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As we head into another month of federal student loan repayments, it is crucial for HR executives to recognize the urgent need to support their employees in making smarter student debt decisions. In President Biden’s June 2023 Fact Sheet regarding student debt forgiveness, he highlights the importance of understanding the federal student loan program’s new grace period and its implications. Here, we’ll explore the significance of the traditional grace period, the new 2023-24 grace period, the challenges employees may face, and why HR executives should take proactive steps to assist their workforce in navigating this critical financial phase.

The Traditional Student Loan Grace Period

Before we dive into the new program, here’s a look at how the “traditional” grace period works. Typically, the Department of Education (ED) gives students a set period of time after they graduate before they are expected to make any payments on their federal student loans. This gives borrowers a cushion of time to transition from their education to the repayment phase. For most federal student loans, including Direct Subsidized and Unsubsidized Loans, there is a six-month grace period after graduation, leaving school, or dropping below half-time enrollment. This period provides individuals with an opportunity to get financially settled and select an appropriate repayment plan.

The 2023-2024 “On-Ramp” Student Loan Grace Period

New this year, with the resumption of federal student loan repayment, the ED has created a temporary on-ramp period through September 30, 2024, during which borrowers who don’t make payments won’t default. This new extended “grace period” is designed to help borrowers who, after a more than three-year payment pause, may struggle to start repayments on time. According to the ED, this on-ramp period can help ensure that “the worst consequences of non-payment won’t happen right away.”

But there is a key caveat to keep in mind: While this grace period does delay the consequences of missed, late, or partial payments until September 30, 2024, the ED acknowledges they have no control over how credit scoring companies factor missed or late payments into their evaluation of a borrower’s credit. So, while they won’t report the account as delinquent, the credit bureaus could still factor this information into their scoring.

Also bear in mind that, as with other grace periods, interest will still build during the on-ramp, increasing the amount borrowers will owe overall.

Challenges Your Employees May Face

The resumption of student loan payments can pose significant challenges for employees. Many individuals may need to be made aware of the various repayment plan options available or may need help understanding the complexities of loan forgiveness programs. Additionally, the financial burden of student loan payments can impact employees’ overall financial well-being, causing stress and affecting their productivity and job satisfaction.

While the 2023-2024 “On-Ramp” Student Loan Grace Period is positioned as another tool that borrowers can leverage, it might not be the best option. Communication around this program has been limited and it may be confusing borrowers. It’s important for all stakeholders to understand — and not underplay — the potentially negative consequences of participating in this program, whether now or in the future.

Borrowers who take advantage of the on-ramp period will likely experience the consequences of missed or delayed payments at some point in the future. As a result, it’s in their best interest to understand the implications and, where possible, opt for another repayment option that may better fit their current situation. This is not a period to ignore your student debt, but rather a one-year period to make deliberate, gradual changes to get ready for repayment, and only if absolutely necessary. Employers can support this decision-making process by sharing timely, trusted, and relevant information.

The Urgent Need for HR Support

HR executives play a vital role in supporting their employees’ financial well-being. By providing guidance and resources, they can help employees make informed decisions about their student debt. Here’s a closer look at why HR executives should prioritize supporting their workforce in making smarter student debt decisions.

1. Employee Retention and Employee Benefits

Assisting employees in managing their student debt can contribute to higher employee retention rates and increased engagement. By alleviating financial stress, employees can focus more on their work and feel valued by their organization. This benefit demonstrates an organization’s commitment to supporting employees’ financial goals and can significantly impact employee satisfaction and loyalty.

2. Attracting Top Talent

In today’s competitive job market, offering support for student debt can be a significant differentiator for attracting top talent. Potential candidates increasingly consider an employer’s commitment to employee financial well-being when making career decisions.

3. Enhancing Financial Literacy

By providing educational resources and workshops on student loan management, HR executives can improve employees’ financial literacy. This empowers individuals to make informed decisions about their student debt, leading to better financial outcomes in the long run.

4. Promoting a Culture of Support

By actively addressing the student debt crisis and offering support, HR executives can foster a culture of support and empathy within the organization. This can create a positive work environment where employees feel valued and supported in their financial journey.

