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If you’re like many Americans, you may carry thousands of dollars of credit card debt. One recent analysis found that the average citizen has $7,951 in debt. While getting out from under debt may seem daunting, there are ways to make it manageable.

Here’s a look at different strategies for paying off a large chunk of debt; specifically, $10,000. In addition to tactics for eliminating debt, you’ll learn why doing so is important, which can help boost your motivation.

Why Paying off Credit Card Debt is Important

In an ideal world, you would pay off your credit card every month in full. If you’re able to do that, using a credit card (responsibly) can be a good thing. It’s actually a pretty useful way to build credit and gain credit card rewards.

However, when you start to carry monthly credit card debt, things can get a bit dicey, because you’ll start to pay interest.

When you signed up for your credit card, you probably noticed that it came with an annual percentage rate (APR). The APR includes not only the approximate percentage of interest that you’ll likely pay on your credit card balance, but also fees associated with your credit card, such as origination fees or balance transfer fees.

Even if you make minimum payments, interest will still accrue on the balance you owe. The more money you owe, the quicker your interest payments can add up and the harder your debt can be to pay off. The fact that credit cards typically charge high interest rates (the current average interest rate is almost 25% at the end of 2023) is part of what you’re grappling with.

So strategies that help you pay down debt as fast as you can also might help you control your interest rates. That, in turn, can help keep your debt from getting ahead of you.

To illustrate some of the debt-demolishing tips in this article, the nice round number of $10,000 is being used. But everyone’s debt totals will be different, and the right ways to pay down debt will be different for everyone as well. It’s up to you to find the path that’s best for your needs.


💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.

Avoiding Adding to Your Debt

If tackling $10,000 in credit card debt, or really any amount of credit card debt, the very first step might be to stop using credit cards altogether. This can be tough, especially if you’re used to using them all the time. But if you keep spending on your card, you’ll be adding to your debt. While you get your debt under control, you could consider switching over to only using cash or your debit card.

Building a Budget

Making a budget may help you find extra cash to help you pay down your credit cards. You can start by making a list of all your necessary expenses, including housing, utilities, transportation, insurance, and groceries.

It’s usually a good idea to include minimum credit card payments in this category as well, since making minimum payments can at least keep you from having to pay additional penalties and fees on top of your credit card balance and interest payments.

You can tally up the cost of your necessary expenses and subtract the total from your income. What’s left is the money available for discretionary spending, or in other words, the money you’d use for savings, eating out, entertainment, etc. Look for discretionary expenses you can cut — you might forgo a vacation or start cooking more — so you can direct extra money to paying down your credit card.

Consider using any extra windfalls — such as a bonus at work, a tax refund, or a cash birthday gift — to help you pay down your debt as well.

Though it may seem frustrating to cut out activities you enjoy doing, it can be helpful to remember that these cuts are likely temporary. As soon as you pay off your cards, you can add reasonable discretionary expenditures back into your budget.

The Debt Avalanche Method

Once you’ve identified the money you’ll use to pay off your cards, there are a couple of strategies that may be worth considering to help organize your payments. If you have multiple credit cards that each carry a balance, you could consider the debt avalanche method. The first step when using this strategy is to order your credit card debts from the highest interest rate to the lowest.

From there, you’d make minimum payments on all of your cards to avoid additional penalties and fees. Then, you could direct extra payments to the card with the highest interest rates first. When that card is paid off, you’d focus on the next highest card and so on until you’d paid off all of your debt.

The idea here is that higher interest rates end up costing you more money over the long run, so clearing the highest rates saves you cash and accelerates your ability to pay off your other debts.

The Debt Snowball Method

Another strategy potentially worth considering if you have multiple credit cards is the snowball method. With this method, you’d order your debts from smallest to largest balance. You would then make minimum payments on all of your cards here as well, but direct any extra payments to paying off the smallest balance first.

Once that’s done, you’d move on to the card with the next lowest balance, continuing this process until you have all of your cards paid off. By paying off your smallest debt you get an immediate win. Ideally, this small win would help you build momentum and stay motivated to keep going.

The drawback of this method is you continue making interest payments on your highest rate loans. So you may actually end up spending more money on interest using this method than you would using the avalanche method.

Only you know what type of motivation works best for you. If the sense of accomplishment you feel from paying off your small balances will help inspire you to actually pay your debt off, then this method may be the right choice for you.

Consolidate Your Debt

Interest rates on credit cards can be hefty to say the least. Personal loans can help you rein in your credit card debt by consolidating it with a potentially lower interest rate. With a personal loan, you can consolidate all of your credit cards into one loan, instead of managing multiple credit card payments.

Once you’ve used your personal loan to consolidate your credit card debt, you’ll still be responsible for paying off the loan. However, you’ll no longer have to juggle multiple debts. And hopefully, with a lower interest rate and shorter term, you’ll actually be able to pay your debt off faster.

Paying Off Credit Card Debt With a Personal Loan

If you think a personal loan could be a good way for you to pay off $10,000 of credit card debt, see what SoFi offers.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

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.

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 .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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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Personal loans can be an important financial tool. They typically allow borrowers to access funds to spend as they see fit, with few exceptions, and do so at a lower interest rate than would be charged if they used a credit card.

