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Asking for a higher credit limit can be as simple as calling the credit card company or completing an online form. In some cases, a credit card company may grant one automatically based on an account history.

To give this subject a bit of context: Most credit cards come with credit limits that determine how much you can spend at any given time. Requesting a credit line increase is something you might consider if you’d like to have more purchasing power, you want to schedule a balance transfer, or you need a cash advance.

Knowing how to increase a credit limit the right way can minimize credit score impacts. Read on to learn more about this important topic.

Why Credit Limits Matter for Credit Scoring

Credit scores are a measure of your ability to manage debt responsibly. FICO® Scores, which are used by 90% of top lenders, are calculated using these five factors:

•  Payment history (35% of your score)
•  Credit utilization (30% of your score)
•  Length of credit history (15% of your score)
•  Credit mix (10% of your score)
•  New credit inquiries (10%)

As a reference point, the current average credit limit in the U.S. is around $13,000.

Credit limits are important because they can affect the credit utilization part of your credit score. Credit utilization refers to the percentage of your available credit you’re using. For example, if you have a credit card with a $5,000 limit and a $1,000 balance, your credit utilization is 20%.

Using a lot of your available credit can be detrimental to your credit scores, while keeping balances low can positively impact your scores.

Generally, it’s recommended that you keep the ratio at 30% or less (below 10% can be ideal) for the most favorable credit score impact. A higher ratio could suggest to lenders that you may be struggling to manage spending and debt.

Does Requesting a Credit Increase Hurt Your Score?

Whether a credit line increase hurts your credit score, or affects it all, depends on how the credit card company reviews your financial information. Specifically, it hinges on whether the credit card company performs a soft or hard inquiry into your credit history.

Remember, credit inquiries account for 10% of your FICO credit score. An inquiry simply means that you have authorized a creditor or biller to review your credit reports and scores. (Inquiries for credit remain on your credit report for two years, though they only affect FICO credit score calculations for 12 months or less.)

When requesting an increase in credit limit that involves a hard pull, you may lose a few credit score points. While the impact isn’t as significant as a late payment or a maxed-out credit card, it’s still worth noting.

If you were to ask for a credit line increase from several cards at once, multiple hard inquiries could cost you more points.

A soft inquiry, on the other hand, has no credit score impact. Checking your own credit score, prescreened credit offers, and credit screenings that are required as part of an employer’s hiring process are examples of soft pulls.

Can a Credit Line Increase Positively Impact a Credit Score?

While you may lose a few points initially if your credit card company performs a hard inquiry, asking to increase your limit could help build your credit score over time.

It all goes back to credit utilization. If raising your credit limit on one or more credit cards improves your credit utilization, then you may see a positive effect on your credit score.

Say you have a card with a $10,000 limit and a $5,000 balance. That puts your credit utilization at 50%. But if you can increase the credit limit to $15,000, you instantly shrink your credit utilization to 33%.

The key to making this strategy work is not adding to your debt balance. Going back to the previous example, say that you have to unexpectedly replace your HVAC system to the tune of $5,000. You decide to take advantage of your new higher credit limit to make the purchase.

Now your balance is $10,000. While you still have a $5,000 available credit cushion, you’ve increased your credit utilization to 66%. That could result in a credit score drop until you’re able to pay some of the balance down. So, while asking for a credit line increase can give you more purchasing power, that can work against you if you use it.

Four Ways to Increase a Credit Limit

There are several ways to get a credit line increase, depending on what your credit card company offers. There are different types of credit cards, and card issuers don’t always follow the same policies with regard to credit limit increases.

Before asking to increase your credit limit, get familiar with the various ways your credit card company allows you to do it. Then consider how much of a credit limit increase you’d like to ask for.

Keep in mind that whether the credit card company grants your request can depend on things like:

•  How long you’ve been a customer
•  Your account history, including payment and purchase history
•  Your income
•  Credit scores, if a hard pull is required

With that in mind, here are four ways to get a higher credit limit:

Request a Credit Line Increase Online

Your credit card company may make it easy to ask for a higher credit limit online. Log in to your account, navigate to the Request Credit Limit Increase section, and fill out the relevant details. You may need to update your income information.

If your credit card issuer offers this option, it’s possible to be approved for a credit line increase almost instantly. But a decision may be delayed if the credit card company wants to take time to review your account or credit history.

Update Your Income Information

Credit card companies may periodically ask you to update your income information when you log in. You may be tempted to skip over this step, but it’s worth taking a moment to do, as the credit card company may use the information to grant an automatic credit limit increase.

Again, whether you’re eligible for an automatic credit line increase can depend on the type of your card and your account history, income, and overall financial situation.

Call and Ask

If your credit card company doesn’t allow for automatic increases or credit limit increase requests online, you can always call and ask for a higher limit. You may need to tell them your income, specify how much of a credit limit increase you’d like, and provide a reason for the request.

Calling the credit card company may also be worthwhile if you’ve been denied for a credit limit increase online. You can ask the card provider to reconsider your request, but be prepared to make a strong case (e.g., significantly higher income, on-time payment history) for why it should do so.

Open a New Credit Card Account

If you’ve tried other avenues for requesting an increase in credit limit and been unsuccessful, you could always consider opening a brand-new credit card account. The upside is that you can expand your available credit if you’re approved, which could improve your credit utilization ratio.

