If you are grappling with debt, you are not alone. The average American, for instance, is currently carrying $7,321 in credit card debt as of 2025. But that doesn’t mean you have to live saddled with owing money and being charged high interest rates.
There are ways to make debt payoff happen faster. Read on for three strategies that can help you repay what you owe ASAP.
Key Points
• To manage debt, establish a budget to track income and expenses, aiming for a 50/30/20 allocation.
• To pay off debt, use the snowball method to eliminate the smallest debts first for quick wins.
• Apply the avalanche method to target high-interest debts first.
• Put extra cash, like bonuses and refunds, toward debt repayment.
• Consider debt consolidation through a balance transfer card or personal loan.
1. Figuring Out Your Budget
The first step to solving any debt problem is to establish a budget. A budget is essentially a summary that compares and tracks your income and expenses for a period of time, typically one month. A budget also allows you to plan how much you will spend and save each month.
You’ll want to first gather all of your bank and credit card statements for the last three or more months. You can then use them to figure out your monthly income (after taxes) and also list all of your monthly expenses. (You can do this using pen and paper, a spreadsheet or a budgeting app.)
You may want to group expenses into categories (such as insurance, groceries, eating out, insurance), and also divide them into essential vs. nonessential spending. From here, you can total your average monthly income and average monthly spending, see how they line up, and then consider making some shifts in your spending.
You might consider the 50/30/20 budget as a simple way to reorganize your finances. This budget allocates 50% of your income for essentials, like rent and bills, 30% toward nonessentials or wants, and 20% for savings and debt repayment.
If you need to free up more money to put towards debt repayment, you may want to look at your nonessential spending to find ways to cut back, such as ditching your cable bill, cooking more and getting take-out less often, and canceling your gym membership and working out at home.
Decreasing discretionary spending tends to be the easiest way to generate a monthly surplus. That surplus can then be used to pay off your debt faster.
If you find that you’ve been spending more than you earn by using credit cards, you may also want to make a plan to stop using those cards while you go after lowering your outstanding debt.
2. Choosing the Right Repayment Plan
Once your budget is set up, a great next step is to list all of your debt (with amounts owed) and in order of interest rate, and then come up with a manageable plan to pay them off.
Some options that can help you pay off debt faster include:
The Snowball Method
The snowball method is where you focus on paying off your debts in order from smallest balance owed to largest.
You can do this by paying the minimum on all your debt and:
• Then allocate any extra money you have to the debt with the smallest balance.
• Once the smallest debt is paid off, you can take the money you were putting toward that debt and funnel it toward your next smallest debt instead.
• You then continue the process until all your debts are paid.
The key benefit of this method is that it allows you to experience a series of small successes at the beginning. This can give you more motivation to pay off the rest of your debt.
The Avalanche Method
Another effective debt elimination strategy is the avalanche method (also known as debt stacking). With this approach, you would pay off your accounts in order from the highest interest rate to the lowest.
• You would make the minimum payment on all of your accounts, then put as much extra money as possible toward the account with the highest interest rate.
• Once the debt with the highest interest is paid off, you can start paying as much as you can on the account with the next high interest rate.
• You would continue the process until all your debts are paid.
Putting Extra Cash Toward Debt-Reduction
Once you have an emergency fund (that can cover three to six months’ worth of living expenses) in place, you may want to funnel any extra income you receive right into your repayment plan in order to pay off debts faster.
That extra might be a bonus you receive at work, a tax refund, any side hustle income, or cash earned from selling items you don’t need — all of this money could go directly toward your debt payoff.
Putting this money toward your debt, instead of saving it for a new car or spending it on a vacation, can help you pay off your debt quicker so you can eventually shift your financial focus to more fun goals.
Another option you may want to consider is rolling multiple debts into one payment (ideally with a lower interest rate) through debt consolidation.
This can make your debt easier to manage (because you’ll only have one monthly bill) and less expensive overall. The less you have to pay in interest, the more money you can put towards reducing the underlying debt.
• One way to consolidate debt is to get a 0% interest balance transfer credit card and then transfer all your debts onto this card. Typically, you will have six to 24 months of no interest during which time you can pay down your debt. Just read the fine print to be clear on what interest rate you may pay on new purchases and when the interest-free period ends.
• Another option is to get an unsecured personal loan. In this case, you would use the money from the loan to pay off your debt, then pay back the loan in installments over a set term. Typically, these loans can offer a significantly lower interest rate than what credit cards charge, but shop around and carefully review your options before signing up.
If you’re looking to pay off your debt faster, it’s a good idea to review and reduce your spending and then funnel any money you free up towards your debt repayment plan. The snowball or avalanche methods can help with this. Other options to pay off debt faster include investigating debt consolidation options, such as a balance transfer card or personal loan.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.
FAQ
What are the best ways to get out of debt?
Getting out of debt can involve smart budgeting and using techniques like the snowball or avalanche method to pay off the amount you owe. You might also consider a balance transfer credit card or a personal loan to help with getting out of debt.
What is the 15/3 payment rule?
The 15/3 payment rule is a credit card technique that involves making two payments every month: a larger one about 15 days before the statement closing date and a smaller one about three days before the due date. This method can help reduce your credit utilization ratio by lowering the credit card balance reported to credit bureaus.
What is a trick people use to pay off debt?
A trick people use to pay off debt is the avalanche and the snowball technique. With the avalanche method, you pay the minimum amount on all debts and funnel any excess funds toward debt with the highest interest rate to have the most impact. With the snowball method, you put the excess toward the smallest balance to show success as quickly as possible.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
On a salary of $50,000 per year, you can afford a house priced at around $150,000 — that is, as long as you have relatively little debt. However, not everyone earning $50,000 will see this number in response to a loan application. The figure could change significantly depending on where you want to live, interest rates, and how much debt you’re carrying.