Budget-Neutral Ways to Get Started

Leverage the SoFi at Work Student Debt Navigator Workbook

To further assist employees in managing their student loan obligations effectively, HR executives can promote the SoFi at Work Student Debt Navigator Workbook. This comprehensive tool is designed to help individuals navigate and manage their student loan obligations with ease. The workbook provides guidance for understanding federal student loan repayment options, exploring loan forgiveness programs, and creating a personalized repayment strategy.

By partnering with SoFi at Work and providing access to the Student Debt Navigator Workbook, HR executives can empower their employees to take control of their student debt and make informed decisions. This tool not only enhances financial literacy but also promotes a sense of support and guidance within the organization.

Distribute SoFi at Work’s Guide to the Restart of Federal Student Loan Repayments

The SoFi at Work Guide to the Restart of Federal Student Loan Repayments was explicitly created for this period when the federal loan pause has ended and borrowers are gaining their financial bearings. This timely resource includes helpful information on how to make a stress-free play for repayment. It also offers valuable resources and tips for budgeting, saving, and improving overall financial well-being.

The Takeaway

As this new student loan grace period (or on-ramp) begins, HR executives have a unique opportunity to support their employees in making smarter student debt decisions. By prioritizing financial well-being and offering resources, guidance, and tools like the SoFi at Work Student Debt Navigator Workbook, HR executives can make a significant impact on their employees’ lives. Taking urgent action to address the student debt crisis will not only benefit individual employees but also contribute to a more engaged, loyal, and productive workforce. Let us stand together and support our employees in their journey towards financial freedom.

Photo credit: iStock/filadendron

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Now that the pandemic-related pause on federal student loan repayment has ended, you may be wondering if there are any grants or scholarships to help you pay down, further delay, or even forgive some or all of your student loan debt. The answer is yes. While some grants and programs are targeted to borrowers with financial need or who work in a certain field, others are open to anyone. Read on to learn how to find “free money” to help you manage your student loan debt.

Federal Government Grants

There are a number of grant programs that are available from the U.S. Department of Education that can help people pay off their student loans or reduce the amount of debt they owe.

Government grants are funds given out by the federal government or other organizations that do not have to be repaid. Below are some popular grant programs you may be able to tap while you are still in school.

Federal Pell Grant

The Federal Pell Grant is a financial aid program for students who are still enrolled in undergraduate courses at an accredited college or university and who demonstrate need. It does not have to be repaid and can cover up to the full cost of attendance.

Teacher Education Assistance for College and Higher Education (TEACH) Grant

This program provides financial assistance to individuals pursuing an undergraduate or graduate degree in education. The TEACH Grant offers up to $4,000 per year for students enrolled in eligible educational programs at accredited universities. However, to maintain your TEACH grant, you have to work in a high-need field or at a low-income school for at least four years. If you don’t, the grant turns into a loan you must repay.

Iraq and Afghanistan Service Grant

The Iraq and Afghanistan Service Grant is designed to help students whose parents or guardians died due to service in Iraq or Afghanistan after September 11, 2001. To qualify, you need to be under 24 and demonstrate financial need based on information submitted in your Free Application for Federal Student Aid (FAFSA®). This grant has to be applied for on an annual basis in order to receive the funds.


💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

State & Local Grants

Many states offer grants that can help residents pay off their student loans. In some cases, you need to work in a certain field and/or in an underserved area. For example, the New York State Young Farmers Loan Forgiveness Incentive Program provides loan forgiveness awards to individuals who get an undergraduate degree from an approved New York State college or university and agree to operate a farm in the state on a full-time basis for five years.

California’s Department of Health Care Access and Information , on the other hand, offers a range of loan repayment programs for those working in the healthcare field, including doctors, therapists, dentists, and more.

No matter what field you are in, it can pay to research loan repayment opportunities in your state. This tool on the Department of Education’s website can help you find the agency that distributes education grants in your state.

