-friendly.

7. Split the Cost

One good way to be frugal is to share the expenses of daily life. For instance, you might get a roommate or move in with a friend to take your rent and utilities down a notch. If you shop at warehouse clubs, the two of you could split the mega sizes of food and other items, which will save you both money.

8. Use Credit Sparingly

It’s no secret that credit card debt is high-interest debt, and you likely don’t want to be wasting money on major interest charges. Create a budget and stick to it, and try to pay in cash or with your debit card whenever possible. Work hard to pay off your credit card bill in full every month so interest doesn’t keep accumulating.

Benefits of a Frugal Lifestyle

Need more encouragement and incentive to live frugally? Consider these upsides.

Eco-Friendly

When you live frugally, you often minimize waste. You plan your meals and don’t toss as many leftovers and unused ingredients as you would otherwise. You might walk rather than take an Uber. You may reuse shopping totes vs. paying for a bag every time you shop.

If you really get into reducing, reusing, and recycling, you could even find yourself living a zero-waste lifestyle. That can keep more dollars in your pocket and lower your environmental impact, which can be doubly rewarding.

Save Money

Living frugally is all about saving cash. You can bring down such major costs as rent, food, utilities, and transportation with frugal living, which can benefit your bank account.

You can also learn how to rein in your discretionary spending. Instead of dishing out a couple of hundred dollars on a concert ticket, you might find great live local music for free at a town park or a local bar.

Pay Down Debt

When you live frugally, it can give you the means to pay down debt, especially the high-interest kind, like credit-card debt. That means more money is freed up for you to save for your short-term and long-term financial goals.

Live on a Small Budget

Living frugally means you have a budget that is working and helping to keep your finances on track. You likely know your spending limits, have a handle on your debt, and have a clear plan in place to hit your long-term goals. You don’t have a lot of expenses to worry about and wrangle. This can give you peace of mind.

Is Frugal Living Sustainable Over the Long Term?

Frugal living requires discipline, but once you get into a routine, it becomes easier, making it a sustainable lifestyle over the long term.

Learning how to stick to a modest budget can help you live a simpler life and avoid lifestyle creep (when your expenses rise along with your salary over time). By not always upgrading to a bigger house, fancier car, or more lavish summer vacation, you can enjoy the balance and security of frugal living, and have the satisfaction of knowing you’re saving for your future.

What Does Frugal Mean for Your Money?

Being frugal is good for your money and your financial well-being. Here’s how:

•   Adopting frugal habits and creating a savings plan are ways to improve your financial health. Cutting back on day-to-day living expenses can mean more money to set aside for major life milestones, like owning a home or having a baby.

•   One of the most important first steps toward frugality is getting financially organized. Creating a budget and tracking your finances are critical moves. For example, monitoring your bank accounts a couple of times a week can help you see how your money is coming in and going out.

•   Living a frugal lifestyle can also direct more money towards realizing your long-term financial goals and building wealth. Whether that means saving for a child’s college education or for your own retirement, by cutting back on spending now, you can help ensure a better future.

The Takeaway

Living frugally is a way to trim your expenses, stay out of debt, and put more money toward your short-term goals and long-term financial aspirations. It also can be a lifestyle that simplifies your daily habits and is friendly to the planet. With frugality, you may find that some of your money stress decreases, too. You’ll have less debt and you can save more.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What does frugal actually mean?

Frugal means being careful with money, spending wisely, managing your expenses, and maximizing value. Frugal people often live a simpler lifestyle. So if you are living frugally, you are probably sticking to a budget, saving for future goals, and not indulging in too many luxuries.

What’s the best example of frugal living?

Good examples of frugal living include cooking from scratch, shopping at discount supermarkets and using coupons to purchase groceries, doing home repairs yourself, and walking or biking when possible rather than using a car.

Why is frugal living more popular these days?

Frugal living is more popular these days due to the higher cost of living, including higher costs for food, gas, housing, and other essential items. Many people are also more environmentally conscious and trying to consume less and reduce waste. For these reasons, people are looking for ways to reduce their expenses and live frugally and more simply.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.

^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 5/28/26. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
We do not charge any account, service, or maintenance fees for SoFi Checking and Savings. We do charge transaction fees for outgoing wire transfers, Instant Transfers, and global remittance transfers. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
*Awards or rankings from Forbes are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

SOBNK-Q226-149