Understanding how these factors play into home affordability can get you closer to finding a home you can afford on your $50,000 salary.
• With $50,000 annual income, if your debt is modest and you put down a reasonable down payment, you may qualify for a starter-home in a lower-cost market.
• The 28/36 rule aims for monthly housing costs to stay under 28% of gross income, and total debt (including mortgage) to stay under 36%.
• Full home affordability depends heavily on your down payment, interest rate, loan term, credit score, and existing debts, in addition to your salary.
• First-time-buyer programs, lower down-payment options, and choosing an affordable area can make homeownership possible on $50K/year.
• Various types of home loans are available, including conventional, FHA, USDA, and VA loans, each with different criteria.
Get matched with a local
real estate agent and earn up to
$9,500‡ cash back when you close.
Pair up with a local real estate agent through HomeStory and unlock up to $9,500 cash back at closing.‡ Average cash back received is $1,700.
What Kind of House Can I Afford With $50K a Year?
A $50,000 per year salary is solid, but there’s no denying today’s real estate market is tough. When buying a home, one rule of thumb is to not spend more than three times your annual salary. If you earn $50K a year, that means you can afford to spend around $150,000 on a house.
You’ll need to know the full picture of home affordability to get you into the house you want, starting with your debt-to-income (DTI) ratio.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
Understanding Debt-to-Income Ratio
Your debt-to-income (DTI) ratio may be one of your biggest challenges to home affordability. Each debt you have a monthly payment for takes away from what you could be paying on a mortgage, lowering the mortgage amount you can qualify for.
To calculate your DTI ratio, combine your monthly debt payments — such as credit card debts, student loan payments, and car payments — and then divide the total by your monthly income. This will give you a percentage (or ratio) of how much you’re spending on debt each month. Lenders look for 36% or less for most home mortgage loans.
For example, on a $50,000 annual salary and a $4,166 monthly income, your maximum DTI ratio of 36% would be $1,500. This is the maximum amount of debt lenders want to see on a $50,000 salary.
💡 Quick Tip: Lowering your monthly payments with a mortgage refinance from SoFi can help you find money to pay down other debt, build your rainy-day fund, or put more into your 401(k).
How to Factor in Your Down Payment
A down payment increases how much home you can afford. The more you’re able to put down, the more home you’ll be able to afford. Borrowers who put down more than 20% also avoid having to buy mortgage insurance. When you don’t have to pay mortgage insurance every month, you can qualify for a higher mortgage — but you do need to consider if putting down 20% is worth it to you.
A mortgage calculator can help you see how much your down payment affects the mortgage you can qualify for.
Factors That Affect Home Affordability
In addition to the debt-to-income ratio and down payment, there are a handful of other variables that affect home affordability. These are:
• Interest rates: When your interest rate is lower, you’ll either have a lower monthly mortgage payment or qualify for a higher mortgage. With higher interest rates, you’ll have a higher monthly mortgage payment and/or qualify for a lower home purchase amount.
• Credit history and score: Your credit score affects what interest rate you’ll be able to get, which is a huge factor in determining your monthly mortgage payment and home affordability.
• Taxes and insurance: Higher taxes, insurance, or homeowners association dues can bite into your house budget. Each of these factors has to be accounted for by your lender.
• Loan type: Different loan types have varying interest rates, down payments, credit requirements, and mortgage insurance requirements which can affect how much house you can afford.
• Lender: You may be able to find a lender that allows for a DTI ratio that is higher than the standard 36%. (Some lenders allow a DTI as high as 50%.)
• Location: Where you buy affects the type of house you can afford. This is one area that you can’t control, unless you move. If you are considering this option, take a look at the best affordable places to live in the U.S.
How to Afford More House With Down Payment Assistance
If you want to be able to afford a more costly house, you may want to look into a down payment assistance program. These programs can help you with funding for a down payment on a mortgage. You can look for programs with your state or local housing authority.
Preference may be given to first-time homebuyers or lower-income families, but there are programs available for a wide variety of situations and incomes.
How to Calculate How Much House You Can Afford
If you want to know how much mortgage you’ll likely be able to qualify for, you’ll want to take a look at these guidelines.
The 28/36 Rule: Lenders look for home payments to be at or below 28% of your gross monthly income. Total debt payments should be less than 36% of your income. These are the front-end and back-end ratios you may hear your mortgage lender talking about.
• Front-end ratio (28%): At 28% or your income, a monthly housing payment from a monthly income of $4,166 should be no more than $1,166.
• Back-end ratio (36%): To calculate the back-end, or debt-to-income ratio, add your debt together and divide it by your income. This includes the new mortgage payment. With monthly income at $4,166, your debts should be no more than $1,500 ($4,166*.36).
The 35/45 Rule: The 35/45 rule is a higher debt level your lender can elect to follow. It’s riskier for them and may come at a higher interest rate for you. This rule allows you housing payment to be 35% of your monthly income and 45% of your total debt-to-income ratio. With a monthly income of $4,166, the housing allowance (35% of your income) increases to $1,458 and the total monthly debt (45% of your income) increases to $1,875.
Making $50,000 a year gives you around $4,166 to work with each month. Using the 36% debt-to-income ratio, you can have maximum debt payments of $1,500 ($4,166 * .36). In the examples below, taxes ($2,500), insurance ($1,000), and interest rate (6%) remain the same for a 30-year loan term.