To be more specific, with money from a large personal loan, you could cover higher-cost expenses like a single, substantial expense or several smaller debts consolidated into one large one. For example, If you plan to purchase a used car or some land to build on in the future, you might choose to finance it with a personal loan. Or perhaps you want to eliminate your credit card debt, buy a new laptop, and pay off the bill for some dental work. Those could also be paid off with a single, more substantial personal loan.

To help you understand whether a large personal loan could be the right next step to suit your needs, read on.

What Is a Large Personal Loan?

A large personal loan is exactly what it sounds like — a loan for a lot of money. There is no specific figure that makes a personal loan cross over into that “large” territory. To one person, $50,000 might be a large personal loan. To another, it might be $100,000. But typically, it’s a number that’s well into the five-figures realm.

A large personal loan is a form of credit that can be used to make large purchases or consolidate other high-interest debts. Personal loans generally have lower interest rates than credit cards and are sometimes used to consolidate high-interest debt.

To start with the basics, a personal loan is defined as a set amount of money borrowed from a lending institution. Unlike a mortgage loan or auto loan, which is used for a specific purpose, funds from a personal loan can be used to pay for a variety of expenses such as medical bills, K-12 private education costs, or to consolidate multiple debts. Typically, however, you can’t use a personal loan for business expenses or higher education tuition.


💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

How Do Large Personal Loans Differ From Other Personal Loans?

Personal loans function in the same way, no matter their size because they are borrowed sums of money that are paid back with interest. This is true regardless of the amount of money borrowed.

However, there are some differences between larger personal loans and their smaller counterparts depending on the lender you choose.

Average personal loan interest rates may change depending on the size of the loan.

When Is a Large Personal Loan a Bad Idea?

A large personal loan may be a bad idea if you already struggle with your current debts or monthly expenses.

When considering financing, it’s important to know both the pros and cons of a personal loan. Whether a loan is a right choice for you depends on your unique financial situation. Here are some of the risks to consider:

•   If you fall behind on payments, your credit score could be negatively affected.

•   If you miss enough loan payments, your large personal loan may go to a collections agency. Some lenders will charge off a debt, meaning they gave up on being repaid, but you’re still legally responsible for the debt.

In the right situation, however, a large personal loan can be helpful. If you’re approved for the loan, you’ll have the funds to make a big purchase and can repay it over time. Those smaller, monthly installments mean that the burden is more manageable.

What Are Common $100,000 Loan Qualification Requirements?

Typically, lenders have stricter requirements to qualify for a large loan than one with a smaller limit.

Credit Score

Generally, you need a minimum credit score of 720 to qualify for a $100,000 loan. However, it’s ideal to have a score of 750 or above. Depending on your score, your lender may offer you varying loan terms.

Checking your credit report before applying for any loan is a good idea. You will be able to find any errors or discrepancies and have an opportunity to correct them before you begin applying for a loan.

Checking your credit score counts as a soft inquiry and doesn’t negatively impact your credit score. The Fair Credit Reporting Act guarantees you access to one free credit report from each of the three major credit bureaus annually. You can find yours at AnnualCreditReport.com.

Recommended: Does Checking Your Credit Score Lower Your Rating?

Employment Status

One of the factors your lender will consider is your employment status. They want to see how much income you earn and if you have the resources to repay the loan. In addition, the lender wants to be assured of your job stability. It may be a good idea to avoid making any sudden career changes while you’re applying for a loan.

Debt-to-Income Ratio

Your debt-to-income ratio (DTI) is a number that compares the total amount of debt you owe per month to your monthly earnings. You can find yours by taking your total recurring monthly debt and dividing it by your gross monthly income. Your recurring debt includes your mortgage, student loans, and other loans, and your gross income is everything you earn before taxes or other withholding.

Lenders use this number to help them predict a borrower’s ability to repay current and future debt. In general, lenders look for a DTI under 36%, but borrowers with a higher DTI may be approved if they are well qualified in other areas.

What Is the Application Process for a Large Personal Loan?

Getting approved for a personal loan is a multi-step process. Different lenders may have different processes, but typical steps are as follows.

Compare Rates

Some lenders may offer loan prequalification. This allows you to see, based on a soft credit check, potential interest rates for your personal loan and terms you might qualify for. It can be a good way to compare your lending options and find the best offer.

Gather Documents

Applying for a loan requires several documents. Before completing your personal loan application, collect all the paperwork you need.

Approaching this step proactively will help you streamline your application process, saving you time. It will also make it easier for your lender to review your eligibility and creditworthiness.

Personal loans usually require similar documents, no matter the lender, though. A few you should include are:

•   Proof of identity such as a driver’s license or passport.

•   Proof of current address such as a current lease agreement, utility bill, or proof of insurance.

•   Verification of stable income and employment such as W-2s, bank statements, paystubs, or tax returns.

Waiting for Approval

Once you submit all the necessary paperwork, the last thing to do is wait. Approval times vary between lenders and may be quick or lengthy depending on how complicated the application is. Some approvals happen within a day, while others may take up to 10 days.

After your lender approves your large personal loan, you’ll receive it in the form of a lump sum. Lenders may deduct any fees, such as origination fees, before disbursing the loan proceeds. A personal loan calculator can help you estimate your loan payments.


💡 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.

What Can You Expect When Repaying Your Loan?