The downside of opening a new credit card is that applying can ding your score, since it typically involves a hard inquiry. But if you’re able to keep your credit utilization low, that could help make up the difference in lost points relatively quickly.

The Takeaway

If you have good credit, requesting a higher credit limit may be easy. The key is knowing how to make the most of a credit limit increase to improve your credit score. Keeping your balances as low is a step in the right direction. Paying your balance in full each month is even better, since this can help you avoid paying interest on credit cards. Finally, spacing out credit line increase requests and opening new accounts sparingly can help maintain your credit scores.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How can I get a higher credit limit?

You may get a higher credit limit simply by asking your card issuer to raise it. To qualify, keep your financial information up to date, make on-time debt payments, and keep an eye on your credit reports for any incorrect or fraudulent information.

Is a $30,000 credit limit good?

If you define good as above average, yes, it’s a very good limit. The average limit is currently around $13,000. However, if you spend a lot and your credit utilization rises, that can negatively impact your credit score and financial health.

How can I increase my credit limit?

You can increase your credit limit by contacting your card issuer and requesting an increase. You’ll likely need to show responsible credit usage to qualify and perhaps a higher income than in the past. Or you might apply for a new card.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

SOCC-Q225-019

Making monthly mortgage payments can feel like chipping away at an iceberg, especially in the beginning. Savvy homeowners take heart that each payment earns them a little more ownership in their property. But do you know exactly how much ownership, commonly called “equity,” you currently have? Understanding how to calculate home equity can help you feel a growing sense of satisfaction as you make those mortgage payments.

Simply put, home equity is the difference between the value of a property and the outstanding balance of all mortgages, liens, and other debt on the property. Read on to determine how to calculate equity in your home, what you can do to increase your equity, and how you can leverage that equity to make it work harder for you.

Calculating Your Home Equity in 3 Steps

As noted above, home equity is the difference between your home’s current value and the outstanding balance of your mortgage and other debt on the property. It’s a simple equation:

1. Find Your Home’s Value

To estimate your home value, you can use the purchase price of your home, but that doesn’t account for any appreciation in value. You can build equity in your home by paying down your mortgage, but also by making renovations. Or it may build naturally over time as home values in your area increase.

For a precise calculation of your home equity, you’ll need to know your home’s current value with appreciation. You can get an estimate of your home’s value with an online property tracking tool. These calculators approximate the appreciation of your home by comparing it with similar properties in the area. While helpful, these tools can’t provide an exact measure.

To determine your real-time home value, you’ll need to request an official appraisal. You might do this through a mortgage lender if you are thinking about borrowing with your home as collateral. The lender will order an inspection and evaluation of what your home is worth in the current market. The appraiser may ask you for documentation of any work you’ve done on your home to come to a more exact figure.

2. Determine How Much Is Left on Your Mortgage

Calculating home equity also involves knowing what you owe on your current home mortgage loan. You can find your mortgage payoff amount (which is different from your balance) on your lender’s online portal. Add to that the outstanding amount you owe on any second mortgages, liens (for unpaid taxes or child support, for example), home equity lines of credit, and any other loans that use your home for collateral. The sum of these items is your home debt, the last figure in the equity equation.

3. Subtract Remaining Debt from Your Home’s Value

The final step is to subtract your home debt from your home value. The result is how much equity you have. To convert this dollar amount to a percentage of home equity, divide it by the estimated value of your home.

Using the Loan-to-Value Ratio to Represent Home Equity

The loan-to-value ratio (LTV) is the percentage of your home’s value that is borrowed — it’s like the opposite of equity. You can calculate your LTV by dividing your outstanding home debt, discussed above, by your home’s appraised value:

For example, if your home is worth $375,000, and you still owe $200,000, your LTV is 53%. (200,000 ÷ 375,000 = .53) This means you still owe 53% of the equity in your home. Subtract 53 from 100 to see how much equity you have built in your home: Your available equity is 47%.

Why LTV Ratio Matters for Borrowing and Refinancing

Knowing your LTV ratio is important because lenders set maximum LTVs, typically 80%, for home equity loans. This means homeowners cannot borrow — through a mortgage and loans secured by the home — more than 80% of their home’s value.

Examples of Home Equity Calculations After 1, 3, 5, 10 Years

The table below shows how much equity a fictional homeowner accumulates over the first 10 years of their mortgage. Your initial home equity is determined by your down payment. The average down payment among American homebuyers is currently 14.5%. This table assumes an initial home value of $300,000 and a down payment of 20%, with annual appreciation of 10%, a mortgage APR of 7.50%, and a monthly payment of $1,678.11. The LTV is rounded to the nearest whole percentage. (The actual annual appreciation for American homes over the last 10 years on average was 7.4%.)

Recommended: How Much Will a $300,000 Mortgage Cost You?

What Is a Good Amount of Home Equity?

Common wisdom says that it’s smart to keep at least 20% equity in your home. This is why many lenders limit your LTV to 80%. To borrow against your home, then, you’ll typically need more than 20% equity. (That’s also why lenders usually require private mortgage insurance when a homebuyer doesn’t put down a 20% deposit on a home before purchasing.)

Fortunately, that’s not a problem for most homeowners. Research firm Black Knight estimated that as of 2023, Americans have $195,000 of “accessible” home equity on average, over and above the recommended 20%. This is mostly due to rising home values.