Example #1: High-debt borrower
Monthly credit card debt: $200
Monthly car payment: $400
Student loan payment: $200
Total debt = $800
Down payment = $20,000
Maximum DTI ratio = $4,166 * .36 = $1,500
Maximum mortgage payment = $700 ($1,500 – $800)
Home budget = $88,107
Example #2: The super saver
Monthly credit card debt: $0
Monthly car payment: $200
Student loan payment: $0
Total debt = $200
Down payment: $20,000
Maximum DTI ratio = $4,166 * .36 = $1,500
Maximum mortgage payment = $1,300 ($1,500 – $200)
Home budget = $171,925
How Your Monthly Payment Affects Your Price Range
Your monthly payment directly affects the mortgage you’re able to qualify for. The more monthly debts you have, the lower the mortgage you’ll be able to qualify for. That’s why it’s so important to take care of debts as soon as you can.
It’s also important to get the best interest rate you can. Shopping around for lenders and building your credit score can both save you money and improve home affordability. A home loan help center is a good place to start the process of looking for a mortgage.
• FHA loans: If your credit isn’t ideal, you may be able to secure a Federal Housing Administration mortgage. Though FHA loans are more costly, you can still be considered with a credit score as low as 500. FHA mortgage insurance, however, makes them more expensive than their alternatives.
• USDA loans: If you’re in a rural area that is covered by United States Department of Agriculture loans, you’ll want to consider whether the low interest, no-down-loan will make sense for you.
• Conventional loans: Conventional financing offers the most competitive interest rates and terms for mortgage applicants who qualify.
• VA loans: If you have the option of financing with a U.S. Department of Veterans Affairs loan, with few exceptions, you’ll generally want to take it. It offers some of the most competitive rates, even for zero-down-payment loans. It also comes with no minimum credit score requirement, though the final say on whether or not you can get a loan with a low credit score is up to the individual lender.
💡 Quick Tip: Don’t have a lot of cash on hand for a down payment? The minimum down payment for an FHA mortgage loan is as low as 3.5%.
The Takeaway
Your $50,000 salary is the first step in qualifying for the home mortgage loan you need to buy a house. To position yourself for the best possible borrowing scenario, consider paying down debt, working on your credit score, applying for down payment assistance, adding a co-borrower, or some combination of the above. With these moves, home affordability improves a great deal.
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.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Is $50K a good salary for a single person?
A $50,000 salary is good in terms of covering the cost of living in many parts of the U.S. With proper budgeting, it can even put you on the path to affording to purchase your own home.
What is a comfortable income for a single person?
Generally, an income of $40,000 to $60,000 per year is considered comfortable in many U.S. cities. This range allows for a decent standard of living, covering basic needs, some savings, and occasional luxuries. Adjustments may be needed based on cost of living and personal financial goals.
What is a livable wage in 2025?
A livable wage varies widely depending on where you live. According to the Living Wage Institute at the Massachusetts Institute of Technology, for a family with two adults and two kids, a livable wage in 2025 might range from around $85,000 annually in Alabama or Kentucky to more than $146,000 in Massachusetts.
What salary is considered rich for a single person?
A salary of $400,000 per year would put you in the top 2% of earners in 2025. However, the definition of “rich” varies by person. One person may feel rich earning $100,000 per year, whereas for another, it may take $750,000 per year.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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One rule of thumb when buying a home is to not spend more than three times your annual salary. If you earn $36K a year, that means you can afford to spend around $108,000 on a house. This assumes you have no other debts you’re paying off, but also that you haven’t been able to save much for a down payment.
Of course, you’ll want to talk to a lender for your individual situation, which could qualify you for more (or less). If it sounds overwhelming, don’t worry. We’ll walk you through what it takes to qualify for a home, no matter what your income level is.
• With a $36,000 annual income, you might qualify for a home priced roughly $100,000–$110,000 (given modest down payment and minimal debt).
• Your most important affordability factors are your debt-to-income ratio (DTI) and existing monthly debt obligations — lenders often target 36% DTI, though some may allow up to 50%.
• The size of your down payment significantly affects what you can afford — more down payment means less mortgage required and more buying power.
• Other critical variables include interest rate, credit score, property taxes and insurance, loan type, and geographic cost of living.
• Various types of home loans are available, including conventional, FHA, USDA, and VA loans, each with different criteria.
What Kind of House Can I Afford With $36K a Year?
At a $36,000 annual income, you may need some help affording a home in today’s market. You’ll need to eliminate debt and make sure you have a good credit score, as well as find programs and lenders that can help. In addition to income and debt, your lender will take into account:
• Your down payment
• What taxes and insurance will cost
• What interest rate you qualify for
• The type of loan you’re applying for
• Whether or not they can let your debt run up to 50% of your income
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
Understanding Debt-to-income Ratio
Beyond interest rates, debt is your biggest enemy to home affordability. The more debt you have to pay on a monthly basis, the less you’re able to pay toward a mortgage. In other words, your $200 monthly credit card payment could cost you thousands on the purchase price of a home.
To understand the debt-to-income (DTI) ratio, add all of your debts together and then divide that number by your monthly income. Your lender calculates your DTI ratio to determine how much you can afford as a monthly payment on a mortgage. The guideline is 36%, but some lenders can go higher on a home mortgage loan.
💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.
How to Factor in Your Down Payment
A down payment increases how much home you’ll be able to qualify for. The more you’re able to put down, the more home you’ll be able to afford.
You’ll also want to consider whether you can put down a deposit of more than 20% so you don’t have to buy mortgage insurance. This may help you qualify for a higher mortgage. Use a mortgage calculator to see how a down payment affects home affordability.