Regular installment payments begin once your large personal loan is approved and you receive the funds. The loan agreement will state the loan terms, interest rate, and what each payment will be, in addition to other details about the loan.

Can You Borrow $100,000 if You Have Bad Credit?

While it might not be impossible, borrowing a large loan with bad credit won’t be easy. Lenders tend to favor low-risk borrowers who are more likely to repay their loans on time and in full. A strong credit history provides some assurance that a borrower will do that. But poor credit or no credit at all may look to lenders like a likelihood to default.

Lenders willing to loan to borrowers with bad credit typically require different data to evaluate their application, however. For example, they might ask the borrower to show a history of utility payments or information from their bank account. Lenders may also limit borrowing amounts and charge higher interest rates to applicants with bad credit.

Additionally, borrowers with poor credit can improve their chances by opting for a secured personal loan, one for which they pledge collateral to guarantee the loan. This may work well for someone who struggles with credit but has assets and sufficient income to make loan payments. If the borrower defaults on the loan, the lender has the right to seize the asset pledged as collateral.

Are There Alternatives to Large Personal Loans?

After some research, you might decide a personal loan isn’t right for you. Or, you may struggle to get the level of financing you want. In that case, there are alternatives to a personal loan. For example, you could consider these choices if you have equity in your home or other real estate:

•   Cash-out refinancing: A cash-out refinance allows you to replace your existing mortgage with a new, larger loan. After the original mortgage is paid off, you can use the difference as you like. This option works best if you have a significant amount of equity built up in your home and have a high credit score.

•   Home equity loan: Like a cash-out refinance, a home equity loan depends on your built-up home equity. However, it is a second, additional, mortgage, rather than one new mortgage. By borrowing against your equity, the loan has collateral behind it, making it a secured loan.

•   Home equity line of credit (HELOC): Like a home equity loan, you use your home equity to access a HELOC. It acts as a line of credit you can tap into when you need it, and you only pay interest when you borrow. This works best for a homeowner who needs smaller amounts of money over a longer-term, rather than just one lump sum.

The Takeaway

A large personal loan is one that is typically in the range of more than $50,000. It can allow you to pay off debts or make significant purchases. However, it may require a high credit score, a solid employment history, and other factors to qualify, and it can bring its own set of pros and cons as well.

Finding the right large personal loan for your financial needs and situation may take some time, but comparing lenders is a good way to get started. Not every lender offers large personal loans. If you are looking for a sizable loan, consider SoFi Personal Loans, which range from $5,000 to $100,000 for eligible applicants.

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.

Photo credit: iStock/vladans

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.

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 .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Getting a personal loan is typically a simple process but many lenders require at least a good credit rating and a stable income for approval. Banks tend to have stricter qualification requirements than private lenders. The type of personal loan you get — secured or unsecured — can also have an impact on how hard the loan is to get.

Once approved, a personal loan offers a lot of flexibility — you can use the funds for a wide variety of expenses, from planned home repairs to unexpected medical bills. Unlike loans with a specified purpose, like an auto loan or mortgage, personal loan funds can be used for virtually any type of expenditure.

Here’s what you need to know about personal loans and how to increase the chances that you’ll qualify.

Types of Personal Loans

A personal loan is essentially a lump sum of money borrowed from a bank, credit union or online lender that you pay back in fixed monthly payments, or installments. Lenders typically offer loans from $1,000 to $50,000, and this money can be used for virtually any purpose. Repayment terms can range from two to seven years.

While there are many different types of personal loans, they can be broken down into two main categories: secured and unsecured. Here’s how the two types of personal loans work:

•   Secured personal loans are backed by collateral owned by the borrower such as a savings account or a physical asset of value. If the loan goes into default, the lender has the right to seize the collateral, which lessens the lender’s risk.

•   Unsecured personal loans do not require collateral. The lender advances the money based simply on an applicant’s creditworthiness and promise to repay. Because unsecured personal loans are riskier for the lender, they tend to come with higher interest rates and more stringent eligibility requirements.


💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. One question can save you many dollars.

Getting a Personal Loan From a Bank

In addition to the type of personal loan you choose, the lender you borrow from can have an effect on how hard the loan is to get. For many borrowers, their bank is an obvious first choice when the time comes to take out a personal loan.

Banks sometimes offer lower interest rates than other lenders, particularly if you’re already an account holder at that bank. However, they may also have steeper eligibility requirements, such as a higher minimum credit score. Compared to an online lender, banks tend to have a more time-consuming application process, and the loan may take longer to disburse.

Still, the convenience of utilizing the bank you’re already familiar with and the comfort of in-person customer service may be worth the trade-off for qualified borrowers.

Getting a Personal Loan From a Private Lender

A private online lender is a non-institutional lender that is not tied to any major bank or corporation. Online lenders are less regulated than banks, allowing faster application processes and more lenient eligibility requirements. However, some online lenders will have higher interest rates and fees compared to traditional banks, so it’s key to shop around. One of the biggest advantages of a private online lender is convenience. You can complete the entire process online and funding is typically available within the week.

Recommended: What Are Personal Loans & How Do They Work?

Is It Harder to Get a Personal Loan From a Bank or Private Lender?

Generally speaking, it may be more difficult to get a personal loan from a bank than a private lender — but your best bet is to shop around and compare a variety of personal loan options, then see where you’ll get the best interest rate.