Recommended: How Home Ownership Can Help Build Generational Wealth

How Much Home Equity Can You Take Out?

The amount of equity you can take out depends on the lender and the type of loan. However, most lenders will allow you to borrow 80%-85% of your home’s appraised value. The other 15%-20% remains as a kind of financial cushion.

A homeowner who doesn’t want to take out a home equity loan but needs cash might consider a Home Equity Line of Credit (HELOC). A HELOC allows owners to pull from their property’s equity continually over time. Borrowers can take only what they need at the moment. HELOCs use the home as collateral, which might not appeal to all borrowers. Some lenders allow HELOC borrowers to borrow slightly more against their home’s value, up to 90%.

Homeowners looking to fund renovations often explore home equity loans or HELOCs to access funds at more competitive rates than they would get with a home improvement loan, allowing for flexible financing of their projects.

Pros of Borrowing from Home Equity

As noted above, homeowners often find borrowing against their home equity to be an attractive way to obtain funds for a large expense such as home improvement or a child’s college education. Home equity loans and HELOCs often have lower interest rates than unsecured loans, such as personal loans or credit cards.

Cons of Borrowing from Home Equity

Of course, the most obvious downside of borrowing using your house as collateral is that if you fall behind on your payments, you risk losing your home. Another factor to consider: Adding a large home equity loan to your credit report can reduce your credit score by increasing your credit utilization.

The Takeaway

Calculating home equity involves subtracting your mortgage payoff balance (found on your lender’s website) from your home’s current value. To get the most accurate idea of your home’s market value, you’ll need an appraisal, which can cost $300-$450. Knowing how to calculate equity in your home can be a first step in determining how to use that equity to fund renovations or another important expense.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

FAQ

Can you access home equity without refinancing?

You don’t have to refinance to tap into your home equity — you can apply for a home equity line of credit (HELOC) or a home equity loan. A HELOC provides a flexible credit line that you can borrow against as you need it, usually with a variable interest rate. A home equity loan provides a lump sum with a fixed interest rate, perfect for big, one-time expenses.

Does home equity increase automatically as property value rises?

Your equity rises as the value of your home increases, provided you don’t borrow additional funds using your home as collateral.

Is it a good idea to take equity out of your home?

Whether it’s smart to take equity out of your home with a home equity loan or a cash-out refinance depends on how you use the funds and how diligent you are about repaying what you borrow. For example, some homeowners use a home equity loan or home equity line of credit to fund renovations that increase their property’s value. Others use an equity-based loan to pay off higher-interest debt. Both of these can be a good move, provided you continue to make timely payments on the loan.

Do I need to put 20% down as a down payment?

A 20% down payment isn’t essential for a home purchase. For qualified first-time homebuyers, especially, down payments can start as low as 3% to 5%. The larger your down payment, the lower your monthly mortgage payments, however. And if you put down 20% you do avoid having to pay for private mortgage insurance (PMI). But if you can’t hit the 20% mark, homeownership is still within reach.

Is home equity a hedge against inflation?

Owning real estate can be an inflation hedge, as property values and rental income generally tend to increase with inflation (though not in every local market). But owning a home also involves work, and homes aren’t always easy to sell quickly. Putting money into a real estate investment trust (REIT) can offer exposure to real estate without the need to own a physical property.

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SOHL-Q225-007

Cosmetology school teaches learners about the application of ingredients and chemicals of beauty products as well as how to care for clients’ hair, nails, skin, and more. Cosmetologists can study a single beauty area or specialize in a range of areas. In general, cosmetology school takes less than two years to complete, but it depends on whether you choose to attend school full- or part-time, your state requirements, and the program and school you choose to attend.

Paying for cosmetology school may involve obtaining a mix of grants, scholarships, work-study, and cosmetology loans. You may also choose to pay for school with money you’ve saved.

Read on for more information on how to pay for cosmetology school. We’ll focus on aid that must be repaid (student loans) and will also touch on other types of aid that do not need to be repaid — grants, scholarships, and work-study.

What to Consider When Choosing a School for Cosmetology

It’s a good idea to visit community colleges or cosmetology school campuses prior to choosing the right cosmetology school for you. In general, it’s a good idea to interview an admissions representative or other professional about graduation rates, loan default rate, job placement rate, and school costs. The answer to these questions can give you a good indication of the quality of the school and whether the school might be a good fit for you.

You may also want to consider whether or not you’d like to attend an accredited institution, since many good cosmetology schools choose not to become accredited. An accredited institution is one that meets specific academic and institutional requirements by an institution that offers accreditation. An accrediting body will typically take a look at facilities and staff as well as the curriculum of the school and admission requirements.

Graduation Rate

The graduation rate can tell you a lot about the satisfaction of current and past students at a particular cosmetology school.

The most recent data shows that, about 34% of full-time undergraduate students who began a certificate or associate’s degree at two-year institutions received their certificate or degree within 150% of the normal time required.

On the other hand, 14% of that same cohort had transferred to another institution within 150% of normal completion time. A total of 10% stayed enrolled in that same institution. The rest of the students in the cohort were no longer enrolled in the original institution nor were they recorded as a transfer at a different institution — a total of 42% of students.