Factors That Affect Home Affordability
Home affordability goes beyond your down payment and DTI ratio. You also want to look at:
• Interest rates: When interest rates are high, borrowers qualify for a lower mortgage. When they’re low, it may be possible to qualify for a higher mortgage.
• Credit history and score: Your credit score is a reflection of your credit habits, and with a higher credit score, you’ll qualify for the best interest rates, giving you more buying power.
• Taxes and insurance: If you live in an area with higher taxes, insurance, or homeowners association dues, these will be taken into account by your lender. You’ll qualify for a lower mortgage amount when these numbers are high.
• Loan type: Depending on the type of loan you get, your interest rate, credit score, and down payment amount can affect how much house you can afford.
• Lender: Lenders have the final say when it comes to approving you for a mortgage. In special circumstances, you may be able to qualify for more than a 36% DTI ratio. Some lenders approve borrowers with a DTI ratio around 50%.
• Location: If you’re shopping in a state with a high cost of living, you’ll have a hard time qualifying for a mortgage no matter what your income level is. You may want to consider moving to a more affordable area, if possible.
How to Afford More House With Down Payment Assistance
Down payment assistance programs can help you qualify for a larger mortgage. These types of programs have money to help with down payment or closing costs. They are usually offered at the state or local level with both grant and second mortgage programs.
They may limit participation to first-time homebuyers or borrowers with lower incomes, but you should still look into these programs and see if you can qualify.
Examples include CalHFA MyHome Assistance Program and the “Home Sweet Texas” Home Loan Program. You can look for programs in your own state, county, and city.
Get matched with a local
real estate agent and earn up to
$9,500‡ cash back when you close.
Pair up with a local real estate agent through HomeStory and unlock up to $9,500 cash back at closing.‡ Average cash back received is $1,700.
Knowing how much home you are likely to qualify for doesn’t have to be a mystery. While your lender may have flexibility, they generally follow these guidelines:
The 28/36 Rule: Lenders will look for housing payments (including mortgage, taxes, and insurance) to be no more than 28% of your income and total debt payments (including mortgage, car loan, student loan, etc.) to be no more than 36% of your income.
The 35/45 Rule: Some lenders allow for higher debt levels. This rule says the housing payment can be up to 35% of your income and total debt can be up to 45%.
On a $36,000 annual salary, you’ll have $3,000 each month for expenses. Using the 36% debt-to-income ratio, you can have a maximum debt payments of $1,080 ($3,000 * .36). In the two examples below, taxes ($2,500), insurance ($1,000), and interest (6%) are the same for a 30-year loan term.
Example #1: Significant debt, large down payment
Monthly credit card debt: $100
Monthly car payment: $500
Student loan payment: $100
Total debt = $700
Down payment = $20,000
Maximum DTI ratio = $3,000 * .36 = $1,080
Maximum mortgage payment = $380 ($1,080 – $700)
Home budget = $34,733
Example #2: No down payment, little debt
Monthly credit card debt: $0
Monthly car payment: $0
Student loan payment: $100
Total debt = $100
Down payment: $0
Maximum DTI ratio = $3,000 * .36 = $1,080
Maximum mortgage payment = $980 ($1,080 – $100)
Home budget = $96,314
How Your Monthly Payment Affects Your Price Range
The amount you’re able to pay toward a mortgage each month determines how much home you’ll be able to afford. Any monthly payments you have, such as debt, can take away from how much you’re able to pay for a mortgage. Conversely, how much income you earn in a month can improve how much mortgage you can qualify for.
Interest rates also play a huge role in your monthly payment. Higher interest rates mean you’ll qualify for a lower mortgage while lower interest rates improve home affordability. That’s why homeowners get a mortgage refinance when interest rates drop.
Types of Home Loans Available to $36K Households
The different types of mortgage loans also affect home affordability. Some have a zero down payment option, flexible credit requirements, less expensive mortgage insurance, and varying interest rates. The different types of mortgage loans include:
• FHA loans: Loans backed by the Federal Housing Administration are great for buyers with unique credit situations that can’t get approved for conventional financing. It can be more expensive to go with an FHA loan, but there are low down payment options and flexible credit requirements for those with a score as low as 500.
• USDA loans: United States Department of Agriculture mortgages, available in rural areas, offer great interest rates, zero down payment options, and competitive mortgage insurance rates. Some USDA mortgages are directly serviced by USDA, and have a subsidized interest rate.
• Conventional loans: Many borrowers opt for conventional financing if they qualify. Over the course of a mortgage, this is one of the least expensive types due to competitive interest rates and mortgage insurance premiums that drop off after you pay down the loan past 80%.
• VA loans: A loan from the U.S. Department of Veterans Affairs is hard to beat for service members, veterans, and others who qualify. You may be able to qualify for a home purchase price with no down payment. VA loans may have great interest rates and flexible credit requirements (depending on the lender).
💡 Quick Tip: Active duty service members who have served for at least 90 consecutive days are eligible for a VA loan. But so are many veterans, surviving spouses, and National Guard and Reserves members. It’s worth exploring with an online VA loan application because the low interest rates and other advantages of this loan can’t be beat.
The Takeaway
Purchasing a home on a $36,000 salary is a feat you’ll need help with in a market where the U.S. median sale price is $410,800. Whether it’s down payment assistance, paying down debt, nurturing your credit score, or adding income, there are moves you can make to bolster your home budget. In the end, when you move into a place that’s all yours, the hard work will be worth it.
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.
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FAQ
Is $36K a good salary for a single person?
A single person can afford to live on $36,000 a year in more affordable places in the U.S., but it could still be difficult to afford to buy a home in today’s real estate market.