Here are the basic differences between getting a personal loan from a bank versus a private lender at a glance:

Is It Easier to Get a Small Personal Loan?

Generally, yes. Loan size is another important factor that goes into how hard it is to get a personal loan. It’s much less risky for a lender to offer $1,000 than $50,000, so the eligibility requirements may be less stringent — and interest rates may be lower — for a smaller loan than for a larger loan.

That said, there are exceptions to this rule. Payday loans are a perfect example. Payday lenders offer small loans with a very short repayment timeline, yet often have interest rates as high as 400% APR (annual percentage rate). Even for a smaller personal loan, it’s generally less expensive to look for an installment loan that’s paid back on a monthly basis over a longer term.

Recommended: How Much of a Personal Loan Can I Get?

What Disqualifies You From Getting a Personal Loan?

There are some financial markers that can disqualify you from getting a personal loan, even with the most lenient lenders. Here are a few to watch out for.

Bad Credit

While the minimum required credit score for each lender will vary, many personal loan lenders require at least a good credit score — particularly for an unsecured personal loan. If you have very poor credit, or no credit whatsoever, you may find yourself ineligible to borrow.

Lack of Stable Income

Another important factor lenders look at is your cash flow. Without a regular source of cash inflow, the lender has no reason to think you’ll be able to repay your loan — and so a lack of consistent income can disqualify you from borrowing.

Not a US Resident

If you’re applying for personal loans in the U.S., you’ll need to be able to prove residency in order to qualify.

Lack of Documentation

Finally, all of these factors will need to be proven and accounted for with paperwork, so a lack of official documentation could also disqualify you.

How to Get a Personal Loan With Bad Credit

If you’re finding it hard to get a personal loan, there are some steps you can take to improve your chances of approval. Here are some to consider.

Prequalify With Multiple Lenders

Every lender has different eligibility requirements. As a result, it’s worth shopping around and comparing as many lenders as you can through prequalification. Prequalification allows you to check your chances of eligibility and predicted rates without impacting your credit (lenders only do a soft credit check).

Consider Adding a Cosigner

If, through the prequalification process, you find that you don’t meet most lender’s requirements, or you’re seeing exorbitantly high rates, you might check to see if cosigners are accepted.

Cosigners are family members or friends with strong credit who sign the loan agreement along with you and agree to pay back the loan if you’re unable to. This lowers the risk to the lender and could help you get approved and/or qualify a better rate.

Include All Sources of Income

Many lenders allow you to include non-employment income sources on your personal loan application, such as alimony, child support, retirement, and Social Security payments. Lenders are looking for borrowers who can comfortably make loan payments, so a higher income can make it easier to get approved for a personal loan.

Add Collateral

Some lenders offer secured personal loans, which can be easier to get with less-than-ideal credit. A secured loan can also help you qualify for a lower rate. Banks and credit unions typically let borrowers use investment or bank accounts as collateral; online lenders tend to offer personal loans secured by cars.

Just keep in mind: If you fail to repay a secured loan, the lender can take your collateral. On top of that, your credit will be adversely affected. You’ll want to weigh the benefits of getting the loan against the risk of losing the account or vehicle.


💡 Quick Tip: If you’ve got high-interest credit card debt, a personal loan is one way to get control of it. But you’ll want to make sure the loan’s interest rate is much lower than the credit cards’ rates — and that you can make the monthly payments.

The Takeaway

You can use a personal loan for a range of purposes, such as to cover emergency expenses, to pay for a large expense or vacation, or to consolidate high-interest debt. Personal loans aren’t hard to get but you usually need good credit and a reliable source of income to qualify. The better your financial situation, generally the lower the interest rate will be.

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.

FAQ

Is it hard to get a personal loan?

Personal loans aren’t necessarily hard to get but you typically need good credit and reliable income to qualify. Secured personal loans (which require pledging something you own like a savings account or vehicle) are generally easier to qualify for than unsecured personal loans

Is it hard to get a personal loan from a bank?

Banks tend to have more stringent qualification requirements for personal loans than private online lenders. Getting a personal loan from a bank can be a good move if you have good to excellent credit, an existing relationship with a bank, and time for a longer approval process.

What disqualifies you from getting a personal loan?

You will be disqualified for a personal loan if you do not meet a lender’s specific eligibility requirements. You may get denied if your credit score is too low, your existing debt load is too high, or your income is not high enough to cover the loan payments.

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.

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 .

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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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If you’re feeling as if your student loans are hard to manage, you’re not alone. Currently, more than 43 million Americans are grappling with student loan debt, and the amounts they carry aren’t small. The average amount of federal student debt per borrower is $37,338, and for those with private student loan debt, the number is $54,921.

That kind of steep debt can be a challenge to pay back. In October of 2023, as the pandemic-driven freeze on loan repayment expired, a whopping 40% of borrowers missed payments.

If your loans feel like a real challenge to repay and you’re stressed about your financial situation, take heart. Not only are you far from the only person out there with this issue, but there are also a variety of ways you can get help with student loan debt. Here, you’ll learn more about those resources and steps you can take. Remember, you can and will get through this challenging moment. Now, read on for some guidance.