Look for a school that offers a high retention rate, which measures the percentage of first-time students who return to the institution to continue their studies the following fall. One way to measure retention and graduation rates is to use College Navigator “>College Navigator, which offers this information about nearly 7,000 colleges and universities in the U.S.

Loan Default Rate

Consider asking about the student loan default rate for a particular institution. The loan default rate indicates whether students are successful in paying off their student loans. Specifically, the U.S. Department of Education publishes the cohort default rate (CDR) which shows how well prior students have done at repaying their student loans. You can check the Department’s cohort default rate database for specific institutions.

Why should you worry about loan default rate? It illustrates the relationship between the quality of the degree and the ability of graduates to obtain jobs that can help them pay off their loans. While a low default rate doesn’t automatically put a particular cosmetology school into the “good school” category, it’s a great metric to have at your disposal.

Job Placement Rate

Job placement rate might be one of the most important questions you can ask a particular college or university. The job placement rate is the percentage in which graduates of the program obtain job placement. Most schools survey students to obtain this data and will showcase it on their websites.

However, there’s no universal method that schools use to arrive at their numbers. That’s why it’s also a good idea to ask deeper questions when you tour cosmetology schools. Dig into whether students who graduate are employed by salons or other cosmetology-related businesses. Ask about how often they open up their own salons. Ask for admission professionals to give you examples of successful alumni and if possible, lists of where the most current graduating alumni currently work.

Also ask about exam rates, because states require students to take a licensing exam in order to be able to practice. How many students successfully pass and how many have passed in recent years?

School Costs

A cosmetology school program may cost between $5,000 to $20,000. Find out how much each school costs and learn the cost breakdown. You should be able to find this information on the school’s website, but it’s a good idea to make an appointment with the financial aid office at the institutions you’re considering to get an exact estimate of all costs as they pertain to your situation.

Furthermore, don’t forget to ask questions about how much tuition will increase over the time you’ll be at the cosmetology school and whether financial aid will match the increasing tuition.

Cosmetology Career Options

As mentioned before, cosmetology careers can encompass a wide range of career options. It’s important to study the types of programs a particular cosmetology school offers in order to make sure it matches up with your career goals. Many cosmetology programs offer full programs in hair styling, skin care, nail care, and makeup. However, many cosmetology programs also offer training in esthetics, nail technology, electrolysis, and teaching as well:

•  Esthetics: Students in this area learn to apply makeup, wax, and perform facials. They also learn how to give clients massages and perform reflexology.

•  Nail technology: Going a step beyond nail care, nail technology includes studying nail art, design, and how to implement tips, wraps, and gels.

•  Electrolysis: Learners who study electrolysis learn the art of permanent facial and body hair removal methods.

•  Teacher training: Students who want to prepare future cosmetologists may choose to enter into a teacher training program.

Cosmetology School Financing Options

The amount of financial aid you receive could be affected by whether a school chooses to become accredited or not. Schools often become accredited in order to offer Title IV government funding to cosmetology students through the U.S. Department of Education. If you attend a schools that is not accredited, you won’t be eligible for federal student aid like federal student loans.

The next sections will review information about scholarships and grants, payment plans, trade school loans, work-study programs, and federal and private student loans.

1. Scholarships and Grants

Scholarships and grants are two methods you can use to pay for college. Scholarships, which can be considered free money and don’t have to be repaid (unless there are caveats in the scholarship requirements — for example, you may be required to finish the program). They can come from a wide variety of agencies, institutions, and organizations. Know the scholarship requirements in depth before you apply. It’s also a good idea to look into a wide variety of scholarship opportunities. Opportunities can come from your cosmetology school or your community.

Grants can be awarded to students from the federal government, state government, or your cosmetology school. Most of the time, you won’t have to pay the money back. However, if you don’t finish your program or fail to fulfill some other requirement, you may have to repay all or a portion of your grant money. The U.S. Department of Education offers several federal grants, including Federal Pell Grant, Federal Supplemental Educational Opportunity Grant (FSEOG), and Iraq and Afghanistan Service Grants.

The American Association of Cosmetology Schools (AACS) partners with various sponsors in the beauty industry to offer scholarships and grants to help students pay for tuition at their chosen institutions.

2. Cosmetology School Payment Plans

Cosmetology schools may allow you to make incremental payments. This means that instead of paying the full tuition bill at the beginning of a new semester, you make small, likely interest-free payments as you complete each course. Students who want to pay for cosmetology school without loans may prefer this method of chopping up payments into smaller bits.

The financial aid offices at the schools on your list will have more information about how payment plans work.

3. Trade School Loans

Learners who attend trade schools can get both private and federal student loans. Federal student loans come from the federal government, while private student loans come from a bank, credit union, or other financial institution. Both types of loans must be repaid with interest, which will vary depending on the type of loan you receive.

Some private lenders offer specific loans for those attending trade schools. It’s important to look into the details before you apply for a trade school loan, such as interest rates, repayment plans, and more.

4. Work-Study Programs

The Federal Work-Study Program provides part-time jobs for students to help pay for expenses related to education. Work-study often gives students enough of a stipend to pay for small expenses such as books. As long as you are enrolled at least part-time, you may apply for a job as long as your school participates in the Federal Work-Study Program. Check with your school’s financial aid office to find out if your school participates.