What is a comfortable income for a single person?
Generally, an income of $40,000 to $60,000 per year is considered comfortable in many U.S. cities. This range allows for a decent standard of living, covering basic needs, some savings, and occasional luxuries. Adjustments may be needed based on cost of living and personal financial goals.
What is a liveable wage in 2025?
A “livable wage” in the U.S. in 2025 typically ranges from about $21 to $30 per hour for a single adult, depending heavily on local housing, childcare, and cost-of-living factors.
What salary is considered rich for a single person?
A salary of $400,000 per year would put you in the top 2% of earners in 2025. However, the definition of “rich” varies by person. One person may feel rich earning $100,000 per year, whereas for another, it may take $750,000 per year.
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• Student loans are installment loans, meaning they are disbursed in a lump sum and repaid in fixed, scheduled payments over time.
• Revolving credit (e.g., credit cards) allows continuous borrowing up to a credit limit, with variable repayment amounts.
• Installment loans offer predictable payments and typically lower interest rates, making them easier to budget for than revolving credit.
• Federal and private student loans are both installment loans, but federal loans generally come with more borrower protections and repayment options.
• Alternative ways to pay for school include grants, scholarships, work-study, personal savings, and federal aid.
What Is Revolving Credit?
Revolving credit is an agreement between a lender and an account holder that allows you to borrow money up to a set maximum amount (or credit limit). The account holder can borrow what they need as they need it (up to their credit limit) and choose to pay off the balance in full or make minimum monthly payments on the account.
As the account holder makes repayments, the amount available to borrow is renewed. Account holders can continue to borrow up to the maximum amount through the term of the agreement. Examples of revolving credit include credit cards and home equity lines of credit (HELOCs).
What Is Installment Credit?
Installment credit is a type of credit that allows a borrower to receive a lump sum loan amount up front, then make fixed payments on the loan over a set period of time. Before the borrower signs an agreement for an installment loan, the lender will decide on the interest rate, fees, and repayment terms, which will determine how much the borrower pays each month.
Common examples of installment loans include federal student loans, private student loans, mortgages, auto loans, and personal loans.
And for borrowers who opt to refinance student loans, those loans are installment loans as well.
Revolving Credit vs Installment Credit
Now that you know student loans are installment and not revolving credit, it’s helpful to understand how these two types of credit compare.
Account holders can borrow funds at any time (up to a set limit), repay it, and borrow more as needed.
Account holders borrow one lump sum, the sole amount of money they have access to, and repay it over a set time period.
May come with higher interest rates than installment credit.
May have stricter lending requirements than some revolving credit options, such as credit cards.
Account holders only pay interest on the amount they’ve borrowed at any time, not the total credit limit.
Account holders pay interest on the entire principal amount of the loan from the beginning.
Revolving Credit
Revolving credit is a more open-ended form of credit obligation. Let’s use the example of a credit card:
1. The cardholder uses the card to make purchases as they please, pays them off either in-full or partially each month, and continues to make charges on the line of credit.
2. The amount of money the cardholder spends is their decision (up to their credit limit), and the amount of money they repay each month isn’t set in advance by the lender.
3. The cardholder can pay off the account balance in full each month, or they can opt to pay the minimum and “revolve” the balance over to the next month (though this will accrue interest on the account).
An important note: To avoid any late fees or potential dings to your credit score, it’s important to pay your monthly revolving bill on time. It’s also wise to keep your balances low, as your credit utilization rate is a major factor in your credit scores.
Installment Credit
Installment credit is less open-ended than revolving credit. Installment credit is a loan that offers a borrower a fixed amount of money over a predetermined period of time. When a borrower signs the loan agreement, they know what the monthly payments will be and how they will need to make payments.
Let’s use the example of a student loan:
1. The student borrows a specific dollar amount. The lender specifies the interest rate and repayment terms. In the case of federal student loans, interest rates and terms are set by federal law.
2. The predetermined loan amount is released to the borrower. Typically, the funds are released in a single lump sum payment.
3. The borrower repays the loan based on the agreed upon terms. Terms will be set by the lender for private student loans, or by law for federal student loans.
An important note: If you only have revolving credit (such as a credit card), taking out an installment loan can diversify your credit mix, which is a factor in determining your credit scores. While an installment loan adds to your total debt, its balance does not factor into your credit utilization ratio (which is specific to revolving credit).
Pros and Cons of Installment Credit
Student loans for undergraduate school, as well as student loans that are refinanced, are considered installment loans, which means they come with a starting balance, are disbursed to the qualifying borrower up front and in full, and are repaid over a set amount of time through a fixed number of payments. There are advantages and disadvantages to taking out an installment loan, and it’s important to be aware of them:
Pros of Installment Loans
Cons of Installment Loans
They can be used to finance a major purchase like a house, car, or college education.
They can come with origination fees (a percentage of the loan amount)
They are paid with a set number of payments of the same amount, which can make it easier for budgeting purposes.
Missed or late payments may negatively impact the borrower’s credit score.
For some installment loans, it is possible to reduce interest charges by paying the loan off early.
Depending on the type of installment loan and the lender, there may be penalties or fees for paying off the loan early. (Generally, there are no prepayment penalties for paying off student loans early.)
They offer the option of paying the loan off over a longer period of time.
Longer terms typically mean you’re paying more in interest over the life of the loan.
Pros of Installment Credit
Here’s a closer look at two key advantages of installment credit:
Predictable Payments
Installment credit payments are made on a set schedule that’s determined by the lender. This makes them a predictable, long-term strategy for paying off debt, and also makes it easier to factor them into your budget, especially if the installment loan has fixed interest rates.
