SoFi Blog

Dear SoFi, I’m overwhelmed by my debt. I don’t know how to get my finances under control. Can you help me?

Personal debt is as American as apple pie at a bake sale.

Midway through 2024, total U.S. household debt reached an all-time high of $17.8 trillion, according to the Federal Reserve Bank of New York. And that enormous sum is spread pretty broadly across the population: Two-thirds of Americans have some personal debt, and the average amount people owe is $22,713,
according to a 2024 Northwestern Mutual study.

Meanwhile, the average American pays $1,225 toward debt each month, which would eat up more than 25%
of the median U.S. monthly income of $4,660. And these are just rough numbers; for many, the financial
pressure is even greater. Is it any wonder that 90% of us are stressed about money, according to research from Thrive Global and Discover?

Facing your debt head-on can be extremely challenging. And yet it’s really the only way to bring about change. Here’s a quick overview of how you might do it.

First, write down what you owe. Sort your debts by interest rate. If you crave the satisfaction of completing a task, you can elect to pay off a smaller debt completely. Or you can tackle the debt with the highest interest rate first, which usually makes the most financial sense.

This is not rocket science. And it’s not easy, either. But setting a goal and then hatching a plan that is integrated into your budget will help you climb out of debt. In fact, taking the first step may provide some real relief, emotional and financial.

Here are some commonly used strategies for paying down debt:

•   Debt snowball: Those who struggle with discipline may be able to build some momentum by paying off their smallest debt first. The satisfaction may help sustain your efforts. (Just remember to continue making the minimum payments on your other debts in the meantime.)

•   Debt avalanche: From a financial perspective, this is the best strategy for most people. It’s simple in concept: Divert as much as you can reasonably manage toward the debt with the highest interest rate. The trick is sticking with it. (Continue making the minimum payments on all your other debts.)

•   Debt fireball: Identify your “good debt” – that is, loans or mortgages you’ve taken out to finance purchases that may appreciate, like a home. Then list out your “bad debts,” which you racked up to pay for items that usually lose value such as clothing, furniture, or vacations. Pay down the bad debt first, then move on to the good debt.

•   Refinance: Interest rates aren’t always set in stone, and there are a number of ways to refinance your debt – using a loan or credit card, for example. If you can get a lower interest rate, it may be a savvy move. There may be drawbacks, however. Some 0% balance transfer cards charge fees, and the interest-free payback period typically lasts three to 18 months. Once it ends, you’ll need to make sure your debt is paid off, or you may be subject to a very high interest rate. So, refinance carefully and in the context of a practical payback plan.

•   Consolidate: Transferring a handful of different debts into one can simplify things considerably. A SoFi personal loan can be used to consolidate debts with no origination fees, no prepayment fees, and no late fees.

Learn more about creating a debt reduction plan.

Digging out of debt isn’t easy. It may require you to adjust your budget until you get back on track. For example, if you follow the 50/30/20 method – where you spend 50% of your income on needs, 30% on wants, and 20% on savings – you could divert that 20% to additional debt payments. And I’d also recommend that you stop using credit cards.

Setting achievable goals will help you stay motivated. Stick with it and celebrate your wins along the way. With some time and discipline, you can be debt-free. (Almost) Easy as pie.

In financial health,
Kendall Meade,
CERTIFIED FINANCIAL PLANNER®

photocredits: iStock/SrdjanPav

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

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Let’s get real: Setting aside money in tax-deferred accounts like 401(k)s and IRAs can be easy to talk yourself out of, but it can be key to building your retirement savings. Trust us, your future self will thank you for reading this.

Tax-deferred retirement accounts give savers an important advantage. Typically when you sell stocks or other investments, you have to pay taxes on any gains. But with a 401(k) and traditional IRA, you don’t pay taxes on any investment gains — or your contributions — until you withdraw your money (usually once you reach retirement age). This means more money has the chance to grow over time. Plus, you reduce your taxable income, which can cut down on what you owe come tax season.

If you can swing it, the best way to capitalize on the tax advantages of these types of accounts is to contribute as much as the IRS allows. For 2025, the limit on 401(k) contributions is going up to $23,500 — $500 more than this year — while the cap on IRAs will continue to be $7,000, the IRS announced earlier this month.

Now, a $500 increase in the IRS limit (which is fairly typical for recent years) may not seem like a lot, but even a modest amount can have a surprising impact. If you invested $20,000 today and let it sit untouched, 20 years from now you’d have $128,564, assuming the average annual stock market return of 9.75%. But if you contributed just an additional $500 in each of those 20 years, you’d bring that total to about $156,000.

So what? Tax-advantaged savings accounts can make a huge difference in reaching your retirement savings goals, even if contributing the maximum isn’t realistic for your budget. (If that’s you, you’re not alone: Last year, only 14% of Americans maxed out their 401(k)s, according to Vanguard.) Every dollar you stash away has the potential for future growth, so do what you can.

photocredits: iStock/shapecharge

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.

SoFi isn't recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

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