Because work-study is part of a federally funded program, you must file the Free Application for Federal Student Aid (FAFSA®) in order to qualify.

5. Federal Student Loans for Cosmetology School

The federal student loan program can offer loans for cosmetology school that come from the U.S. Department of Education through the William D. Ford Federal Direct Loan (Direct Loan) Program. You may be able to tap into Direct Loans, including the Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans:

•  Direct Subsidized loans: Cosmetology school students who have financial need may be awarded the Direct Subsidized Loan to help pay for career school. The federal government will pay the interest while you’re in school.

•  Direct Unsubsidized loans: After filing the FAFSA, cosmetology students may want to take advantage of Direct Unsubsidized loans. This federal student loan is not based on financial need and the government does not take care of the interest while you’re in school.

•  Direct PLUS loans: Parents of undergraduate students can help pay for cosmetology students’ education with a Direct PLUS loan. Parents will have to undergo a credit check. An adverse credit history may require an additional credit check.

The interest rates of federal student loans are typically lower than that of private student loans and they offer income-driven repayment plans and other perks such as public service loan forgiveness. Keep in mind that, as mentioned, one of the federal student loan requirements is attending an accredited institution.

6. Private Student Loans for Cosmetology School

You can also obtain private student loans for cosmetology school. Private student loans for cosmetology school are different from federal student loans because they come from different organizations. However, they also diverge further from there. Private student loans may require you to make payments while you are still in school. They may have variable or fixed interest rates. Federal interest rates, on the other hand, are always fixed.

Private cosmetology school loans are not subsidized, which means that your lender doesn’t pay the interest on your loans while you’re in school. You’re usually completely responsible for paying the interest on your loans.

In addition, you must also have to have a positive credit history or a cosigner to get a private loan. You cannot consolidate your loans (turn them into one loan) like you can with a federal Direct Consolidation Loan or take advantage of loan forgiveness programs with a private student loan. Because private student loans lack the benefits offered with federal student loans, they are often considered a last-resort option.

Are student loans worth it? It’s important to remember that private student loans can fill in the gaps between scholarships, grants, your own cash, and cosmetology loans for school. Check on the student loan requirements among private student loans as well as when to apply for student loans.

Explore Private Student Loan Options With SoFi

If you decide to take advantage of your federal student loan options but still need more loans to cover your tuition bill, private student loans with SoFi may help. SoFi private student loans may be an option for certain eligible certificate programs.

SoFi offers competitive rates for qualifying borrowers as well as flexible repayment options. You also won’t pay any extra fees to get a private loan with SoFi.

FAQ

Are there student loans for cosmetology school?

Yes, you can take advantage of both federal student loans and private student loans for cosmetology school. You may also want to consider tapping into trade school loans as well. It’s worth meeting with the financial aid office at your cosmetology school in order to make the right decision about the type of loans for your particular situation.

How do you get money for cosmetology school?

In order to get money for cosmetology school, you’ll want to file the Free Application for Federal Student Aid (FAFSA). The FAFSA determines your eligibility for federal and institutional financial aid, including institutional scholarships, federal student loans, and grants. If you want to apply for outside scholarships, you may have to seek out and apply for independent scholarships.

How do I go to cosmetology school for free?

You may be able to get free training while still in high school. Many high schools have agreements with technical or vocational schools or community colleges that allow you to attend at no cost. Some community colleges also offer free tuition to certain students as long as they meet certain requirements.

About the author

Melissa Brock

Melissa Brock is a higher education and personal finance expert with more than a decade of experience writing online content. She spent 12 years in college admission prior to switching to full-time freelance writing and editing. Read full bio.

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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.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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Regularly paying your bills on time can help you avoid doling out money on interest and fees. It can also help build your credit score, which might help you snag the best interest rates when qualifying for loans or getting a credit card.

Fortunately, organizing your bills isn’t hard. You might use an old-school accordion folder and a calculator to manage the process. Or you might decide to handle the whole process digitally.

Here are some smart ideas for how to organize those bills.

1. Setting Up a Bill-Paying Station

Do you have a convenient spot where you can open, organize, and pay your bills? If you get paper bills, consider setting up a dedicated desk or area or (if space is tight) a roll-away cart. The goal is simply to keep everything in one place, instead of scattered around in your car, bag, or on the kitchen counter.

It’s a good idea to stock your station with all the items you’ll need to get the job done. Depending on how you pay your bills, this might include: envelopes, stamps, pens, your checkbook, a calendar, a filing system for sorting paper bills as they arrive, and storing those you’ve paid.

Or, if you pay your bills digitally, you could set up a separate virtual bill paying space. You might, for instance, set up an email account just for bills. This will ensure that you don’t overlook an electronic bill in the midst of the other emails you receive. You might also use your current email and create a folder, with subfolders, for anything related to your finances. That way, you’ll know exactly where to look if you need to check on a bill or other financial correspondence.

2. Making a Master List of Monthly Bills

Creating a list of every single bill you pay can be another way to help ensure that nothing falls through the cracks. It can also help you see where your money goes and how much money you have left after paying bills (if any).

You can do this with pen and paper, or create a printed out or online spreadsheet that includes a column for each month (allowing you to simply check off each bill as it gets paid). Check your bank account and credit card statements for bills you pay less frequently (annual subscriptions, quarterly membership fees, tax bills, etc.), and anything that’s on autopay.

