College is expensive and costs continue to rise. In 1989, the average cost of a 4-year degree school term was $1,730. As of 2023, the average annual cost increased to an average of $9,377 for in-state students at a public four-year college.
With college costs continuing to skyrocket, many parents apply for federal Parent PLUS loans. Since these loans are issued in the parent’s name, it is important that parents understand the details of what these loans entail and how often you have to apply to ensure students receive proper funding.
So, to avoid missing an application deadline, here’s some helpful information about Parent PLUS loans and their application process.
Parent PLUS Loan Recap
A Parent PLUS loan is a type of Direct PLUS loan, which is offered to parents who have a student enrolled at least part-time in an eligible education program.
Borrowers may be able to borrow an amount that equals but does not exceed the full cost of attendance, minus any other financial aid such as scholarships and grants that your child has received.
These loans are federally-funded and not subsidized. This means that the loan will accrue interest while the student is in school. Parent PLUS loans offer fixed interest rates and won’t change throughout the life of the loan.
The interest rate for Parent PLUS loans disbursed for the 2023-24 academic year is 8.05%. It’s also important to note that as of October 1, 2019, Direct PLUS Loans have a fee of about 4.228% of the loan amount (which is deducted from each loan disbursement proportionately).
Qualifying For a Parent Plus Loan
To qualify for a Parent PLUS loan, borrowers must:
• Be the biological or adoptive parent, or in some cases, the stepparent, of an undergraduate student enrolled part-time at an eligible school
• Have poor credit history (unless the parent meets additional criteria). More information on what is considered an adverse credit history can be found on the Student Aid website .
• Meet general eligibility requirements for federally-funded student aid
Keep in mind that even if a grandparent is primarily responsible for a student they are not eligible for a Parent PLUS loan, unless, grandparents have legally adopted their grandchildren and are legal guardians.
Applying for a Parent PLUS Loan
The first step to apply for a Parent PLUS Loan is to complete the FAFSA® form with the student. Then, parents can log in at StudentLoans.gov , choose the Parent Borrowers tab, and the “Apply for a PLUS Loan” link.
Most schools require you to apply for Direct PLUS Loans online, however, some may have different application processes that you must follow. Studentaid.gov provides a list of schools that allow you to apply online. If your school is not on this list, check with the school’s financial aid office to verify the application process you must follow.
Those who qualify for a Parent PLUS loan, will have to sign a Direct PLUS Loan Master Promissory Note (MPN) . This document verifies that the borrower agrees to the terms of the loan. Each school may have a different process, double check with the financial aid office to ensure you understand the specific process for your student’s school of choice.
Keep in mind, those borrowing more than one parent PLUS loan for separate children, will need to sign multiple MPNs.
Apply for A Parent Plus Loan Every Year
When you complete the FAFSA form , you are applying for financial aid for one school year. Therefore, to receive financial aid for the next year, you will have to submit a new FAFSA form to get new aid.
However, the website allows you to select a Renewal FAFSA form that remembers your information from the previous years, making it earlier to submit a new financial aid application.
Additionally, it’s important to pay attention to the FAFSA deadlines to avoid missing out on any financial aid opportunities. General recommendations suggest submitting the FAFSA form by the earliest financial aid deadline of the schools to which you are applying, usually by early February.
Each state may have their own deadlines, so it can help to verify your state’s specific date.
Pros of Parent PLUS Loans
First, eligible borrowers can take out a generous Parent PLUS loan, as long as it doesn’t exceed the total cost of attendance at the student’s school of choosing (minus other financial aid they qualify for).
Another advantage of the Parent PLUS loan is that the interest rates are fixed. This means that even if rates increase nationally, the interest rate on the loan is locked in at the rate determined at the time the loan was disbursed.
Having a fixed interest rate can make it easier to budget for the monthly payments when they become due since borrowers know exactly what to expect.
Additionally, when it comes to loan repayment, there are several flexible repayment options . For example, you could select a standard repayment plan with fixed monthly payments for 10 years or an extended repayment plan with either a fixed or graduated payment schedule over a 25-year term.
Parent PLUS loans are not eligible for income-driven repayment plans, unless they have been consolidated with a Direct Consolidation Loan . This is when multiple federal loans are consolidated into one single Direct Consolidation Loans. These loans are still federal loans and the new interest rate is the weighted average of the existing loans.
Borrowers can select the best repayment option based on the plans they qualify for and their goals for repayment. Whether the goal is to keep payments low or pay off the loan balance as soon as possible, borrowers can select a plan that best fits their needs. Generally, selecting a repayment plan that helps pay off the loan quickly will result in paying less interest over the term of the loan.
Cons of Parent PLUS Loans
Not everyone qualifies for a Parent PLUS loan. Although this isn’t necessarily a disadvantage to a Parent PLUS loan, it’s important to understand that you will have to meet all eligibility requirements to qualify. This includes passing a credit check.
Adverse credit indicators include defaults of debt, foreclosures, repossessions, debts discharged through bankruptcy, tax liens, wage garnishments, or previous write-offs of federal student debt.
However, you might be able to qualify if you apply with an endorser or a cosigner. Keep in mind, you also need to be a United States citizen or national.
Alternative Financing Options
If your application is denied due to poor or “adverse credit history,” there are still other financing options. Here are a few to consider:
Enlisting an Endorser
If a parent doesn’t qualify based on their own credit history, they can try to enlist a co-signer , called an endorser, on the Parent PLUS loan. The endorser agrees to take responsibility for the loan if the borrower fails to repay, and the loan will show up on the endorser’s credit report as his or her own debt. If you apply with an endorser, you will be required to complete PLUS credit counseling .