Where to Start

If you’re finding it hard to manage your student debt, your best first step may be to contact your loan servicer. Both the federal government and many private lenders assign a student loan servicer to each borrower. You can think of these servicers as go-betweens who monitor accounts, keep track of payments, and help borrowers maintain their accounts in good standing and switch plans, if need be. You can find your federal student loan servicer by logging into your student aid account; if you have private student loans, ask your lender how to make billing inquiries.

Student loan servicers can help you understand your options if you are finding your current loan hard to pay off. But do educate yourself before calling your servicer, because they are loan professionals vs. advocates for borrowers. It’s possible that they may offer options that are not necessarily in your best interest.

However, there is likely considerable value in hearing what alternatives are available so you can begin getting help with your student loan debt. You’ll learn more about options below.


💡 Quick Tip: Ready to refinance your student loan? You could save thousands.

What to Do If You’re in Default

When you default on your student loans, it means you are not repaying them according to your schedule. Almost 10% of borrowers can find themselves in default within the first three years of repayment.

When you first miss a student loan payment, your loan is considered to be delinquent, or late. The exact definition of being in default will depend on the kind of loan you have. Here are some guidelines:

•   If you have federal student loans, you are considered to be in default when your payments are 270 days (or about nine months) late. With Perkins loans, you can be in default as soon as you don’t make a payment on its due date.

•   For private student loans, many lenders consider a loan to be in default at the 90 day or three-month mark. Policies do vary, so check your loan’s promissory note for details.

You can find out if you are in default by contacting your loan servicer. If you are indeed in default, the consequences can be serious. The full amount of the loan becomes due ASAP. The loan holder can take other funds from you, late fees and interest can accrue, and your credit score can be negatively impacted, among other impacts.

Yes, that sounds scary, but this is a situation to be worked through; don’t let it define you or make you feel panicky. You might research the Fresh Start program for federal loans in default, or look into a student loan settlement, which would allow you to pay back less than what you owe. Student loan rehabilitation is another path and can be a one-shot solution to get federal loans out of default, repay them at a reasonable rate, and help build your credit score.

If you have private loans that are in default, it can be a wise move to speak to someone who specializes in student loans at the National Association for Consumer Advocates. You may then get assistance finding out if you can get a student loan settlement (that is, pay less than the full amount you owe) or find another road forward.

Next, though, learn about ways to avoid reaching the default stage if you are having trouble with your student loan debt.

Ways to Lower Your Federal Student Loan Payment

If you’re struggling to make your monthly federal student loan payments, it may be worth taking a look at your loan repayment plan. Federal student loans have several different loan repayment plans available, which may offer different monthly payment amounts based on your discretionary income and other factors.

Choosing a federal loan repayment plan that could give you a lower monthly payment, if available, could help you more easily make your monthly student loan payments. Consider these options.

Recommended: What Student Loan Repayment Plan Should You Choose? Take the Quiz

Income-Driven Repayment

You may have been placed on the Standard Repayment Plan when you graduated, which is the standard for students repaying federal loans.

Under this plan, you have 10 years to pay off your student loans, and you make a fixed payment amount each month in order to ensure that your full loan is paid by the end of the 10 years. This plan may have higher monthly payments than other federal repayment plans.

In addition to the Standard Repayment plan, there are the following plans:

•   One option is the Graduated Repayment Plan. Under this plan, loan payments are made over a 10-year period. But unlike the Standard Repayment plan, loan payments start at a lower amount and are gradually increased every two years.

•   Another option when it comes to federal repayment plans is the Extended Repayment Plan. The Extended Repayment Plan has a longer repayment term option — up to 25 years. Monthly payments under this plan can be either fixed or graduated amounts. The extended repayment term means that you may have lower monthly payments.

Be aware, however, that choosing a longer repayment period could cost you more over the life of the loan due to interest that accrues every month that the loan is still outstanding. Think carefully about what might best suit your needs so you can pay off your student loan debt comfortably.

There are also four income-driven plans that calculate monthly payments based on a percentage of the borrower’s discretionary income. The percentage will vary based on the specific income-driven repayment plan you are enrolled in, but can be between 5% and 20%. Depending on the plan, repayment is extended over 20 or 25 years.

The plans available are:

•   The new SAVE Plan (Saving on a Valuable Education; it goes into full effect on July 1, 2024), which replaces the REPAYE plan

•   The PAYE Plan (Pay as You Earn)

•   The ICR Plan (Income-contingent Repayment)

•   The IBR Plan (Income-based Repayment)

With federal loans, you can change your repayment plan at any time. If you are interested in switching the plan you are enrolled in to better manage your debt, the Federal Student Aid website offers a repayment
calculator that could help give you an idea of what your monthly payments may be like under each of the different payment plans.

This could help you make an informed decision about which plan may work best for your personal situation, based on what you qualify for. You could also use an online Student Loan Payoff Calculator to get an idea of when your loan payoff date may be based on your interest rate and monthly payments. Yes, crunching numbers can take a bit of time, but these tools can make it simple, show you your alternatives for managing your debt, and provide some much-needed peace of mind.

Deferment and Forbearance

If you’re really in dire straits and can’t afford to make your normal monthly payments on your student loans at all, you may be able to put your federal student loans into deferment or forbearance.

These programs offer options to temporarily reduce your monthly payment amount or pause your monthly payments entirely for a limited period of time. Not all borrowers are eligible for deferment or forbearance — in order to qualify you need to meet certain eligibility requirements.