For each bill, consider including: the vendor/service provider/lender, the account number, contact information, the bill’s due date, the date you think you should send/make the payment so it’s always on time.

For loan/credit card bills, you may want to also include the balance owed, and the minimum monthly payment.

You can use this list to make decisions about which bills you might want to set up by automating your finances and which you’ll pay manually.

And once it’s done, you can keep a copy on your bulletin board and/or in your files to use as a checklist.

Recommended: How to Pay Bills When You’ve Lost Your Job

3. Using Automatic Payments When Appropriate

Looking for other ideas on how to organize bills? There are two basic automatic bill payment options.

•   One is setting up automatic debit payments with a merchant or service, which involves giving them your checking account or debit card number and authorizing them to withdraw money on a recurring basis to pay a bill.

•   Another way is to authorize your bank or credit union’s bill pay service to send recurring payments to a company.

Either way you set it up, there are both pros and cons to using automatic payments, or autopay.

Here are the pros:

•   Autopay can help simplify your finances, since you don’t have to write out checks or log on to various websites to pay online every month.

•   It also ensures that it happens. The money is whisked out of your account before you have a chance to think about it or forget to think about it. Automating this process can help you save on interest and fees.

Here are the cons, because that out-of-sight-out-of-mind factor has a downside.

•   Autopay can make it easier to forget that you’re still paying for a subscription service you don’t use anymore, for example, or you might not notice when a bill’s amount is incorrect.

•   If you don’t have enough money in your account when an autopay bill goes through, you could end up overdrafting your account, which can lead to overdraft or NSF fees.

If you generally have plenty of money in your account and you regularly check your bank and credit card statements to make sure the charges are accurate, autopay might be a good fit.

But if your account balance fluctuates, or you’re likely to forget about small or infrequent charges if they’re paid automatically, you may want to use a different payment method (or at least for certain bills).

One other point: If many of your bills hit on the same day of the month, you might talk to some of your payees about whether you can change your bill due date. That could help you spread out payments over the month is a way that eases your financial pressure.

4. Putting a Bill Paying System in Place

Once you’ve decided which (if any) bills you’ll manage with automatic payments, you can move on to choosing a strategy for paying all your other bills, as well as keeping track of autopayments.

You can go as full-on techie as you like, or handle it with classic pencil and paper. The key is simply having a system.

Some options to think about:

Paying Bills Right Away

There’s no reason you have to wait for a specific day of the week or month to pay your bills. With this method, you would just open and pay bills as they arrive in the mail or online.

Setting up Reminders

Another option is to set up reminders for when you need to pay each bill, whether in your digital calendar or a paper one, if you use it. In addition, some companies and service providers allow you to sign up for bill reminder emails or texts.

Paying Bills on a Specific Day

If you don’t want to (or can’t always) sit down immediately to write a check or get online to pay, you could make it a weekly, biweekly or monthly routine.

With this method, you would file any bills that arrive in a “to pay” folder or inbox. You might also consider opening them and organizing them by the due date.

If the due dates are all over the place or difficult to manage, you may be able to get the dates adjusted simply by calling or emailing the company or service provider. It’s also a good idea to go through autopay notices to make sure you agree with the amounts charged.

Choosing the Best Way to Pay Manually

Many service providers and lenders offer customers several different methods for paying their bills.

Besides autopay, you might be able to use an app, a website, an automated phone system, deliver a payment in person, or send it in the mail.

No matter which option you choose, try to remember to always keep some sort of record of the payment in your files.

5. Keeping Good Records

In addition to checking off each paid bill on your master list, you may also want to create a system for managing your records after you’ve made your payments.

One option is to file paper copies of all your bills, noting on each how much you paid, when you paid, and how you paid (including any confirmation numbers for online or phone payments or check numbers for payments you mailed). If any of these bills are needed for tax purposes, you may want to make a copy and file it with your yearly tax documents.

Another option is to scan each bill and file them digitally on your computer’s hard drive or in the cloud, using a folder for the year that has subfolders for each month.

You may also want to create a real or digital file with all your credit and debit card receipts until you have a chance to reconcile them with your statements. (It’s a good idea to hold onto any receipt, bill, or statement until you’re absolutely sure you won’t need it for taxes or some other purpose, such as an insurance claim.)

6. Designating a Family Bookkeeper

Here’s another way to go about organizing your bills. If one spouse or partner has a knack for organization and bookkeeping and the other is less inclined, you might want to have the “numbers” person take the lead on the household’s bill-paying duties. (Have you ever missed a payment because you each thought the other would take care of it?)

Another option is to sit down together to work through the bills. Or, you might decide to alternate from month to month. You could make it a “money date” and do it over coffee at home.

No matter which approach you choose, consider setting up a regular time to sit down together and review the household budget, see how you stand, and make sure you both have access to account information, including passwords.

You also may want to consider setting up a separate account for paying household bills.

7. Using Budgeting Tools/Apps

Technology can step in and help you manage your bills, too. There are an array of ways to track your spending and paying. Your financial institution may offer digital tools for this, or you can download apps for this purpose, whether free or paid options.

You might want to experiment with a few and see which suits you best, depending on, say, whether pumping up your savings account or avoiding late payments is your key goal with organizing your finances.