Looking for Free Money
It can be wise to continue to apply and look for scholarships, work-study, or grant rewards. There’s a myriad of ways to find reward opportunities such as contacting the school’s federal aid office, federal agencies , state grant agencies , or other organizations a student or parent is involved with.
New opportunities may become available every year, so it can be wise to continue to stay out on the look for funding opportunities.
Applying for Unsubsidized Federal Loans
If a parent is ineligible for a Parent PLUS loan, the student may be eligible to receive additional Direct Unsubsidized Loan funds up to the loan limits for independent students.
Federal student loans can be reliable borrowing options because they often have lower interest rates and could have better repayment terms than other loans available to students. However, it’s worth making sure that a student isn’t taking out more debt than they can handle after graduation.
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Considering Private Loans
Lastly, if all other options fail, some families may want to consider private loans. These loans are offered through financial institutions such as banks, credit unions, and online lenders.
Keep in mind, private student loans tend to have less flexible repayment terms and higher interest rates than federal student loans.
For example, private lenders may require you to begin making payments before your child graduates. Conversely, with a Parent PLUS loan, parents can wait to make repayments until after their child has graduated.
Additionally, when applying for a private loan, the interest rate is generally based on factors like the borrower’s income and credit score.
If you think you may need to use private loans, don’t be discouraged, and instead, be informed about your options. First, it’s worth shopping around and comparing lenders for private loans.
Lenders’ terms will vary, so it can be helpful to get several quotes and ask about the interest rate (and whether it’s fixed or variable), the loan’s repayment terms, and what happens in the event there are financial difficulties that make it difficult to stick to the repayment plan.
If you do determine a private student loan is right for you, check out SoFi, where parent student loans are built to help you pay for your child’s education. SoFi loans have no fees, and qualifying borrowers can secure a competitive interest rate.
Check out what kind of rates and terms you can get in just a few minutes.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
Do you ever have trouble keeping up with when bills are due and paying them on time? Welcome to the club. It can be a challenge for many busy people, but paying bills on time is important. Doing so helps you dodge those pricey late fees and maintain your credit score.
For many people, a solution to this challenge is to set up automatic bill payments. This can be done through an automatic payment system, usually referred to as “autopay.” This means that, without needing to remember any dates, write any checks, or click on any payment links, your recurring bills are seamlessly taken care of.
This can be a game-changer that helps you enjoy stronger financial management status and less money stress. But it might not be right for everyone. As with most financial tools, there are pros and cons to using autopay.
So what is autopay? And how do you set it up? Learn the answers to these questions, along with the pros and cons of autopay, so you can determine whether to consider using this option.
What Is Autopay?
What many people call “autopay” is a scheduled, regular transfer of money, usually monthly. These payments are generally transferred from the payer’s bank account (or credit card) to a vendor, or what is known as a payee.
When you link an account to a particular bill or vendor, autopay usually works over an electronic payment system called ACH.
Autopay is typically set up in one of two ways.
• The first is through the company receiving the payment.
• The second is through a bank’s online bill-pay portal.
When you link an account to a particular bill or vendor, autopay usually works over an electronic payment system called Automated Clearing House (ACH). Sometimes automatic payments are referred to as “ACH payments” instead of autopay. If you were to use your credit card, the recurring payment would simply show up as a charge on your card.
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How Does Autopay Work?
Here’s a closer look at how autopay works. When autopay is set up, you are authorizing debits to occur on a regular basis. You will not be responsible for sending the funds. Some people may see this, however, as not being in control of their money.
When autopay is set up, either the payee is authorized to deduct funds from your bank account or your bank will send the funds for you.
You do need to pay attention to when your funds are whisked out of your account. If you aren’t on top of your finances, you could wind up in overdraft and getting assessed overdraft or NSF fees, plus late charges.
Autopay vs. Scheduled Payments
You may hear the terms autopay and scheduled payments used interchangeably but they are actually quite different.
• Autopay means that payments have been set up in advance to happen regularly on a certain date. You establish the date and the frequency and then don’t need to do anything else to transfer the funds on a recurring basis.
• With a scheduled payment, however, you are manually setting when you want a payment to be made and for how much. You can do this regularly, of course, but it requires more effort on your part to transfer funds.
Autopay vs. Bill Pay
Here’s another situation in which you may hear two terms (autopay and bill pay) used interchangeably. There is a slight difference, however.
Bill pay refers to the process in which your bank initiates payments from your account to the payee. In other words, the payee is not authorized to go in and deduct the money; your bank is instead providing this service.
Setting Up Autopay
Here is some more detail on setting up autopay so you can have your bills taken care of more easily.
1. Looking at Vendor Requirements
You can think of autopay as either pushing money from your account to the vendor, or the vendor pulling money from your account.
Many vendors require you to set up autopay through their website, so your first step may be to look into their requirements. If you are currently receiving a paper bill, they often include instructions on where you can go online to set up autopay — looking there is a good place to start.
For example, if you have a $1,800 monthly mortgage payment, you may be able to provide your mortgage company with your checking account information (such as your bank account number and routing number). They can pull the money for payment automatically. This is the “pull” version of automated payments as the vendor is pulling the money out.
2. Choosing the Day Your Payment Is Made
You generally get to choose the day that the payment is made — you could consider doing this a few days before the bill is due. This should give the automated payment time to move through the ACH system, including when the due date lands on a weekend.
Also, you’ll likely want to be cognizant that you aren’t setting up any automatic payments until you’re sure that any necessary deposits are made. For example, if you need your paycheck to cash before making a rent payment, making sure to give your paycheck at least a few days to settle in your account may be the pragmatic choice. Or you could see if the payee is willing to move your bill’s due date slightly to better accommodate your needs.