A few points to note:

•   If you’re interested in deferring your federal student loans to help with student loan debt, you’ll want to contact your student loan servicer. Your student loan servicer may require you to fill out paperwork or talk to an advisor before approving a deferral or forbearance of your student loans.

•   Student loan servicers may offer assistance with student loan debt management at no cost. They also may be able to explain how student loan deferral or forbearance will work in your specific circumstances.

•   It is also important to know that during deferment, depending on the type of loan borrowed, the borrower may still be responsible for paying interest that accrues.

•   If a loan is in student loan forbearance, the borrower will be responsible for paying accrued interest.

While deferring your student loans can be helpful when you’re undergoing a brief period of economic hardship, it may not be as helpful when it comes to managing loans long-term, since interest may continue to accrue and neither option changes your loan repayment terms. Keep reading to learn more options beyond deferment and forbearance.

Forgiveness Programs

One source of federal student loan debt help are loan forgiveness programs. These programs essentially forgive a remaining portion of federal student loan debt after you meet certain requirements. That means you don’t have to pay it; you may also hear this referred to as loan cancellation or discharge.

Here are specifics about student loan forgiveness:

•   One of the most well-known loan forgiveness programs is the Public Service Loan Forgiveness program. This program offers federal student loan forgiveness for some people working full-time in qualifying public interest fields for 10 or more years.

Public Service Loan Forgiveness, also known as “PSLF,” offers federal student loan forgiveness for certain public servants (teachers, government workers, and some health professionals) and non-profit employees who qualify after 120 on-time qualifying payments.

Unfortunately, PSLF isn’t available to everyone. To qualify for Public Service Loan Forgiveness, you must work for a qualifying employer. Generally, government organizations and certain non-profits will be considered qualifying employers for the purpose of PSLF, but to be sure that your job counts for the PSLF program, you can submit a PSLF employment certification form to verify your employer’s eligibility for the program.

•   If you have a disability, you may qualify for student loan forgiveness.

•   If your school closed or misled you, your loan(s) may be discharged.

•   If you have declared bankruptcy, your debt may be canceled.

💡 Quick Tip: If you have student loans with variable rates, you may want to consider refinancing to secure a fixed rate in case rates rise. But if you’re willing to take a risk to potentially save on interest — and will be able to pay off your student loans quickly — you might consider a variable rate.

Options for Private Student Loan Borrowers

What you’ve just read covers how to get help with federal student loans. But what if you have private student loans? (Private loans are also an option for refinancing federal loans, but if you do so, be aware that you forfeit federal protections, such as forbearance, and if you refinance for an extended term, you may pay more in interest over the life of the loan.)

If your private student loans are proving challenging to pay, here are some ways you might move forward:

•   You could see whether refinancing your private loans with a different private loan can secure a more affordable payment.

•   See if your employer offers an assistance program. Some will match repayments of student loans up to a certain amount.

•   Retool your budget. The debt avalanche or debt snowball method might help you reframe your income and spending to help you get on top of your student loans.

•   Seek credit counseling. Learn more about that below.

Credit Counseling

If you are feeling overwhelmed or are in a quandary about how to proceed with your student loan debt, consulting with a nonprofit credit counselor could be a good idea. You can gain the expertise and insights of someone who specializes in this terrain and hear ideas for how you might handle the situation. One well-regarded example of such an agency is the National Foundation for Credit Counseling, or NFCC.

Here’s how credit counseling can help when you’re in this stressful situation:

•   A counselor can review your student loan debt and finances and develop a plan which you then manage on your own.

•   Another option may be to have the counselor join you on a phone call with the issuer of your student loans to discuss options.

Having a trusted professional in your corner can be a key source of support when you face challenges with your student loan debt.

Avoid Student Loan Scams

Here’s a sad fact: Yes, there are scammers out there, looking to take advantage of people who have student loan debt. They typically offer deals to help you get out of debt but wind up cheating you. Getting involved with these people can make a difficult situation even worse, so be cautious.

The two main kinds of scams to know about are as follows:

•   Student loan consolidation scams: In this ploy, a company promises to consolidate your federal loans. They charge you an upfront fee (never pay upfront fees, by the way) and then don’t do anything on your behalf. If you want to consolidate your federal student loans, you can do so for free at StudentLoans.gov.

•   Student loan debt relief scams: Companies that advertise or contact you, saying they can reduce or eliminate your debt, may be part of a scam. Above, you’ve read about the available options for managing your debt. There are no magic solutions to making the amount you owe vanish, so don’t be fooled by these promises.

How to spot these scams:

•   As noted, promises of making debt disappear to help with student loans are likely bogus.

•   Those that give you an urgent deadline to apply in order to eliminate debt are probably also fraudulent.

•   Requesting an upfront fee to apply for relief via the Department of Education is a signal that you are dealing with a scammer.

•   A company that says they are affiliated with the Department of Education but isn’t listed at StudentLoans.gov is one to avoid.

•   A business that says they need your FSA ID could well be a scammer.

Recommended: Student Loan Help Center

Student Loan Refinancing

As mentioned briefly above, another option for help with student loans may be refinancing them. For some borrowers, refinancing student loans could help lower monthly payments. However, if you refinance federal loans with private ones, keep in mind that you’ll forfeit federal protections and may, with an extended term, pay more interest over the life of the loan.