The monthly payment for an installment loan with a variable interest rate may occasionally change.
Lower Interest Rates
Installment loans often feature lower average interest rates than credit cards or other forms of revolving credit. This can result in significant savings on interest charges over time, especially for large loan amounts.
Cons of Installment Credit
But there are also disadvantages to installment credit. Two key drawbacks include:
Accumulation of Interest
While often lower than credit card rates, interest on an installment loan is paid over the entire life of the loan, which can add up to a significant amount of money over time, particularly for long-term loans.
Prepayment Penalty
Some loans impose prepayment penalties if a borrower pays their loan off early. This isn’t necessarily the case for all installment loans — as mentioned, student loans generally don’t have prepayment penalties. But it’s important to read the fine print in the loan agreement to determine whether a prepayment fee will be triggered if the loan is paid off early.
Student loans, like other loans, are noted on your credit report and they may affect your credit in both positive and negative ways.
On the plus side, making consistent, on-time payments, can help borrowers establish a positive payment history, which is the most significant factor (35%) in a FICO® credit score. Successfully managing an installment loan can also help diversify your credit mix, which can also have a positive impact on your credit profile.
However, failing to make your loan payments can negatively impact your credit. A federal student loan payment is considered delinquent even when your payment is just one day late. After 90 days of missed payments, your loan servicer will report the delinquency to the national credit bureaus. Late payments can stay on your credit report for up to seven years.
(After 270 days of missed payments, your loan will go into default, which can have very serious consequences for your credit and your financial situation in general. If you are having trouble repaying your student loans, reach out to your lender or loan servicer right away to see what your options are.)
If you apply for a private student loan or student loan refinancing, lenders will typically do a hard credit inquiry, which may temporarily lower your credit score. Most federal student loans do not require hard credit inquiries.
Ways to Pay for School
There are a variety of ways to pay for college, including student loans, savings, financial aid, and scholarships. Here’s a closer look at your options:
Federal Student Loans
Federal student loans are installment loans available to students. To apply, students fill out the Free Application for Federal Student Aid (FAFSA®) each year. Federal student loans have fixed interest rates that are set annually by Congress, offer different repayment options, and have some borrower protections and benefits such as deferment and the option to pursue Public Service Loan Forgiveness.
However, there are borrowing limits for federal student loans, and other changes are coming to the federal student loan program as of the summer of 2026, so students may need to review other sources of financing when determining how they’ll pay for college.
Private Student Loans
Private student loans are installment loans you can use to pay for a college education. Private student loans are offered by private lenders. To apply for them, borrowers can browse the offerings of individual lenders like banks, credit unions, and online lenders and decide which private student loan works best for their finances. As a part of the application process, lenders will generally review the applicant’s (or their cosigner’s) credit history and credit score among other factors.
Private student loans can help bridge funding gaps after other sources of financing — such as federal loans, grants, and scholarships — have already been exhausted. This is because private lenders are not required to offer the same borrower protections as federal student loans. If you think private student loans are an option for you, shop around to find competitive terms and interest rates, and be sure to read the terms and fine print closely.
As mentioned, a borrower may choose to refinance private student loans at a later date, especially if they can qualify for more beneficial terms or a lower interest rate. Federal student loans can also be refinanced, but if a borrower chooses this option, they will lose access to federal benefits and protections like federal deferment and forgiveness.
Personal Savings
Using personal savings to pay for college means less debt and more flexibility. Not only that, but it costs significantly more to borrow money to pay for college than it does to use personal savings.
Using personal savings to pay for college means less debt and more flexibility. Using savings also allows you to save money on interest, which can make college less expensive. That said, not everyone has enough savings to cover the full cost of attending college.
Grants
Unlike student loans, which require repayment, grants are a type of financial aid that doesn’t require repayment. Grants are typically based on financial need. Completing the FAFSA will put you in the running for federal, state, and institutional grants.
A scholarship is a lump sum of funds that can be used to help a student pay for school. Scholarships usually don’t have to be repaid, and can be need-based or merit-based. You can find out about scholarships through your high school guidance office, college’s financial aid office, or by using an online scholarship search tool.
Work-Study Programs
Federal work-study programs allow students with financial need to work on- or off- campus and earn money through part-time jobs. The program encourages students to do work related to their course of study or community service.
Work-study programs are funded by the federal government. Students may be awarded a certain work-study amount by filling out the FAFSA. Not all schools participate in federal work study, however, so if you are interested in this option, make sure your school offers it.
The Takeaway
Student loans are a common form of installment credit. This means they are dispersed as a lump sum and require making fixed, regular payments over a predetermined period. Unlike revolving credit such as credit cards, student loans offer predictable budgeting and often come with lower interest rates.
Managing student installment loans responsibly can positively impact your credit profile. However, late or missed payments can have serious negative consequences. Understanding the differences between installment and revolving credit, and exploring various funding options for education, can empower you to make informed financial decisions for your academic journey and beyond.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
Is a student loan an installment loan?
Yes, a student loan is an installment loan. This means you receive a lump sum of money up front and repay it over a set period with a predetermined number of regular payments.
Is a student loan a revolving loan?
No, a student loan is not a revolving loan. Revolving loans, like credit cards, allow you to borrow varying amounts up to a set credit limit, repay, and then borrow again. Student loans are installment loans, meaning you receive a lump sum and repay it with fixed, scheduled payments over a set period.
What are the benefits of an installment student loan?
The benefits of an installment student loan include predictable payments, which makes budgeting easier, and often lower interest rates compared to revolving credit. They also allow you to finance a major purchase like an education and can help diversify your credit mix.