Setting Up ACH Payments
Another potential option is to set up an ACH transfer through your bank; this is the bill pay option mentioned above. Doing this typically requires logging onto your bank account’s website and navigating to the bill pay section.
If you go through your bank, you may need to provide them with the information for the vendor, such as the account number and mailing address. You can usually find this information on your bill or monthly statements.
Using the same example as above, you would enter the information for your mortgage lender into your bank’s bill pay portal. Similarly, the money would be sent via ACH on the date you’ve picked to send the money to the vendor.
You may want to consider selecting a date a few days prior to the due date to avoid a late payment. This is the “push” method of automated payments as you are pushing the money out of your account to the vendor.
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Pros and Cons of Autopay
Autopay can be a wonderful tool for many people looking to simplify their finances. But it won’t be for everyone. Here’s a look at some of the pros and cons of using autopay.
Pros of Autopay
Consider these upsides of autopay:
Convenience: Gone are the days of sitting down to write a check for every last outstanding bill. In fact, these days you don’t even need to log into a computer every time a bill comes due. With autopay, you can pay all or most of your bills without lifting a finger.
This means no more having to log online to pay bills while you’re on vacation or busy with work or family. There is something beautiful about the convenience of the “set it and forget it” method to financial management, if you can make it work.
Improving Your Finances: We don’t need to tell you that it is a smart idea to pay your bills on time.
Not only can autopay help you to avoid frustrating late fees, but taking care of your bills right away may help you to avoid agonizing or allowing it to take up precious room on your to-do list.
Paying your bills on time may help your credit score.
Also, paying your bills on time may positively impact your credit score. Currently, debt payment history is the single biggest factor in terms of determining your score. It makes up 35% of a FICO®️ Score.
That means that paying debt-related bills, such as a mortgage, car loan, or credit card bill, on time, could potentially positively impact your FICO®️ Score.
Learning Good Behavior: If you can take the philosophy behind automatically paying your bills and apply it to your savings strategy, this may help your overall financial success. Just as you can automate the payment of your bills, you can automate your savings to retirement and other savings accounts.
If you don’t automatically set money aside, it can be far too easy to spend the money that lands in your checking account. Warren Buffett famously recommended that people “spend what is left after saving, do not save what is left after spending.”
Other ways to use automatic payments? Pay down debt aggressively or save for your future (even beyond a 401(k) if you have one). In either of these scenarios, you could simply set up an automatic transfer of funds as you would with autopay, but direct the funds toward your financial goal.
That way, the money is whisked from your checking account before you’ve even had the chance to consider spending it.
Potentially Saving Money: Vendors and service providers want to get paid on time. Therefore, some vendors or service providers offer a discount for customers that set up autopay, which could save you money.
For example, you may receive an interest rate discount if you set up autopay for a loan. Other vendors may provide a discount on their product or service if you use autopay.
Possible Overdraft Fees: If there isn’t enough money in your account to cover a bill, an ill-timed automatic payment could cause your account to overdraft. According to the FDIC (Federal Deposit Insurance Corporation), overdraft fees can average $35 a pop, depending on your bank.
You’d need to be especially careful if you leverage multiple checking or savings accounts with fluctuating balances or tend to keep your account balance close to zero. In the latter situation, you might benefit from keeping a cash cushion in your account.
Late Fees: Consider the transaction time when setting up your autopay in order to avoid annoying late fees. Late payment fees will vary by vendor but could be costly.
While giving yourself, for example, a four-day buffer could be a good start, it’s important to check with each vendor to determine their recommended timeline. Finally, after you’ve set up autopay, monitoring payments during the first few months to be sure they happen on time can help ease the transition.
Potentially Reinforcing Bad Habits: For some people and in some specific cases, it may not be a good idea to have your finances on autopilot. For example, those who are actively paying off credit card debt may want more control over how much they pay towards their debt each month.
There is almost always an option to autopay the “minimum payment” on a credit card, which may be tempting. There is no penalty when you pay the minimum payment, so it is certainly better than doing nothing.
But, it is much better to pay off the balance in full, if possible. When you do not pay the balance in full, the card will accrue interest, costing you money over time.
If you aren’t at a place where you can pay off the entire balance quite yet, you may want to try and set your autopay for an amount that’s more than the minimum payment so you can make progress on the balance. (And you may want to try to stop using your card in the meantime if this is the case.) If this won’t work for you, you may want to remain in manual control of payments.
Paying for Things You Don’t Need: Subscription services are sneaky. Amounts may seem small and you hardly notice them on a monthly basis, but they can wreak havoc on your annual budget. It is too easy to forget that you are paying for something, especially when you don’t use the service.
If you take advantage of the perks of autopay, don’t forget to reassess your subscriptions every few months to determine whether you actually need the thing you’re paying for. One example: You might not realize how much entertainment you are signed up for, and could save money on streaming services by dropping a platform or two.
Potentially Less Monitoring of Your Accounts: One issue with using autopay could be that you develop a sense of false security that your personal finances are running just fine. You might not check in with your money and review your spending as often as you might. This could have a negative impact. How often should you monitor your checking account? For many people, a couple or a few times a week is a good pace.
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Should You Use Autopay?
The digital age can be confusing and overwhelming, but this is one case where it may help to simplify our lives. Managing money can be a tedious task, and paying bills is just one part of it.
By streamlining the bills portion, you may find that using autopay gives you more freedom to focus your attention on other financial goals.
That said, autopay won’t be right for everyone and in every circumstance. For example, autopay might not be a great idea for those who haven’t organized their bills and tend to overdraft their accounts. It may not make sense for someone who is between jobs or out of work.
Autopay could potentially be difficult to manage for freelancers or other workers with variable income throughout the month. Ideally, a person would have some cash buffer for bills in any of these scenarios, but that is not the way it always works out in the real world.