Recommended: Search Grants and Scholarships by State

Private Scholarships to Pay off Student Debt

There are actually numerous private grants and scholarships that can help you pay off your student loans. Aid might be need-based, merit-based, or a combination of both. You can also look for private funding options using a search engine like Fastweb or FinAid. SoFi also offers a Scholarship Search Tool.

To uncover more obscure scholarships, you may want to reach out directly to companies and organizations you have some connection to. This might include:

•   Family members’ employers and associations

•   Community service groups with whom you’ve volunteered

•   Identity/heritage groups listed on Scholarships.com

•   Religious communities you’re involved with

While private scholarships can be small, if you can piece together a few, you may be able to make a significant dent in your student debt.

Recommended: Finding & Applying to Scholarships for Grad School

Student Debt Forgiveness Programs

While the Biden Administration’s broad, one-time loan forgiveness program was struck down by the Supreme Court in June 2023, the President has announced plans to pursue a similar initiative through the federal rulemaking process. In the meantime, here are some other loan forgiveness options you may want to explore.

Public Service Loan Forgiveness

If you’re employed by a government or not-for-profit organization, you might be eligible for the government’s Public Student Loan Forgiveness (PSLF) Program. The PSLF Program forgives the remaining balance on your Direct Loans after you’ve made the equivalent of 120 qualifying monthly payments under an accepted repayment plan, while working full-time for an eligible employer.

To see if your employer qualifies and to apply for the PSLF program, you can use the PSFL Tool on the Department of Education’s website.

If you have private student loans, however, you aren’t eligible for the PSLF program

Income-Driven Loan Forgiveness

An income-driven repayment plan sets your monthly federal student loan payment at an amount that is intended to be affordable based on your income and family size. Not only that, it forgives your remaining loan balance after 20 or 25 years of payments. The Department of Education currently offers four income-driven repayment plans:

•   Revised Pay As You Earn Repayment Plan (REPAYE Plan)

•   Pay As You Earn Repayment Plan (PAYE Plan)

•   Income-Based Repayment Plan (IBR Plan)

•   Income-Contingent Repayment Plan (ICR Plan)

The newly announced Saving on a Valuable Education (SAVE) plan will eliminate the REPAYE Plan by July 2024. According to the Department of Education, the new SAVE plan can significantly decrease your monthly payment amount compared to all other income-driven repayment plans. If you enroll (or already are enrolled) in the REPAY plan, you will be automatically switched over to SAVE.

If you’d like to repay your federal student loans under an income-driven plan, you need to fill out an application at StudentAid.gov.

Recommended: Student Loan Debt Guide

Teacher Loan Forgiveness Program

The Teacher Loan Forgiveness Program will pay up to $17,500 on your Federal Direct Subsidized or Unsubsidized Loans. To receive this loan benefit, you must be employed as a full-time qualified teacher for five consecutive academic years at a low-income school or educational service agency.

If you are a teacher interested in learning more about the Teacher Loan Forgiveness Program, you can go to this federal webpage.

Armed Forces Loan Payment Programs

Many branches of the United States military offer loan payment programs that can help you pay off your federal student loans. Programs include:

•   Air Force JAG Program

•   Army College Loan Repayment

•   Army Reserve Loan Repayment

•   National Guard Loan Repayment

•   Navy Student Loan Repayment

While each military loan repayment program works in a slightly different way, these grants can potentially pay off a significant portion (or even all) of your student loan debt.

Corporate Loan Repayment Grants

Another way you may be able to get student loan repayment help is to simply ask your boss. Many companies now offer help with student loan repayment as a job perk. As more and more employees struggle with debt, employers have started to offer these benefit programs in order to attract and retain top-notch talent.

In some cases, a company will make regular, direct payments to your student loan servicer or lender on your behalf. In others, an employer may offer to contribute to your retirement if you put a certain percentage of your paycheck toward student loans. Wondering if your employer offers the same perks? Check with HR to see if you can take advantage of a company-wide loan repayment benefit program.

Recommended: Is an Employee’s Student Loan Repayment Benefit Taxed As Income?