8. Using the Cash Envelope Method

There are a variety of budget techniques you might use. One popular one is the envelope method, which involves setting key budget categories, writing the name of each on an envelope, and putting the designated amount of cash for the month ahead into it.

Then you pay the bills from the appropriate envelope as needed. Once the money from an envelope is gone, it’s gone. You either have to forego spending in that category or else borrow from another envelope.

For those who prefer not to use cash, this program can be adapted to involve debit card payments or checks.

Recommended: Savings Calculator

The Takeaway

Setting up a simple bill organization system can save you time, stress, as well as money, and can also make it easy to access records you need come tax time. Smart ways to organize your bills include creating a master list of all your monthly bills, deciding when autopay makes sense (and when it might not), and creating a virtual or actual filing system to track and streamline the bill paying process.

You might have to try a few different methods to figure out what works best for your situation. Another move that might help you get your finances organized is finding the right banking partner.

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 bills are most important to pay?

While all bills are important to pay, basic living expenses (the things that keep you up and running, such as rent, utilities, and healthcare) and debt (student loan payments, for instance) can be priorities.

How do I organize my monthly expenses?

There are many ways to organize your monthly expenses, depending on your personal preferences and financial style. You might use an app or pencil and paper; you could try the envelope budgeting method or set up autopay. Many people try a couple of techniques before they land on one that suits them best.

How do you simplify bill payments?

Many people find that either using an app or automating their bills makes payment simpler. Your bank might offer a good app, or you can download one. And automating bill payments is something that vendors may set up for you or you can set up with your financial institution.

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SOBNK-Q225-016

A 401(k) loan allows you to borrow money from your retirement savings and pay it back to yourself over time, with interest. While this type of loan can provide quick access to cash at a relatively low cost, it comes with some downsides.

Read on to learn about borrowing against a 401(k), how 401(k) loans work, when it may be appropriate to borrow from your 401(k) — and when you might want to consider an alternative source of funding.

Can I Borrow From My 401(k)?

Borrowing from a 401(k) is possible under many 401(k) plans. In general, it’s wise to let your retirement savings stay invested so you’ll have that money for the future, but in some circumstances, borrowing against a 401(k) could make sense. For instance, if you find yourself in a situation where you need money immediately and have no other options, you may want to consider a 401(k) loan.

A 401(k) loan lets you borrow money from your retirement savings account and pay it back over time with interest. You’re essentially paying back yourself — the money you borrow against your 401(k) goes back into your 401(k) account with interest.

Not all 401(k) plans offer loans, so check with your plan administrator to find out if yours does.

What Is a 401(k) Loan & How Does It Work?

A 401(k) loan is a provision that allows participants in a 401(k) plan to borrow money from their own retirement savings. Here are some key points to understand about 401(k) loans.

Limits on How Much You Can Borrow

The Internal Revenue Service (IRS) sets limits on the maximum amount that can be borrowed from a 401(k) plan. Typically, you can borrow up to 50% of your account balance or $50,000, whichever is less, within a 12-month period.

Spousal Permission

Some plans may require borrowers to get the signed consent of their spouse before a 401(k) loan can be approved.

You Repay the Loan With Interest

Unlike a withdrawal, a 401(k) loan requires repayment. You typically repay the loan (plus interest) via regular payroll deductions, over a specified period, usually five years. These payments go into your own 401(k) account.

401(k) Loans vs. Early Withdrawals

When you withdraw money from your 401(k), these distributions generally count as taxable income. And, if you’re under the age of 59½, you typically also have to pay a 10% penalty on the amount withdrawn.

You may be able to avoid a withdrawal penalty, if you have a heavy and immediate financial need, such as:

•  Medical care expenses for you, your spouse, or children

•  Costs directly related to the purchase of your principal residence (excluding mortgage payments).

•  College tuition and related educational fees for the next 12 months for you, your spouse, or children.

•  Payments necessary to prevent eviction from your home or foreclosure

•  Funeral expenses

•  Certain expenses to repair damage to your principal residence

While the above scenarios can help you avoid a penalty, income taxes will still be due on the withdrawal. Also keep in mind that an early withdrawal involves permanently taking funds out of your retirement account, depleting your nest egg.

With a 401(k) loan, on the other hand, you borrow money from your retirement account and are obligated to repay it over a specified period. The loan, plus interest, is returned to your 401(k) account. But during the term of the loan the money you borrow won’t enjoy any potential growth.

Recommended: Can I Use My 401(k) to Buy a House?

Should You Borrow from Your 401(k)?

It depends. In some cases, borrowing against a 401(k) can make sense, while in others, it may not. Here’s a closer look.

When to Consider a 401(k) Loan

•   You’re in an emergency situation. If you’re facing a genuine financial emergency, such as medical expenses or imminent foreclosure, a 401(k) loan may provide a timely solution. It can help you address immediate needs without relying on more expensive forms of borrowing.

•   You have expensive debt. If you have high-interest credit card debt, borrowing from your 401(k) at a lower interest rate can potentially save you money and help you pay off your debt more efficiently.

When to Avoid a 401(k) Loan

•   You want to preserve your long-term financial health. Depending on the plan, you may not be able to contribute to your 401(k) for the duration of your loan. This can take away from your future financial security (you may also miss out on employer matches). In addition, money removed from your 401(k) will not be able to potentially grow or benefit from the effects of compound returns.