💡 Quick Tip: When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.
The Takeaway
Autopay can be a convenient way to get your bills taken care of with less time, energy, and stress. However, in some cases, it can have its downsides, so it’s wise to know the pros and cons and continue to monitor your money carefully if you do sign up for autopay.
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FAQ
What should you not put on autopay?
It can be wise not to put bills that fluctuate on autopay. You are less likely to wind up with an overdraft situation that way. For instance, if your energy bill is usually $100 a month but goes up to double that during the winter or summer, that might throw off your personal finances if you autopay your bills.
When should I set up autopay?
It can be wise to set up autopay when you are familiar with your finances and cash flow and feel confident that automating your payments won’t lead to an overdraft situation. You might also consider signing up if there is a bonus or perk for you, such as a discount or a lower interest rate.
Why do people not use autopay?
Some people do not feel comfortable with autopay; they would rather be in control of making payments individually and maintaining that control over their finances. Also, some people may have bills that fluctuate considerably and they may therefore prefer to pay manually to avoid overdrafting.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
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The average retirement age in the US is age 65 for men and age 62 for women, but those numbers don’t reveal the extremely wide range of ages at which people can and do retire.
Some people retire in their 50s, some in their 70s; some people find ways to keep pursuing their profession and thus never completely “retire” from the workforce. The age at which someone retires depends on a host of factors, including how much they’ve saved, their overall state of health, and their desire to keep working versus taking on other commitments.
Still, having some idea of the average age of retirement can be helpful as a general benchmark for your own retirement plans.
What Is the Average Age of Retirement in the US?
Overall, the average retirement age in the U.S. is 64.
Age 65 may be what most of us think of as the best age to retire, but not all regions of America are hitting this goal. According to the U.S. Census Bureau’s American Community Survey, the average U.S. retirement age in:
• Hawaii, Massachusetts, and South Dakota is 66.
• Washington, D.C., is 67.
• Residents of Alaska and West Virginia it’s 61.
A lower cost of living may be what’s helping West Virginia residents retire so young. West Virginia was one of the 10 most states in the country with the lowest costs of living, according to a 2023 study by Consumer Affairs.
While those previously mentioned states give a look at two ends of the average retirement age spectrum in the United States, many states have an average retirement age that falls closer to what one might expect.
Colorado, Connecticut, Iowa, Kansas, Maryland, Minnesota, Nebraska, New Hampshire, New Jersey, North Dakota, Rhode Island, Texas, Utah, Vermont, and Virginia all have an average retirement age of 65.
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1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.
Expectations vs Reality
Expectations can lead to disappointment. Any kid with an overly ambitious wishlist for Santa Claus knows that.
Now imagine a person spending most of their adult life expecting to retire at 65 and then realizing their retirement savings just isn’t enough. Ideally, that won’t happen, but it has happened to many.
According to The Employee Benefit Research Institute’s Retirement Confidence Survey Summary Report, the expected average age of retirement in 2023 was 65. However, as noted previously, the Census places the average retirement age in the US at 64. Retiring earlier than planned could lead to not having enough money to retire comfortably.
How to Know When to Retire
Not everyone retires early by choice. More than four in 10 people retired earlier than they expected, mostly because of health problems, disabilities, or changes within their organizations.
It can be difficult for workers to exactly predict at what age they will retire due to circumstances that may be out of their control.
In order to bridge any financial gap caused by not having enough retirement savings, 51% of pre-retirees expect they will earn an income during their retirement by working either full time or part time.
While the survey found that respondents are aware of what they need their retirement savings to look like, there is a gap between their expectations and their actions.
Seventy-nine percent of pre-retirees reported that they agree they should be doing more to prepare for their retirement. However, only 48% reported having a strong retirement plan in place, with 19% of Gen Xers and 31% of millennials admitting to not saving for retirement at all.
A lack of awareness seems to be leading to a lack of preparedness: 25% of pre-retirees surveyed said they aren’t sure how much money they are currently saving for retirement.
💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.
How Much You Should Have Saved for Retirement?
To retire comfortably, the IRS recommends that individuals have up to 80% of their current annual income saved for each year of retirement. With the average Social Security monthly payment being $1,177, retirees may need to do a decent amount of saving to cover the rest of their future expenses.
It’s Never Too Early to Start Saving for Retirement
Retirement can last 30 years or more. As lovely as that sounds, financial security is key to enjoying a relaxing retirement.
Any day is a good day to start saving, but saving for retirement while a person is young could help put them on the path toward a more secure retirement. The more years their savings have to grow, the better.
“A very helpful habit,” explains Brian Walsh, CFP® at SoFi, “Is truly automating what you need to do. Recurring contributions. Saving towards your goals. Automatically increasing those contributions. That way you can save now and save even more in the future.”
The Department of Labor (DOL) estimates that for every 10 years a person waits to begin saving for retirement, they will have to save three times as much every month to play catch-up.
3 Steps to Start Preparing for Retirement
It’s not enough to have an idea of the best time to retire. To really reach that goal, it’s important to have a financial plan in place. These steps break down how to prepare for retirement.
Step 1: Estimate how much money you’ll need
One of the first steps a person could take toward their retirement saving journey is to estimate how much money they need to save. There is a retirement savings formula that can help you estimate: Start with your current income, subtract your estimated Social Security benefits, and divide by 0.04. That’s the target number of retirement savings per year you’ll need.
Step 2: Set up retirement saving goals
It might be worth considering what retirement savings plans are available, whether that is an employer-sponsored 401(k), an IRA, or a simple savings account. Contributing regularly is key, even if big contributions can’t be made to retirement savings right now.
Making small additions to savings can add up, especially if extra money from finishing car payments, getting a holiday bonus, or earning a raise can be diverted to a retirement savings account.