Can student loans help build credit?
Yes, student loans can help build credit. Making regular, on-time payments on your student loan demonstrates responsible financial behavior, which contributes positively to your payment history — a major factor in your credit score. Successfully managing an installment loan like a student loan can also help diversify your credit mix, which can further enhance your credit profile.
What’s the difference between federal and private student installment loans?
Federal student loans generally offer lower rates and more borrower protections, such as income-driven repayment and potential for loan forgiveness. Also, they typically do not require a hard credit inquiry. Private student loans, offered by banks and other financial institutions, may have fewer borrower protections and repayment options, and usually require a credit check and potentially a cosigner. Interest rates and terms for federal loans are set by law, while private loan terms depend on the lender and borrower’s creditworthiness.
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Staying on top of student loans and other financial obligations can be challenging. If you’re having trouble making monthly payments, or you’re concerned about how you’ll repay your loans down the road, you might be wondering what happens if you don’t pay your debt.
While you cannot be arrested or put in jail just for failing to pay your student loans, there are repercussions for missing student loan payments, including damage to your credit and wage garnishment.
Here’s a look at the potential legal and financial consequences of not paying debt, as well as tips for tackling student loan debt after you graduate.
Key Points
• You cannot be arrested or jailed for not paying student loans, but missing payments can lead to serious financial consequences.
• Federal student loans become delinquent after one missed payment and enter default after 270 days, leading to credit damage, wage garnishment, and loss of financial aid eligibility.
• Private student loans typically enter default after 90 days, at which point lenders can take legal action and potentially garnish wages.
• Options for managing student loan debt include income-driven repayment, refinancing, forgiveness programs, and budgeting strategies.
Going to Jail for Debt
No matter how much or what type of outstanding debt you have, a debt collector cannot threaten to or have you arrested for that unpaid debt. Doing so is a violation of the Fair Debt Collection Practices Act and would be considered harassment.
A lender can, however, file a lawsuit against you to collect on an outstanding debt. If the court orders you to appear or to provide certain information, but you don’t comply, a judge may issue a warrant for your arrest. A judge can also issue a warrant for your arrest if you don’t comply with a court-ordered installment plan (such as child support).
Bottom line: You never want to ignore a court order, since doing could result in an arrest and, potentially, jail time.
💡 Quick Tip: Pay down your student loans faster with SoFi reward points you earn along the way.
Can You Go to Jail for Not Paying Student Loans?
No, you can’t be arrested or put in prison for not making payments on student loan debt. The police won’t come after you if you miss a payment. While you can be sued over defaulted student loans, this would be a civil case — not a criminal one. As a result, you don’t have to worry about doing any jail time if you lose.
As mentioned above, however, ignoring an order to appear in court could result in an arrest. And unless you want to deal with a long, messy legal process and added expenses on top of your debt (in the form of attorney and court fees), it’s in your best interest to do whatever you can to avoid defaulting on your student loans.
Statute of Limitations on Debt
In terms of debt collection, the statute of limitations refers to the amount of time that creditors have to sue borrowers for debt that’s past due.
Federal student loans don’t have a statute of limitations. This means that federal loan servicers can pursue collection of defaulted federal student loans indefinitely. Keep in mind that the federal government doesn’t have to sue you to start garnishing wages, tax refunds, and Social Security checks.
For other types of debt, including private student loans, many states have statutes of limitations between three and six years, while some are longer. The timeframe can vary based on the type of debt and the state law named in your credit agreement.
If you’re sued by a debt collector and the debt is too old, you may have a defense to the lawsuit. You may also have a claim against the collector for violating the Fair Debt Collection Practices Act, which prohibits suing or threatening to sue for a debt that is past the statute of limitations.
What Are the Consequences of Not Paying Off Student Loan Debt?
The consequences of not paying your student loan debt differ depending on what type of student loans you have.
Federal Student Loans
Typically, with federal student loans, the loan becomes delinquent the first day after a payment is missed. If you don’t make a payment within 90 days, your loan servicer will report the delinquency to the three national credit bureaus.
If you don’t make a payment for 270 days (roughly nine months), the loan will typically go into default. A default can cause long-term damage to your credit score. You may also see your federal tax refund withheld or some of your wages garnished.
Once your federal student loan is in default, you can no longer receive deferment or forbearance or any additional federal student aid. Plus, you’re no longer eligible for an income-driven repayment plan, and your loan servicer can sue you for the money you owe.
Private Student Loans
If you don’t pay private student loans, the consequences will depend on the lender. Generally, however, this is what happens: As soon as you miss a payment, your loan will be considered delinquent. You’ll likely get hit with a late fee and, after 30 days, your lender can report your delinquency to major credit agencies.
After 90 days, your loan will typically go into default. At that point, your loan may be sold to a collections company. Your (and any cosigner’s) credit score will also take a hit. In addition, your lender can sue you for the money you owe. They may also be able to get a court order to garnish your wages. However, they can’t take any money from your tax refunds or Social Security checks.
Tips for Getting Out of Student Loan Debt
You won’t go to jail for not paying back your student loans, but you can still face some significant consequences for missing payments. Here are some ways to stay (or get back) on track.
1. Set up a Budget
It can be hard to manage your finances without a plan. Creating a monthly budget is a helpful way to keep your spending in check and make sure you have enough money for your loan payments. Once you write down everything you’re spending on each month, you may find some easy places to cut back, such as getting rid of streaming services you rarely watch or spending less on takeout and afternoon coffees. Any money you free up can then go towards loan repayment.