Student Loan Refinancing

One way to potentially make both your public and your private loans more affordable is to consider student loan refinancing.

With a student loan refinance, you exchange one or more of your old loans for a new one, ideally with a lower rate or better terms. This process can be helpful if you have a solid credit score (or have a cosigner who does), since it might qualify you for a lower interest rate. In addition, you could choose a shorter repayment term to get out of debt faster.

You can refinance both federal and private student loans. Keep in mind, however, that refinancing federal student loans can result in a loss of certain borrower protections, such as income-driven repayment and student loan forgiveness. Because of this, you’ll want to consider the potential downsides of refinancing before making changes to your debt.


💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.

The Takeaway

While you may think of grants as a way to help finance your education while you are in school, there are grants (as well as scholarships and other programs) available that can also help you repay your student loans. Options include federal and state programs, private/corporate grants, and federal loan forgiveness and repayment plans. Another option that could potentially make student repayment more manageable is refinancing.

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.

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Debt may seem like something you want to avoid. But having some debt can actually be a good thing, provided you can comfortably afford to make your payments each month.

A good payment history shows lenders that you can be responsible with borrowed money, and it will make them feel better about lending to you when the time comes for you to make a big purchase, like a home.

But not all debt is created equal. Consumer debt can generally be broken down into two main categories: secured and unsecured. Those two categories can then be subdivided into installment and revolving debt. Each type of debt is structured differently and can affect your credit score in a different way.

Here are some helpful things to know about the different types of debt, plus how you may want to prioritize paying down various balances you may already have accumulated.

Secured vs Unsecured Debt

The first distinction between types of debt is whether it’s secured or unsecured. This indicates your level of liability in the event you fall behind on payments and go into default on the loan or credit card.

Secured Debt

Secured debt means you’ve offered some type of collateral or asset to the lender or creditor in exchange for the ability to borrow funds. There are many types of secured debt. Auto loans and mortgages are common examples.

The benefit is that you improve your odds for approval by offering collateral, and you may also receive a better interest rate compared to unsecured debt. But if you go into default on the loan, the lender is typically allowed to seize the asset that’s securing the debt and sell it to offset the loan balance.

If that happens, not only is your property repossessed, your credit score can also be severely damaged. This could make it difficult to qualify for any type of financing in the near future.

A foreclosure, for instance, generally stays on your credit report for seven years, beginning with the first mortgage payment you skipped.

Unsecured Debt

Unsecured debt comes with much less personal risk than secured debt since you don’t have to use any property or assets as collateral.

Common types of unsecured debt include credit cards, student loans, some personal loans, and medical debt. Since you don’t have to put up any type of collateral, there may be stricter requirements in order to qualify. Your lender will likely check your credit score and potentially verify your income.

With unsecured debt, you are bound by a contractual agreement to repay the funds, and if there is a default, the lender can go to court to reclaim any money owed. However, doing so comes at a great cost to the lender. For this reason, unsecured debt generally comes with a higher interest rate than secured debt, which can pile up quickly if you’re not careful.


💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.

Installment vs Revolving Debt

The difference between secured and unsecured debt is one way to classify financing options, but it’s not the only way.

Both secured and unsecured debt can be broken down further into two additional categories: installment debt and revolving debt.

Installment Debt

Installment debt is usually a type of loan that gives you a lump sum payment at the beginning of the agreement. You then pay it back over time, or in installments, before a certain date.

Once you’ve paid the loan off, it’s gone, and you don’t get any more funds to spend. Examples of this type of debt include a car loan, student loan, or mortgage.

There are a number of ways an installment loan can be structured. In many cases, your regular payments are made each month, with money going towards both principal and interest.

Less frequently, an installment loan could be structured to only include interest payments throughout the term, then end with a large payment due at the end. This is called a balloon payment. Balloon payments are more frequently found with interest-only mortgages. Rather than actually making that large payment at the end of the loan term, borrowers typically refinance the loan to a more traditional mortgage.

Installment loans can have either a fixed or adjustable interest rate. If your loan has a fixed rate, your payments should stay the same over your entire term, as long as you pay your bill on time.