If an employer offers a 401(k) match, it might be beneficial to take advantage of that feature and contribute as much as the employer is willing to match.
Along with receiving free money from an employer, there are also tax benefits of contributing to a 401(k). Contributions to a 401(k) happen pre-tax — that lowers taxable income, which means paying less in income taxes on each paycheck.
In addition, 401(k) contributions aren’t taxed when deposited, but they are taxed upon withdrawal. Withdrawing money early, before age 59 ½, also adds a 10% penalty.
Step 3: Open a Retirement Account
If access to an employer-sponsored 401(k) plan isn’t available — or even if it is — investors might want to consider opening an IRA account. For investors who need a little help sticking to a retirement savings plan, they could consider setting up an automatic monthly deposit from a checking or savings account into an IRA.
In 2023, IRAs allow investors to put up to $6,500 a year into their account ($7,500 if they’re older than 50). There are two options for opening an IRA — a traditional IRA or a Roth IRA, both of which have different tax advantages.
Traditional IRA
Any contributions made to a traditional IRA can be either fully or partially tax-deductible, and typically, earnings and gains of an IRA aren’t taxed until distribution.
Roth IRA
For Roth IRAs, earnings are not taxable once distributed if they are “qualified”—which means they meet certain requirements for an untaxed distribution.
Late to the Retirement Savings Game?
Starting to save for retirement late is better than not starting at all. In fact, the government allows catch-up contributions for those over the age of 50. Catch-up contributions of up to $7,500 in 2023 are allowed on a 401(k), 403(b), SARSEP, or governmental 457(b).
A catch-up contribution is a contribution to a retirement savings account that is made beyond the regular contribution maximum. Catch-up contributions can be made on either a pre-tax or after-tax basis.
As retirement gets closer, future retirees can plan their savings around their estimated Social Security payments. The official Retirement Estimator tool provided by the U.S. Social Security office could help by basing the estimate on an individual’s actual Social Security earnings record.
While this estimate is not a guarantee, it might give a retiree — or anyone planning when to retire — an idea of how much they might consider saving to supplement these earnings.
Social Security benefits can begin at age 62, which is considered the Social Security retirement age minimum. However, full benefits won’t be earned until full retirement age, which is 65 to 67 years old, depending on birth year.
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FAQ
Does the average retirement age matter?
The age at which you retire affects your Social Security benefit. For instance, if you retire at age 62, your benefit will be about 30% lower than if you wait until age 67.
What is the full retirement age for Social Security?
The full age of retirement is 67 for anyone born in 1960 or later. Before that, the full retirement age is 66 for those born from 1943 to 1954. And for those born between 1955 to 1959, the age increases gradually to 67.
How long will my retirement savings last?
One strategy you could use to help determine how long your retirement savings might last is the 4% rule. The idea behind the rule is that you withdraw 4% of your retirement savings during your first year of retirement, then adjust the amount each year after that for inflation. By doing this, ideally, your money could last for about 30 years in retirement. However, your personal circumstances and market fluctuations may affect this number, which means it could vary. It’s best to use the 4% rule only as a general guideline.
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Many people aren’t quite sure where their cash goes. They know they have money flowing in and out but couldn’t tell you the details.
If you’re among that group, it can be a good thing to start tracking your monthly expenses. Doing so can put you in control of your budget and make it easier to see where you might be wasting money.
When you don’t track expenses, you run the risk of overspending. What happens then? You can easily wind up short when it’s time to pay monthly bills and relying on high-interest debt to tide you over.
Getting into the habit of tracking income and expenses can help you improve your financial health so that you’re not guessing about where your money goes. If you’re ready to learn how to keep track of expenses, these tips can help.
Check out our Money Management Guide.
This article is from SoFi’s guide on how to manage your money, where you can learn basic money management tips and strategies.
6 Ways to Tracking Your Monthly Expenses
1. Know Your Starting Point
In order to get a handle on expense tracking, you first need to know where you stand financially. That includes knowing:
• How much you typically spend each month in total
Calculating your personal net worth can be a good way to gauge whether your spending habits are healthy or harmful. Your net worth is the difference between what you owe, or your total debts, and what you own, or your assets.
You can use an online net worth calculator to find your number. If the number is positive, that means you have more assets than debt. That’s a good thing, as it suggests that you know how to keep spending in check and save money.
If your net worth is negative, on the other hand, that means your debts outweigh your savings. If most of your debt is owed to credit cards, that could be a sign that you need to rethink your spending habits and how you track expenses.
💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open a bank account online.
2. Categorize Spending and Expenses
Once you’ve assessed your financial situation as a whole, it’s time to start categorizing the different ways you spend money each month. The 50/30/20 rule is a good way to do that. This budgeting rule suggests grouping spending into three pots: needs, wants, and savings and debt.
Needs
Needs include anything that you have to spend money on to maintain a basic standard of living. Using the 50/30/20 budget, 50% of your budget would go to needs.
Examples of needs include:
• Housing
• Utilities
• Food
• Healthcare
• Insurance.
This category can include a mix of fixed and variable expenses. Fixed expenses stay the same month to month; variable expenses can increase or decrease. For example, your rent or mortgage payment is likely fixed since you pay the same amount all the time. But your utility bills can be variable if you pay more in winter and summer, but less in spring and fall.
A good rule of thumb for housing is to spend no more than 30% of your income on rent or mortgage payments. If you’re spending more than that, you may want to consider ways to reduce housing costs. If you own, for example, then you might refinance your mortgage if you can get a lower rate or downsize to a smaller home. Renters might consider taking on a roommate or two or moving to an area with a lower cost of living.