2. Increase Cash Flow
Reining in your spending with a budget is a good place to start, but it may not be enough for getting out of debt. Having some extra cash on hand can help manage debt payments and offer some breathing room within your monthly budget.
To boost your income, you might consider taking on more hours at your current job, getting some freelance work, or picking up a side gig (such as food delivery, dog walking, or babysitting). You don’t have to do this forever — just until your student debt is paid off, or at least well under control.
If you have multiple debts, it’s a good idea to take an inventory of everything you owe and then set up a comprehensive debt reduction plan.
A popular system is the avalanche method, which calls for putting any extra cash toward the debt with the highest interest rate while making minimum payments on other balances. When that debt is paid off, you put your extra money towards the debt with the next-highest interest rate, and so on.
Another option is the snowball method, which focuses on ticking off debts in order of size, starting with the smallest debt balance, while still taking care of minimum payments on other debt.
4. Apply for an Income-Based Repayment Plan
If you have federal student loans, there are currently three income-driven repayment (IDR) plans you can apply for to make your monthly payments more manageable. These include:
• Saving on a Valuable Education Plan (SAVE; replacing Revised Pay As You Earn)
• Pay As You Earn
• Income-Based Repayment Plan
• Income-Contingent Repayment Plan
Monthly payments are a percentage of your discretionary income, usually 10% or 20%. What’s more, all plans forgive any remaining balance at the end of the 20- or 25-year repayment period. Note that the current IDR program will sunset for new borrowers starting July 1, 2026, as a result of changes to federal legislation.
Starting July 1, 2026, new federal student loan borrowers will only have access to the new Repayment Assistance Plan (RAP), which requires payment amounts of 1-10% of your annual adjusted gross income and offers forgiveness after 30 years.
5. Find Another Repayment Plan
Besides income-based repayment, current borrowers can explore a variety of other federal repayment plans to help pay off debt. For example, the graduated repayment plan helps recent college grads find their financial footing by setting smaller monthly payments at first before increasing every two years. (Note: Borrowers who take on a new loan after July 1, 2026 will only be eligible for a standard repayment plan or the RAP plan.)
Some private lenders also offer a choice of different repayment options.
6. Look Into Forgiveness Programs
The federal government offers student loan forgiveness to borrowers who meet certain eligibility criteria, such as working in a certain profession, having a permanent disability, or after making payments for a certain amount of time on an income-driven repayment plan. Similar programs are available at the state-level across the country, and generally base eligibility on specific professions or financial hardship. It’s worth contacting your state’s higher education department to see if you might qualify for a repayment assistance program.
The Rural Iowa Primary Care Loan Repayment Program, for instance, provides up to $200,000 toward repaying eligible student loans for doctors who commit to working five years in designated locations.
The NYS Get on Your Feet Loan Forgiveness Program, on the other hand, offers up to 24 months of debt relief to recent graduates in New York who are participating in a federal income-driven repayment plan.
7. Ask About Employer Tuition Reimbursement Programs
Besides health insurance and a 401(k), your employer may provide other benefits, including tuition reimbursement programs, to support and retain their employees.
Often, these programs are focused on annual tuition expenses that employees incur while studying and working concurrently. Still, employers may offer to contribute to student loan payments as well.
💡 Quick Tip: Master’s degree or graduate certificate? Private or federal student loans can smooth the path to either goal.
8. Explore Refinancing Your Student Loans
Student loan refinancing could help you save interest and make your monthly payments easier to manage. Generally, though, refinancing only makes sense if you can qualify for a lower interest rate.
Refinancing involves taking out a new loan with a private lender and using it to pay off your existing federal or private student loans. You can often shop around and “browse rates” without any impact to your credit scores (prequalifying typically involves a soft credit check). Just keep in mind that refinancing federal loans with a private lender means losing access to government protections like income-driven repayment, student loan forgiveness programs, and deferment and forbearance.
Also know that lenders typically require your loans to be in good standing before approving a refinance. That means you generally can’t refinance a student loan in default. You can, however, consider refinancing after recovering from a student loan default.
The Takeaway
Although you won’t go to jail for failing to pay your student loans, there are a number of negative consequences, like late fees, a damaged credit score, wage garnishment, and even being taken to court.
Whatever type of student loan you have, you can help the road to repayment go smoothly by setting up a budget that makes room for monthly loan payments, picking a repayment plan that fits your needs and budget, and investigating forgiveness options.
Finding a student loan with a competitive interest rate and flexible repayment terms can help avoid the stress and repercussions of not paying student loans down the line.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
FAQ
Do student loans go away after 7 years?
No, student loans won’t disappear after seven years. Negative information about your student loans (such as late payments or defaulting on a loan) will be removed from your credit report after seven years, but that doesn’t remove your responsibility for paying back the loans. You’ll still owe the debt until you pay it back, it’s forgiven, or, in the case of private student loans, the statute of limitations runs out.
How long before student loans are forgiven?
The Public Service Forgiveness Program requires making the equivalent of 120 qualifying monthly payments under an accepted repayment plan (while working full-time for an eligible employer) for student loan forgiveness. With the currently offered federal income-based repayment plans, you need to make payments for 20 to 25 years to have the remaining balance forgiven. State programs may offer more rapid repayment assistance and forgiveness.
Can student loan lenders seize bank accounts?
Yes, but not right away. If you have federal student loans, your wages or bank accounts can be garnished only if you have officially defaulted on your loans (i.e., you haven’t made a payment for at least 270 days). The government does not need a court order or judgment to garnish your wages.
If you default on a private student loan, your creditor must first sue you to obtain a judgment and submit a court order to your employer before your wages can be garnished.
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