A loan with an adjustable rate will change based on the index rate it’s attached to. Your loan terms tell you how frequently your interest rate will adjust.

Provided you make your payments on time, having a mortgage, student loan, or auto loan can often help your credit scores because it shows you’re a responsible borrower. In addition, having some installment debt can help diversify your credit portfolio, which can also help your scores.

Revolving Debt

Unlike installment debt, revolving debt is an open line of credit. It gives you an amount of available credit that you can draw on and repay continually.

Both credit cards and lines of credit are common examples of revolving credit. Instead of getting a lump sum at one time (as you would with installment debt), you only use what you need — and you only pay interest on the amount you’ve drawn.

Your available credit decreases as you borrow funds, but it’s replenished once you pay off your balance.

Revolving debt can be unsecured, as in the instance of a credit card, or it can be secured, such as on a home equity line of credit.

One downside of revolving credit is that there’s no fixed payment schedule. You typically only have to make minimum payments on your revolving credit, but your interest continues to accrue.

That can result in a much higher balance than the original purchases you made with the funds. And if you miss a payment, you’ll likely owe late fees on top of everything else.

Because it’s easier to get caught in a cycle of debt, having large revolving debt balances can hurt your credit score. A balance of both revolving and installment debt can give you a healthier credit mix, and potentially a better credit score.


💡 Quick Tip: Check your credit report at least once a year to ensure there are no errors that can damage your credit score.

Debt Payoff Strategies

Whatever kind of debt you carry, the key to avoiding a negative debt spiral — and maintaining good credit — is to pay installment debt (such as your student loan and mortgage) on time, and try to avoid carrying high balances on your revolving debt.

While everyone’s financial circumstances are different, here are some debt payoff strategies that can help you prioritize your payments.

Paying off the Highest Interest Debt First

If your primary goal is to save money over the life of your loans, you may want to start by paying off your highest interest rate loan first, while making just the minimum payments on everything else.

You can then move on to the next highest and next highest until your debts are paid off. This payoff approach is often referred to as the “avalanche” approach.

Paying off the Debt with the Smallest Balance First

Paying down debt can feel never-ending, so it can be nice to feel like you’re making progress. By focusing on your smallest debts first (and paying the minimum on everything else), you can cross individual loans off your balance sheet, while quickly eliminating monthly payments from your budget.

Once paid off, you can then reroute those payments to make extra payments on larger loans, an approach often referred to as the “snowball” method.

Considering Debt Consolidation

If you don’t see a clear strategy for paying off your debt, you might consider debt consolidation. This involves taking out a single personal loan to consolidate your other balances. If your credit score has increased, this may be a good way to decrease your overall interest rate. But at a minimum, this move can help streamline your payments.

Being Wary of Debt Settlement Companies

If you’re feeling overwhelmed by debt, you may look for a shortcut with a debt settlement company.

Debt settlement is a service typically offered by third-party companies that allows you to pay a lump sum that’s typically less than the amount you owe to resolve, or “settle,” your debt. These companies claim to reduce your debt by negotiating a settlement with your creditor.

Paying off a debt for less than you owe may sound great at first, but debt settlement can be risky.

For one reason, there is no guarantee that the debt settlement company will be able to successfully reach a settlement for all your debts. And you may be charged fees even if your whole debt isn’t settled.

Also, if you stop making payments on a debt, you can end up paying late fees or interest, and even face collection efforts or a lawsuit filed by a creditor or debt collector.

The Takeaway

At some point in your life you may be juggling one or more of these different kinds of debt. Understanding the various types of debts and maintaining a varied mix of loans (including secured, unsecured, installment, and revolving) can help you increase your creditworthiness.

You can also improve your credit by making all of your debt payments on time, and keeping balances on revolving credit (like credit cards) low.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

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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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When you’re struggling with debt, a little bit of help can go a long way — and a lot of help can go even further. But shopping around for debt relief assistance can be confusing. What, exactly, are these organizations offering?