Wants
Wants are things you spend money on but don’t necessarily need to survive. This section accounts for 30% of spending under the 50/30/20 rule.
The wants section of your budget is often where you can make the biggest cuts, since these are things you don’t need to spend money on.
Savings and Debt
The remaining 20% in the 50/30/20 budget is dedicated to saving and paying down debt. You could split it equally, and devote 10% to saving and 10% to debt. Or you might divide it differently if you’re prioritizing one financial goal over another.
Some of the things you might save money for in your budget include:
• Emergency funds
• Short-term goals, such as a vacation or new furniture
• Longer-term goals, like the down payment on a house
• Sinking funds
• College planning
• Retirement.
Financial experts often recommend saving 10% to 15% of your income for retirement alone, so you might need to reevaluate how much you’re setting aside for that goal. Increasing 401(k) contributions can help you get closer to that target if you’re not there yet. You may also consider supplementing your workplace plan with an Individual Retirement Account (IRA).
On the debt side of the equation you might have student loans, credit cards, car loans, or other debts. How you choose to pay them down can depend on how much money you have to work with and what’s most important to you. The debt snowball method, for example, can help you pay off debts from smallest balance to highest. Meanwhile, the debt avalanche has you pay off debts based on the highest APR to lowest.
Open a SoFi Checking and Savings Account with direct deposit and get up to a $300 cash bonus. Plus, get up to 4.00% APY on your cash!
3. Prioritize and Automate
Prioritizing monthly expenses means deciding what your money will go to first. It’s logical to start with monthly bills and basic living expenses, then budget for everything else. The ‘everything else’ includes your wants, savings goals, and debt repayment. If you’re following the 50/30/20 budget, then half of your income will go to those expenses.
Automating your finances can be a simple way to ensure that monthly bills get paid first. You can also automate other expenses that you pay regularly, including debt and transfers to savings.
Some of the bill payments you might choose to automate include:
• Mortgage or rent payments
• Utilities
• Cell phone and internet bills
• Car insurance
• Student loan payments
• Credit card bill payments
• Transfers to your emergency fund
• IRA contributions.
The more you can automate, the easier paying and tracking expenses can become. If you have trouble keeping up with bill due dates, you can set up reminders to alert you when those payments are scheduled to come out of your bank account.
4. Set Up a Spreadsheet
If you’re a visual learner, you might benefit from using a spreadsheet to track monthly income and expenses in one place. A spreadsheet might work well for you if you get paid weekly or biweekly and want to break down your expenses by week. That way, you can easily see when monthly bills are due and check them off as you pay them.
Budgeting spreadsheets are great because they can do the calculations for you to show you how much you’ve spent at any given point in the month and how much room you have remaining in your budget. Depending on where you bank or have credit card accounts, you may be able to see that information from your accounts automatically so that you don’t have to input the numbers manually.
5. Use an App
Apps are another option for tracking expenses each month. When you download a budgeting app or expense tracking app, you can link it to your bank accounts and credit card accounts. The app then pulls transaction data from your accounts periodically so that you can see how much you’ve spent right on your screen in one simple place; no toggling back and forth.
Some apps even allow you to tag or categorize expenses and create graphs or charts so that you have a visual representation of where your money is going each month.
You might use an app if you prefer a simplified approach to expense tracking, since the app does the work for you. The only drawback is that apps are not equipped to track spending when you pay with cash. So you’ll still have to enter those expenses yourself; otherwise, you could end up with inaccurate calculations of how much you’ve spent.
6. Track Your Money With Your Bank’s Help
Another option as you monitor your money habits is to track spending with financial insights. You don’t need to set up a spreadsheet or download a specific budgeting app. Instead, your back can help you track and categorize all of your expenses when you log into your account.
For instance, SoFi can help you to:
• Connect financial accounts in a personal dashboard
Financial insights like these can help you to get a comprehensive snapshot of your money situation in one place. It’s free to use, which is a plus, and it’s always there for you whenever you want to log in and see what you’re spending or how much you’re saving. This kind of intel can keep you on track and en route to reaching your financial goals.
Why Is Tracking Your Spending Important for Financial Management?
Knowing how to track spending is a good thing when it comes to managing money. Here are some of the ways that maintaining a monthly expenses list can benefit you financially.
• Keeping track of expenses can help you make a budget if your spending is consistent from month to month.
• Monitoring personal expenses can help you pinpoint areas in your budget where you might be wasting money, so you can cut back on spending if necessary.
• It’s easier to keep up with monthly bills and due dates when you’re paying attention to expenses and wrangling your budget.
• If you share certain costs with a spouse, significant other, or roommate, tracking expenses can ensure that both of you are contributing what you need to in order to pay the bills.
• Tracking spending can help you work toward your financial goals; it can help you make informed decisions about where your money should or shouldn’t go.
Most importantly, keeping track of expenses can give you a sense of control over your money. You can feel like you’re telling your money what to do, instead of it being the other way around.
Next, learn some of the best strategies for tracking your monthly expenses.
How Often Should You Review Your Spending?
It’s a good idea to review your spending regularly. Doing so can help you see how your spending habits may have changed (has what was previously a once a week takeout habit become an every other day occurrence?) or how essential expenses might increase or decrease over time.
In terms of how often you should review spending, you could do it on a monthly basis when you make your new budget. You can look at how your spending might be trending and where you spent the most money during the previous month, then use that as a guide for deciding what to allocate to different spending categories for the next month.
You could also review spending weekly if you do weekly budget check-ins. That might make sense if you get paid weekly or you just prefer to glance at your spending habits more often.
At the bare minimum, it’s a good idea to review your spending on a quarterly to yearly basis, especially if you’ve noticed that your expenses or debt seem to be creeping up.