•   You may change jobs in the next several years. If you anticipate leaving your current employer in the near future, taking a 401(k) loan can have adverse consequences. Unpaid loan balances may become due upon separation, leading to potential tax implications and penalties.

Pros and Cons of Borrowing From Your 401(k)

Given the potential long-term cost of borrowing money from a bank — or taking out a high-interest payday loan or credit card advance — borrowing from your 401(k) can offer some real advantages. Just be sure to weigh the pros against the cons.

Pros

•   Efficiency: You can often obtain the funds you need more quickly when you borrow from your 401(k) versus other types of loans.

•   No credit check: There is no credit check or other underwriting process to qualify you as a borrower because you’re withdrawing your own money. Also, the loan is not listed on your credit report, so your credit won’t take a hit if you default.

•   Low fees: Typically, the cost to borrow money from your 401(k) is limited to a small loan origination fee. There are no early repayment penalties if you pay off the loan early.

•   You pay interest to yourself: With a 401(k) loan, you repay yourself, so interest is not lost to a lender.

Cons

•   Borrowing limits: Generally, you are only able to borrow up to 50% of your vested account balance or $50,000 — whichever is less.

•   Loss of potential growth: When you borrow from your 401(k), you specify the investment account(s) from which you want to borrow money, and those investments are liquidated for the duration of the loan. Therefore, you lose any positive earnings that would have been produced by those investments for the duration of the loan.

•   Default penalties: If you don’t or can’t repay the money you borrowed on time, the remaining balance would be treated as a 401(k) disbursement under IRS rules. This means you’ll owe taxes on the balance. And if you’re younger than 59 ½, you will likely also have to pay a 10% penalty.

•   Leaving your job: If you leave your current job, you may have to repay your loan in full in a very short time frame. If you’re unable to do that, you will face the default penalties outlined above.

Alternatives to Borrowing From Your 401(k)

Because borrowing from your 401(k) comes with some drawbacks, here’s a look at some other ways to access cash for a large or emergency expense.

Emergency fund: Establishing and maintaining an emergency fund (ideally, with at least three to six months’ worth of living expenses) can provide a financial safety net for unexpected expenses. Having a dedicated fund can reduce the need to tap into your retirement savings.

Home equity loans or lines of credit: If you own a home, leveraging the equity through a home equity loan or line of credit can provide a cost-effective method of accessing extra cash. Just keep in mind that these loans are secured by your home — should you run into trouble repaying the loan, you could potentially lose your house.

Negotiating with creditors: In cases of financial hardship, it can be worth reaching out to your creditors and explaining your situation. They might be willing to reduce your interest rates, offer a payment plan, or find another way to make your debt more manageable.

Personal Loans: Personal loans are available from online lenders, local banks, and credit unions and can be used for virtually any purpose. These loans are typically unsecured (meaning no collateral is required) and come with fixed interest rates and set terms. Depending on your lender, you may be able to get funding within a day or so.

The Takeaway

Borrowing against your 401(k) can provide short-term financial relief but there are some downsides to consider, such as borrowing limits, potential loss of growth, and penalties for defaulting.

It’s a good idea to carefully weigh the pros and cons before you take out a 401(k) loan. You may also want to consider alternatives, such as using non-retirement savings like an emergency fund or taking out a personal loan or a home equity loan or line of credit.

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 is a 401(k) loan?

A 401(k) loan allows you to borrow money up to a certain amount from your retirement savings account and pay it back over time with interest. The money you repay goes back into your 401(k) account.

How do 401(k) loans work?

A 401(k) loan allows you to borrow money from your 401(k) account. Not every plan allows 401(k) loans, but many do. There are limits on how much you can borrow — generally up to 50% of your account balance or $50,000, whichever is less, within a 12-month period. In addition, you may have to get your spouse’s permission to take out a 401(k) loan, and you need to repay the amount you borrowed with interest typically within five years.

When should I consider taking a 401(k) loan?

It’s generally best not to touch money in a retirement savings account if possible so it can potentially keep growing for your future. However, in some situations it may make sense to take out a 401(k) loan — for instance, if you’re facing an immediate medical emergency or you’re trying to pay off extensive high-interest debt, such as credit card debt. If you have no other financial options, a 401(k) loan might be something to consider.

How do 401(k) loans differ from early 401(k) withdrawals?

With a 401(k) loan, you borrow money from your retirement account and must repay it over a specified period, typically within five years. The loan, plus interest, is repaid to your 401(k) account. An early 401(k) withdrawal, on the other hand, is when you withdraw money from your 401(k) before age 59½. These distributions generally count as taxable income. And because you’re under the age the IRS specifies for qualified retirement withdrawals, you typically will also have to pay a 10% penalty on the amount you took out.

There are some possible exceptions to the early withdrawal penalty. If you have a heavy and immediate financial need, such as medical expenses, for example, you may be able to avoid the 10% penalty on an early 401(k) withdrawal.

What are some alternatives to borrowing from my 401(k)?

Alternatives to borrowing from your 401(k) include taking the money from an emergency savings fund, taking out a home equity loan if you have equity in your house, taking out a personal loan, or negotiating with your creditors to see if they might be willing to put you on a payment plan.

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