Credit counseling organizations are generally non-profits that are dedicated to not only helping their clients get out of debt, but also creating a sustainable way forward with free or low-cost educational tools and resources. In other words, they’re more holistic about your financial situation, and they’re not in it for your money (though some may charge fees, usually relatively low, for their assistance).

Debt relief companies, on the other hand, are for-profit companies that charge you, often steeply, for the service of negotiating and settling your debt with your creditors or with collections agencies. In other words, they’re less about helping you get your money right and more about getting your money.

While both types of organizations can help you find relief from at least some of your debt, their motivations and structures are very different. Let’s take a closer look.

Debt Settlement vs Credit Counseling: What’s the Difference?

As mentioned, debt settlement is usually done by a for-profit debt settlement company that works to negotiate your debts with creditors or collections agencies for a fee. Not all creditors will negotiate with debt settlement companies, but if they will, you may be able to pay a lower overall amount. Keep in mind that it still may not immediately improve your credit score, and in some cases, may even make it worse (which we’ll discuss more in just a moment).

Credit counseling, on the other hand, is usually performed by financial professionals who work at non-profit credit counseling organizations. While they may help you create a debt management plan — potentially even one that might save you money — that’s not all they’re there to help you with.

Even if they don’t negotiate directly with your creditors, credit counselors can help you create or manage a budget, develop a sustainable plan to minimize debt over the long run, and give you access to low- or no-cost resources including workshops and educational materials. While they may assess a fee, it’s usually low, and they may also have options even if you can’t afford to pay them at all.


💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why SoFi credit card consolidation loans are so popular.

How Does Debt Settlement Work?

Debt settlement companies are just that: companies charging you for the service of settling debts. However, since not all creditors will even work with debt settlement companies, they may not actually be able to save you any money. If they can, they’ll be charging you for their service. Their fees may be a lot higher than a credit counselor’s would be.

Pros of Debt Settlement

•   Debt settlement might help you save money on very large debts. If a debt settlement company can successfully negotiate with your creditor, you may be able to get out of debt by paying far less than you would otherwise owe, so long as you can pay it as a lump sum.

•   Legally, your money must remain under your control while you’re saving it. The debt settlement company may require you to save up the lump sum in a special account. But even if they do, those funds must remain under your control until they are used by the company to pay off your debt.

Cons of Debt Settlement

•   Debt settlement is expensive. Even if the settlement is expensive, the company will charge you for their services, which eats into the amount you’re saving on your debts. Keep in mind that debt settlement companies are for-profit organizations.

•   Debt settlers aren’t looking at the whole picture. While a credit counselor may be able to help you come up with a sustainable, holistic plan to manage your money going forward, debt settlers are focused only on, well, settling your debt. This means you could wind up in the exact same place in the future, if your financial habits don’t change.

•   Debt settlement services might actually make your credit worse. Some debt settlement companies may tell you to stop paying your debt until they reach an agreement with the creditor, which could be negatively reflected in your credit score and history.

•   Debt settlement doesn’t always work. Because some creditors won’t negotiate with debt settlement companies, using one may not actually save you any money. (Note: According to Federal Trade Commission rules , a debt settlement company can never charge you for their services before they’re successfully rendered. If you encounter a debt settlement firm that’s trying to take your money up front, you shouldn’t work with them.)

What Is Credit Counseling?

Credit counseling is very different from debt settlement: It’s a holistic approach to money management offered by expert financial planners and advisors at a low cost.

While helping you negotiate and potentially lower your debts with creditors is one potential service a credit counselor may offer (though they may also not), their main concern is getting you set up for a successful financial future in the long term.

Pros of Credit Counseling

•   Credit counseling is built to be affordable. While credit counselors may charge a small fee for their services, they’re usually much lower than you’d pay for financial advice in any other context. Plus, no-cost options are often available for those with demonstrated need.

•   Credit counseling can help you build a sustainable financial future — not just settle a debt. By giving you the knowledge and tools you need to create positive financial habits, credit counseling can help you make a lasting change, not just pay off a bill.

•   Credit counseling can give you access to other educational opportunities and materials. Along with one-on-one credit counseling, these non-profit organizations may host community workshops and classes or provide you with free information.