When it comes to how to keep track of expenses, there are some do’s and don’ts to keep in mind. We’ve covered most of the do’s here, so now let’s look at the biggest mistakes to avoid as you track monthly spending.
• Don’t choose an expense tracking system that doesn’t work for you. If you’re not a spreadsheet person, for example, don’t feel like you have to force yourself to embrace them.
• Don’t forget to track monthly spending when you pay cash. It’s easy to track expenses with a debit card or credit card, but you run the risk of letting cash expenses slip through the cracks if you’re not adding them into your budget.
• Don’t put your expenses in the wrong categories. It’s all too easy to categorize a daily cappuccino as a need if it’s your coping mechanism for getting through a rough day at work. But the reality is that it’s more of a want, and that’s where it should go in your budget.
💡 Quick Tip: When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.
The Takeaway
Tracking expenses can lead to better financial health and having the right bank account can make it easier. Finding a method that works for you, being clear about categories, and reviewing regularly are all important steps to take when keeping tabs on your expenses.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with 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.
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FAQ
Why is tracking spending important for financial management?
Tracking spending allows you to see where your money goes and where you might be wasting money each month. When you track monthly spending regularly, it becomes easier to make a realistic budget so that you can spend and save wisely, as well as work toward other financial goals.
How often should I review my spending?
Reviewing spending is something you do monthly or weekly, depending on how often you plan your budget. For instance, you may choose to review monthly expenses at the beginning or end of the month if that’s when you make your budget. Or you might schedule weekly spending reviews if that’s how often you get paid.
How can I categorize my expenses to get a better understanding of my spending habits?
Separating monthly expenses into essential and non-essential categories is a good place to start when tracking your spending. Essential expenses, or needs, are ones you need to pay to maintain a basic standard of living. Non-essential expenses, or wants, represent everything else that you spend money on, which is where you may be able to make some big budget cuts.
What are some common mistakes people make when tracking their spending?
Some of the most common mistakes people make when they track spending include using the wrong budgeting system to manage monthly expenses, forgetting to include expenses paid in cash, and putting expenses into the wrong budget categories. Of course, the biggest mistake you can make when it comes to tracking spending is not doing it at all.
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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.
Personal loans can be used for almost any purpose. In fact, they are one of the most flexible ways to borrow money, without the high interest rates that credit cards charge. So, what’s stopping people from borrowing money for a yacht and cruising away to the Mediterranean, never to return? Simple: They need to meet the lender’s personal loan requirements.
Personal loan qualifications vary by lender — there is no universal list. However, there are certain red and green flags that lenders commonly look for in a borrower’s credit history. We’ve compiled them here to help you be more prepared before you apply.
One of the key metrics lenders look at when evaluating an applicant for any loan is credit score. There’s no universal minimum credit score for personal loans. However, in general, the higher the credit score, the more likely lenders are to approve a loan and give the borrower a more favorable interest rate. The lower your interest rate, the less money you’ll pay over time. Many lenders consider a score of 670 or above to indicate solid creditworthiness.
If you apply for prequalification, many lenders will run a soft credit check (which doesn’t affect your credit score) in order to see if you’re a good candidate for a personal loan. As the process moves forward, and an applicant actually applies for a personal loan, lenders will usually do a hard credit check (that is, a deep dive into your credit history). A hard credit check may knock five to 10 points off your credit score, and can continue to impact your score for a few months.
Most lenders review your credit history as well as your credit score, plus other financial factors like your income, to create a holistic view of your financial situation.
💡 Quick Tip: SoFi lets you view your rate for a personal loan online in 60 seconds, without affecting your credit score.
Key Points
• Personal loans can be used for various purposes and offer flexibility without high interest rates.
• Lenders consider credit score, collateral, proof of income and employment, debt-to-income ratio, and origination fees when approving personal loans.
• A higher credit score increases the likelihood of loan approval and favorable interest rates.
• Collateral may be required for secured loans, while unsecured loans have higher interest rates.
• Proof of income and employment is necessary to ensure the borrower’s ability to repay the loan.
2. Collateral
There are two types of personal loans: collateralized and uncollateralized. Collateral is something of value that is used as security for repayment of a loan. In the event of default, the bank or lender may be able to seize the property from the borrower.
When a loan requires collateral, it’s referred to as a “secured loan.” When it does not, it is called an “unsecured loan.” From a lender’s perspective, unsecured personal loans are riskier. Therefore, the requirements for secured and unsecured loans are typically different.
Typically, when people talk about personal loans, they’re referring to unsecured personal loans. Because these loans aren’t backed by collateral, they may have higher interest rates or be harder to qualify for than secured personal loans. Some lenders and banks require collateral for personal loans. Anything from cars to property can be used as collateral, and can be seized in the event that you fail to make your loan payments.
It’s a tradeoff that’s worth weighing before you apply for a loan. If you put your property on the line, you could lose it. But taking that risk may qualify you for a lower interest rate. On the flip side, using collateral on a personal loan can come with hidden costs. For example, some lenders may require you to have additional insurance in the event the collateralized property is damaged.
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3. Proof of Income and Employment
Most lenders will want to be sure that you are gainfully employed and have sufficient income to repay the loan. Proof of income and employment can be required by many lenders to verify how you will repay the loan. This is one way they can determine the likelihood that you’ll pay it back. Plus it can affect things like the interest rate or payback term you’re offered.
Like most personal loan requirements, “proof of income” can mean different things for different lenders. Some lenders require a signed letter from your employer, while others need pay stubs or W2s.
Another important personal loan qualification is debt-to-income ratio (DTI). DTI compares your gross monthly income to the monthly payments you make on your debt. Generally, the lower your DTI, the more desirable you are as a borrower for any lender.