When you refinance your loans, a new private lender pays off your current federal and private student loans and offers you a new loan. The goal is to secure a better interest rate or better repayment terms, which can help you take control of your student loan debt. It’s one of several options you have available to get through what can be a challenging moment in your life.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Both a loan modification and a loan refinance can lower your monthly payments and help you save money. However, they are not the same thing. Depending on your circumstances, one strategy will make more sense than the other.

If you’re behind on your mortgage payments due to a financial hardship, for example, you might seek out a loan modification. A modification alters the terms of your current loan and can help you avoid default or foreclosure.

If, on the other hand, you’re up to date on your loan payments and looking to save money, you might opt to refinance. This involves taking out a new loan (ideally with better rates and terms) and using it to pay off your existing loan.

Here’s a closer look at loan modification vs. refinance, how each lending option works, and when to choose one or the other.

What Is a Loan Modification?

A loan modification changes the terms of a loan to make the monthly payments more affordable. It’s a strategy that most commonly comes into play with mortgages. A home loan modification is a change in the way the home mortgage loan is structured, primarily to provide some financial relief for struggling homeowners.

Unlike refinancing a mortgage, which pays off the current home loan and replaces it with a new one, a loan modification changes the terms and conditions of the current home loan. These changes might include:

•   A new repayment timetable. A loan modification may extend the term of the loan, allowing the borrower to have more time to pay off the loan.

•   A lower interest rate. Loan modifications may allow borrowers to lower the interest rates on an existing loan. A lower interest rate can reduce a borrower’s monthly payment.

•   Switching from an adjustable rate to a fixed rate. If you currently have an adjustable-rate loan, a loan modification might allow you to change it to a fixed-rate loan. A fixed-rate loan may be easier to manage, since it offers consistent monthly payments over the life of the loan.

A loan modification can be hard to qualify for, as lenders are under no obligation to change the terms and conditions of a loan, even if the borrower is behind on payments. A lender will typically request documents to show financial hardship, such as hardship letters, bank statements, tax returns, and proof of income.

While loan modifications are most common for secured loans, like home mortgages, it’s also possible to get student loan modifications and even personal loan modifications.


💡 Quick Tip: A low-interest personal loan can consolidate your debts, lower your monthly payments, and help you get out of debt sooner.

What Is Refinancing a Loan?

A loan refinance doesn’t just restructure the terms of an existing loan — it replaces the current loan with a new loan that typically has a different interest rate, a longer or shorter term, or both. You’ll need to apply for a new loan, typically with a new lender. Once approved, you use the new loan to pay off the old loan. Moving forward, you only make payments on the new loan.

Refinancing a loan can make sense if you can:

•   Qualify for a lower interest rate. The classic reason to refi any type of loan is to lower your interest rate. With home loans, however, you’ll want to consider fees and closing costs involved in a mortgage refinance, since they can eat into any savings you might get with the lower rate.

•   Extend the repayment terms. Having a longer period of time to pay off a loan generally lowers the monthly payment and can relieve a borrower’s financial stress. Just keep in mind that extending the term of a loan generally increases the amount of interest you pay, increasing the total cost of the loan.

•   Shorten the loan repayment time. While refinancing a loan to a shorter repayment term may increase the monthly loan payments, it can reduce the overall cost of the loan by allowing you to pay off the debt faster. This can result in a significant cost savings.

Recommended: What Are Personal Loans Used For?

Refinance vs Loan Modification: Pros and Cons

Loan refinance is typically something a borrower chooses to do, whereas loan modification is generally something a borrower needs to do, often as a last resort.

Here’s a look at the pros and cons of each option.

Benefits of Loan Modification

While a loan modification is rarely a borrower’s first choice, it comes with some advantages. Here are a few to consider.

•   Avoid default and foreclosure. Getting a loan modification can help you avoid defaulting on your mortgage and potentially losing your home as a result of missing mortgage payments.

•   Change the loan’s terms. It may be possible to increase the length of your loan, which would lower your monthly payment. Or, if the original interest rate was variable, you might be able to switch to a fixed rate, which could result in savings over the life of the loan.

•   Avoid closing costs. Unlike a loan refinance, a loan modification allows you to keep the same loan. This helps you avoid having to pay closing costs (or other fees) that come with getting a new loan.

Drawbacks of Loan Modification

Since loan modification is generally an effort to prevent foreclosure on the borrower’s home, there are some drawbacks to be aware of.

•   It could have a negative effect on your credit. A loan modification on a credit report is typically a negative entry and could lower your credit score. However, having a foreclosure — or even missed payments — can be more detrimental to a person’s overall creditworthiness.

•   Tapping home equity for cash is not an option. Unlike refinancing, a loan modification cannot be used to tap home equity for an extra lump sum of cash (called a cash-out refi). If your monthly payments are lower after modification, though, you may have more funds to pay other expenses each month.

•   There is a hardship requirement. It’s typically necessary to prove financial hardship to qualify for loan modification. Lenders may want to see that your extenuating financial circumstances are involuntary and that you’ve made an effort to address them, or have a plan to do so, before considering loan modification.

Recommended: Guide to Mortgage Relief Programs

Benefits of Refinancing a Loan

For borrowers with a strong financial foundation, refinancing a mortgage or other type of loan comes with a number of benefits. Here are some to consider.