Cons of Credit Counseling

•   Credit counseling requires you to do some of the work. Although credit counselors will assist you along the way, you’re the one who has to create (and stick to) a budget and form positive credit habits.

How Can a Non-Profit Credit Counselor Help You?

By helping you form the long-lasting financial habits that can keep you out of debt or make it easier to follow your monthly budget, working with a credit counselor can change the shape of your financial future.

In short, think of debt settlement agencies as for-profit firefighters: They may be able to help you put out a blazing debt spiral in an emergency, but they’ll charge you for the privilege. Non-profit credit counselors, on the other hand, help you put out the fire and teach you how to keep your financial life flame-free, all for low or no cost.

What Is the Process of Working with a Non-Profit Credit Counselor?

When you sign up to work with a credit counselor, you’ll likely start with an initial consultation session, which may be in person, over the phone, or over a video conferencing service. This initial consultation will likely last about an hour and may include going over your budget and creating a debt management plan.

Depending on your needs, your counselor may recommend follow-up sessions, or may direct you to workshops and resources to help you DIY your own financial education.

What You Should Know About Debt Relief Companies

While both debt settlement companies and credit counseling agencies can help you get out of an immediate debt crisis, rebuilding your credit is always a time-consuming and work-intensive process that takes persistence and patience. A credit counselor can help you tackle that project with support.

Keep in mind that there are ways to tackle a debt spiral yourself, too, such as taking out a personal loan in order to consolidate multiple lines of credit or debts.


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

The Takeaway

Debt settlement is offered by for-profit companies that may charge steeply for their services — and might not even be able to help. Credit counseling, on the other hand, is a more holistic service offered by non-profit organizations that have your best interests and a firm financial future at heart.

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 is the difference between debt settlement and credit counseling?

Debt settlement is a service offered by for-profit companies who negotiate your debts with creditors and collections agencies for a fee, often a large one. Many creditors won’t work with debt settlement agencies, anyway, so they may not be able to help you in the first place. In addition, under Federal Trade Commission rule, they’re not allowed to charge their fee before their services are successfully rendered.

Is it better to consolidate or settle debt?

While everyone’s financial needs are different, consolidating your debt is a self-directed debt relief strategy that can help you build your credit and positive financial habits that’ll keep you in good standing. Debt settlement agencies are for-profit companies that may charge you steeply for the privilege of helping you negotiate your debt with creditors. They’re unlikely to get you a better deal than you would get by negotiating on your own.

How bad is debt settlement for your credit?

Many factors go into determining someone’s credit history, but debt settlement agencies may advise you to stop paying your bills until their negotiations are over. This can be bad for your credit history, though paying off large amounts of debt, especially debt in collections, can be positive for your credit history. It’s all about creating sustainable habits over the long run.

Photo credit: iStock/Delmaine Donson

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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 .

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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When you carry large amounts of debt across different credit cards and loans, it’s easy to feel snowed under. Making the minimum payment on each leaves you paying a lot in interest and doesn’t make it easy to eliminate all that debt.

One debt repayment strategy you might want to consider is the debt snowball. Many find it to be an effective method of paying off outstanding debt, and it may help you get back to healthy financial practices faster.

Let’s look at what a debt snowball strategy looks like, including how to use a debt snowball calculator.

Debt Terms Defined

Before we go into creating a debt reduction plan, let’s make sure you’re up to speed on certain debt terms.

Interest Rate: The interest rate is the percent of the amount you borrow that you pay to the lender in addition to the principal.

Annual Percentage Rate: This is the interest rate charged per year for purchases you make with a credit card, and may include other fees.

Minimum Payment: Loans and credit cards have a minimum amount you must pay each month on the balance, though you certainly can pay more.

Bankruptcy: If you’re unable to pay off your debts, filing bankruptcy may be a last-ditch solution to consider. Essentially, it reduces or eliminates your debts. Know that it will negatively impact your credit for many years. That’s why it’s worth it to come up with a plan for the ultimate debt payoff strategy.


💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.