For example, someone earning $120,000 per year might seem like they’re doing great. That’s $10,000 in gross income per month. But let’s say they’re actually having a tough time making ends meet because they’re paying $6,000 per month toward their credit card and student loan debt. Their DTI is 60%, which is considered high — and might make them less desirable to lenders.
Conversely, someone with a lower income, say $60,000 per year, might get better terms on their personal loan offer if they are only paying $500 a month toward student loans. In this scenario, they are earning $5,000 per month and paying $500 per month toward debt, which makes their DTI 10%.
The lower your DTI, the more desirable you usually are as a borrower for any lender.
This one is a personal loan requirement rather than a qualification. Some lenders charge a one-time “origination fee,” which is intended to cover the cost of processing the loan. Origination fees vary by lender and the borrower’s financial situation. Some lenders charge a flat fee for personal loans, while others charge a percentage of the total loan amount. These fees usually range from 1% to 5%, but they can go as high as 10%.
This can be a considerable sum of money, depending on the loan size. Note that you can typically roll this cost into your loan’s total or pay it out of your loan’s principal.
How to Qualify for a Personal Loan
Savvy consumers know that they may have work to do before applying for a personal loan. Some tasks are relatively quick, like pulling together financial documents. Other things take more time, like practicing good financial habits over the long term so that your credit score is at its best. Once you have your financial ducks in a row, you can feel more confident that you’ll get your personal loan approved.
Below are a few things to keep in mind if you’re considering applying for a personal loan.
Maintain a Stable Income
Lenders typically prefer a borrower with a stable income. If you plan to apply for a personal loan, it may not be the time to change careers.
If there are other ways to boost your income in the meantime, it may help your chances of qualifying and getting favorable loan terms. Whether that means asking for a raise or picking up part-time work, increasing your cash inflow can make you a more desirable borrower in the eyes of a lender — although not all income is considered eligible.
Get a Cosigner or Co-Borrower
A cosigner is someone who agrees to pay the loan if you default. A personal loan co-borrower is someone who may reside with you and takes the loan out with you — their name is on the loan, and you both have an obligation to repay it. Either may improve your chances of qualifying for a personal loan, as lenders view both as an extra layer of repayment security.
Before deciding to bring someone else into the equation, check with your lender if a cosigner or co-borrower is allowed. Then carefully consider the drawbacks. For instance, a cosigner might see a decrease in their credit score if you fail to make a payment. And a co-borrower would have to pay the loan themselves if you default.
Monitor Your Credit Score
If your credit history is less than ideal, you may want to monitor your credit score to learn what actions (or inaction) might hurt it. You can request your credit report for free from each of the three major credit reporting agencies — Equifax, Experian, and TransUnion — at AnnualCreditReport.com.
Check your credit history for errors, such as fraud, misreporting, or a card accidentally opened in your name. Then file a dispute online asking the credit bureaus to remove the errors. But keep in mind that fixing issues on your credit report could take time.
Do your best to pay every bill on time, and try to reduce how much debt you’re carrying relative to your credit limits. For instance, pay down outstanding debt as much as you can. It may also help to pay your credit card bill in full each month.
Applying for a Personal Loan
Often it’s better to save for a big expense, even if it takes a few months or years. However, if that’s not possible, a personal loan can be a better option than charging the expense to a credit card.
When applying for a personal loan, start by figuring out how much you’d like to borrow. (A personal loan calculator can help you decide.) You’ll also want to check your credit, and get prequalified with multiple lenders. Once you choose a lender, you’ll submit your application. This is when you’ll need your financial documents, such as pay stubs, tax returns, and bank statements.
Wondering where you can get a personal loan? They’re available from banks, credit unions, and online lenders. If you’d like to do business with a particular bank, you might start your inquiries there. Existing customers may get better interest rates or receive their funds sooner.
You can also shop around online to check going rates and terms. With online lenders, it’s easy to compare offers. Plus the entire application process is digital.
💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.
The Takeaway
Qualifications for a personal loan typically include a credit score of 670 or more, proof of income, and a debt-to-income ratio below 30%. Some lenders require collateral to secure your loan; if you default, the lender can seize your property. Lenders may also charge an origination fee of 1% to 5%. Before you apply for a personal loan, maintain a stable income, monitor your credit score, and get a cosigner with excellent credit if necessary. The application process is usually straightforward if you have your financial documentation ready.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
What can be used as collateral for a personal loan?
Just about any assets you own can be used for collateral on a personal loan. That includes your home, car, savings account, investments, and jewelry or collectibles.
How do I know if I will qualify for a loan?
To “preview” the loan terms you qualify for, you can get prequalified online for a personal loan. You’ll see the loan amount you’re approved for, plus your interest rate, any fees, and repayment term. Prequalification requires a soft credit check only, which won’t hurt your credit score.
Can you get a personal loan without income proof?
Yes, it is possible to get a personal loan without income proof. However, it will be more difficult to qualify, since your credit score and history will have to be exemplary enough to compensate for the lack of income proof. Also, keep in mind that a stable income is more important to lenders than a high salary. If you have a modest income and excellent credit, you can still qualify for favorable loan terms.
What disqualifies you from getting a personal loan?
There are a number of factors that could disqualify you from taking out a personal loan. Examples include a bad credit score, no income, and not being an official resident of the U.S.
Do all personal loans require proof of income?
Generally speaking, most lenders require proof of income, though some may offer unsecured loans without verifying your income. Secured loan lenders might issue a loan without looking at your income or credit history.
What type of personal loan is easiest to get approved for?
One of the easiest types of personal loan to get approved for is a no credit check loan. As the name suggests, these loans offer quick cash to borrowers without requiring a credit check. However, they can have major drawbacks, such as short repayment periods and sky-high interest rates.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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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.