•   You may be able to get a lower interest rate. If your credit and income is strong, you may be able to qualify for an interest rate that is lower than your current loan, which could mean a savings over the life of the loan.

•   You may be able to shorten or extend the term of the loan. A shorter loan term can mean higher monthly payments but is likely to result in an overall savings. A longer loan term generally means lower monthly payments, but may increase your costs.

•   You may be able to pull cash out of your home. If you opt for a cash-out refinance, you can turn some of your equity in your home into cash that you can use however you want. With this type of refinance, the new loan is for a greater amount than what is owed, the old loan is paid off, and the excess cash can be used for things like home renovations or credit card consolidation.


💡 Quick Tip: If you’ve got high-interest credit card debt, a personal loan is one way to get control of it. But you’ll want to make sure the loan’s interest rate is much lower than the credit cards’ rates — and that you can make the monthly payments.

Drawbacks of Refinancing a Loan

Refinancing a loan also comes with some disadvantages. Here are some to keep in mind.

•   You’ll need strong credit and income. Lenders who offer refinancing typically want to see that you are in a solid financial position before they issue you a new loan. If your situation has improved since you originally financed, you could qualify for better rates and terms.

•   Closing costs can be steep. When refinancing a mortgage, you typically need to pay closing costs. Before choosing a mortgage refi, you’ll want to look closely at any closing costs a lender charges, and whether those costs are paid in cash or rolled into the new mortgage loan. Consider how quickly you’ll be able to recoup those costs to determine if the refinance is worth it.

•   You could set yourself back on loan payoff. When you refinance a loan, you can choose a new loan term. If you’re already five years into a 30-year mortgage and you refinance for a new 30-year loan, for example, you’ll be in debt five years longer than you originally planned. And if you don’t get a lower interest rate, extending your term can increase your costs.

Is It Better to Refinance or Get a Loan Modification?

It all depends on your situation. If you have solid credit and are current on your loan payments, you’ll likely want to choose refinancing over loan modification. To qualify for a refinance, you’ll need to have a loan in good standing and prove that you make enough money to absorb the new payments.

If you’re behind on your loan payments and trying to avoid negative consequences (like loan default or foreclosure on your home), your best option is likely going to be loan modification. Provided the lender is willing, you may be able to change the rate or terms of your loan to make repayment more manageable. This may be more agreeable to a lender than having to take expensive legal action against you.

Recommended: 11 Types of Personal Loans & Their Differences

Alternatives to Refinancing and Loan Modification

If you’re having trouble making your mortgage payments or just looking for a way to save money on a debt, here are some other options to consider besides refinancing and loan modification.

Mortgage Forbearance

For borrowers facing short-term financial challenges, a mortgage forbearance may be an option to consider.

Lenders may grant a term of forbearance — typically three to six months, with the possibility of extending the term — during which the borrower doesn’t make loan payments or makes reduced payments. During that time, the lender also agrees not to pursue foreclosure.

As with a loan modification, proof of hardship is typically required. A lender’s definition of hardship may include divorce, job loss, natural disasters, costs associated with medical emergencies, and more.

During a period of forbearance, interest will continue to accrue, and the borrower will still be responsible for expenses such as homeowners insurance and property taxes.

At the end of the forbearance period, the borrower may have to repay any missed payments in addition to accrued interest. Some lenders may work with the borrower to set up a repayment plan rather than requiring one lump repayment.

Mortgage Recasting

With a mortgage recast, you make a lump sum payment toward the principal balance of the loan. The lender will then recast, or re-amortize, your remaining loan repayment schedule. Since the principal amount is smaller after the lump-sum payment is made, each monthly payment for the remaining life of the loan will be smaller, even though your interest rate and term remain the same.

Making Extra Principal Payments

With any type of loan, you may be able to lower your borrowing costs by occasionally (or regularly) making extra payments towards principal. This can help you pay back what you borrowed ahead of schedule and reduce your costs.

Before you prepay any type of loan, however, you’ll want to make sure the lender does not charge a prepayment penalty, since that might wipe out any savings. You’ll also want to make sure that the lender applies any extra payments you make directly towards principal (and not towards future monthly payments).

The Takeaway

Loan modification vs loan refinancing…which one wins?

It depends on your financial situation. If you’re dealing with financial challenges and at risk of home foreclosure, you may want to look into a loan modification, which could be easier to qualify for than loan refinancing.

If you’re interested in getting a lower interest rate or lowering your monthly debt payment, refinancing likely makes more sense. A refinance may also make sense if you’re looking to tap your home equity to access extra cash. With a cash-out refi, you replace your current mortgage with a new, larger loan and receive the excess amount in cash.

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.

FAQ

What are the disadvantages of loan modification?

A loan modification typically comes with a hardship requirement. A lender may ask to see proof that your financial circumstances are involuntary and that you’ve made an effort to address them before considering loan modification.

A loan modification can also have a temporary negative effect on your credit.

Is a loan modification bad for your credit?

A lender may report a loan modification to the credit bureaus as a type of settlement or adjustment to the loan’s terms, which could negatively impact on your credit. However, the effect will likely be less (and shorter in duration) than the impact a series of late or missed payments or a foreclosure on your home would have.

Photo credit: iStock/AlexSecret

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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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