What Is the Debt Snowball?

Just like an actual snowball, the debt snowball method starts out small. You first tackle the smallest debt balances you have. Once those are paid off, you apply what you were paying on those to the next smallest debts. You continue to pay at least the minimum due on all your debts.

However, by focusing your attention on one debt at a time, you then free up more money to make larger payments on other debts until it’s all gone. Your snowball of debt repayment, so to speak, grows over time.

Benefits of the Snowball Method

The snowball method is one of the fastest ways to pay off debt. And over time, this method will help you have fewer payments as you pay off credit cards and loans and put more money to the remaining debt.

Drawbacks of the Snowball Method

The smallest debts you have may not be the ones with the highest interest. So while you’re paying off the little loans, the debts with higher interest continue to accumulate interest, which adds to your debt.

Debt Snowball vs. Debt Avalanche

If you have larger loans with higher interest, the debt snowball method may not be your best option. You might also explore another popular way to pay off debt: debt payoff strategy, the debt avalanche method.

With the debt avalanche method, you start paying down the loans and credit cards with the highest interest first. By doing so, you reduce the amount of debt you have at those higher interest rates, which slows down the amount of interest that accumulates over time.

Just like with the snowball, you pay off one debt and then put the money you were paying on that debt toward the loan or card with the next highest interest rate until it’s all paid off.


💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

How Is Debt Snowball Payoff Calculated?

To use the debt snowball payoff method, you’ll need to gather information about all the debt you have. Let’s use the following example:

•   Personal loan 1 balance: $3,000

◦   12% interest

◦   Minimum payment: $100 per month

•   Credit card A balance: $2,000

◦   17% interest

◦   Minimum payment: $25 per month

•   Credit card B balance: $1,000

◦   22% interest

◦   Minimum payment: $30 per month

•   Personal loan 2 balance: $750

◦   8% interest

◦   Minimum payment: $20 per month

Even without a snowball debt payoff calculator, you can reorder these debts so that you focus on the one with the lowest balance first:

•   Personal loan 2: $750

•   Credit card B: $1,000

•   Credit card A: $2,000

•   Personal loan 1: $3,000

Now that you’ve ordered your debts from least to greatest, you can see how, once you pay off the $750 loan, that money can go toward the credit card with the $1,000 balance. Once that’s paid off, you put all that money toward paying off the $2,000 credit card balance, and then finally, to pay off the $3,000 loan.

Debt Snowball Payoff Examples

Let’s look at what the monthly payments for these reordered debts would look like, if you were able to set aside $400 a month toward paying them off.

As the chart shows, what might have taken you years to pay off can be paid off in under two years with the debt snowball method.

One way to keep your finances on track while you’re paying off debt is to create a budget. A money tracker app can help you come up with a spending and saving plan that works for you.

Is a Debt Snowball for You?

There’s no one-size-fits-all when it comes to debt payoff strategies. But to determine whether the debt snowball method is right for you, consider how many different debts you have as well as their interest rates. If your larger debts have higher interest rates, you might consider the avalanche method.

But if your interest rates vary, or the smaller debts have higher interest, you might benefit from paying off those lower amounts first before snowballing those payments into the larger debts.

The Takeaway

If you’re trying to pay off outstanding debt, you have options. The debt snowball method has been proven effective for many people. If nothing else, it’s a way for you to focus your attention on whittling down debt and minimizing how much you pay in interest.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

How long to pay off debt using snowball?

The amount of time it takes to pay off your debt with the snowball method will depend on how much debt you have and how much you can budget to pay it down. However, you may be able to pay off your debt faster with this method.

What is the best way to pay off debt using the snowball method?

The debt snowball method pays off your smallest balances first, then rolls those payments up toward the larger debts until they are all paid off.

What are the 3 biggest strategies for paying down debt?

To pay down or pay off debt, you can consider the debt snowball method (which pays off the smallest balances first), the debt avalanche method (which pays off the balances with the highest interest first), or debt consolidation (which provides a new loan with a single payment and single interest rate).

Photo credit: iStock/Abu Hanifah

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

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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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