SoFi

If you’re like most Americans, you love your plastic and swiping or tapping through your day. In fact, about 74% of Americans have at least one credit card, according to the Federal Reserve Bank of New York, with the average wallet holding more than three, according to data from Experian®.

The national love affair with credit cards is built on their convenience, how they provide a line of credit to enable buying things we can’t quite afford to pay for with cash, and those enticing rewards that are often offered.

But the picture is not altogether rosy: As a nation, US citizens have more than $1.2 trillion in credit card debt. And with interest rates averaging over 20%, that debt can be hard to chip away at.

To help you better understand how credit cards work, how much credit card debt people typically have, and what are smart strategies for paying down credit card debt, keep reading. You’ll learn interesting facts as well as helpful hints.

10 Facts About Credit Card Debt

Ready to learn more about credit card debt, a form of revolving debt? These 10 credit card facts will help you better understand who has how much debt and where difficulties paying the balance typically crop up.

1. Almost Half of Americans Have Outstanding Credit Card Debt

Recent research shows that 46% of Americans carry a credit card balance as of late 2025. This indicates that carrying a balance is a common situation for many Americans, even with the eye-wateringly high interest that’s charged.

Recommended: Tips for Using a Credit Card Responsibly

2. People with Credit Card Debt Owe an Average of Almost $7,000

Americans had an average credit card balance of $6,731, according to TransUnion® data. Of those with a balance, most carried it for at least a year.

Just because this is the norm, it doesn’t mean that it’s ideal: The best-case scenario is to only charge as much as you can afford to pay off in full every month.

3. It Can Take More Than a Decade to Pay Off $7,951 in Debt

Racking up credit card debt takes much less time than getting rid of it. Say that, like the average American, you have $6,731 in credit card debt, as noted above.

At an interest rate of 20% on existing, with a $150 monthly payment, it would take you 84 months — or seven years — to pay that off. And you would pay $5,773 in interest, or almost as much as the original amount you charged!

But the more you can pay each month, the faster you’ll extinguish the debt. In this example, if you increase your monthly payment to $500, you’d pay off the debt in just 16 months and only spend $955 in interest. These scenarios are, however, assuming that you are not accruing new debt and therefore paying off larger credit card bills.

4. Gen Xers Have the Most Credit Card Debt

Ready for more credit card facts? Here is how age and debt intersect. Gen Xers, the generation that includes people born between 1965 and 1980, have the highest percentage who carry credit card debt at 55%. Next in line are Millennials, born between 1981 and 1996, with 49% carrying credit card debt.

5. Alaskans Have the Highest Credit Card Debt

In a state-by-state analysis of credit card debt, Alaska residents led the pack with $8,026 per person. Those who live in Iowa were found to have the lowest at $4,774.

6. 65% of College Students Have Credit Card Debt

The habit of carrying credit card debt unfortunately starts early, with more than six out of 10 college students carrying a balance on their credit cards. Some of this may well be due to nonessential purchases, such as impulse buys, Uber rides, or fancy coffees.

7. One in Three Americans Owes More On Credit Cards Than They Have Saved for Emergencies

This may be a scary fact about debt, but one in three US adults owes more on their credit card than they have saved for emergencies. In fact, 33% say this is the case. This shows a two-sided problem: too much spending and too little saving.

Recommended: Paying Off $10,000 in Credit Card Debt

8. Richer People Have Credit Card Debt Longer

More interesting credit card debt facts: According to recent data, 62% of those who earn $300,000 or more a year struggle with credit card debt. Perhaps this statistic suggests that high-earners feel they have the means to handle debt and therefore don’t rush to repay it.

9. Men Have More Debt Than Women

Men have an average of $6,357 in credit card debt, while women have an average of $6,232. Perhaps not a huge difference, but so much for the myth of women shopaholics using credit cards to fill an overflowing closet with shoes.

There are many potential reasons for this difference, but some studies have found that women are less comfortable with debt. Also, there is still a gender gap in earning, which could impact spending and debt.

10. There’s a Good Chance You’ll Die With Credit Card Debt

Here’s the last of these debt facts, and it can be a grim one: Nearly three-fourths of Americans are in debt when they die, according to one benchmark study.

And 73% die with credit credit card balances. That’s not exactly a desirable legacy. Although family members don’t generally become responsible for the debt, it may be taken out of the deceased person’s estate.

Why Is Credit Card Debt So Common?

There are many reasons that Americans have so much credit card debt, from rising healthcare and educational costs to lack of emergency savings to a cultural consumerism that encourages people to live beyond their means.

Regarding that last point, you may hear about the phenomenon referred to as Fear of Missing Out or FOMO spending, which is a modern version of “keeping up with the Joneses.” In other words, because your friends, coworkers, or influencers you follow on social media are buying something, you feel you should as well.

Or perhaps part of the problem can be explained by what is known as lifestyle creep. This situation occurs when you earn more money but your spending rises too, so your wealth doesn’t grow. For example, if you took a new, higher-paying job and decided to lease a luxury car or take a couple of lavish vacations, your wealth wouldn’t increase, though your credit card balance might.

Tips on Avoiding Credit Card Debt

Perhaps these facts about debt will motivate you to work on avoiding a credit card balance. If so, the following strategies could help.

•   Review different budgeting methods, and find one that works for you. Many people use the popular 50/30/20 budget rule, for example. Also, see if your bank offers tracking and budgeting tools to help you rein in spending.

•   Gamify savings. You might try sleeping on it rather than making impulse buys to see if the urge to spend passes; it often does. Or go on a spending freeze for a specific period of time or for a certain kind of purchase (say, no dining out in March; no clothing purchases in April).

•   Try buying with cash or your debit card vs. plastic. That will help prevent your debt from snowballing.

•   Consider trying a balance transfer card, which typically gives you a period of zero interest during which time you can pay down what you owe.

•   In terms of a debt payoff strategy, you might investigate getting a personal loan with a lower rate than what your card charges. That could allow you to pay off the plastic debt and then have more manageable monthly payments.

•   Seek help if you are really struggling to get your debt under control. Nonprofit organizations can help you accomplish this.

The Takeaway

Now that you know some facts about credit card debt and ways to pay it off, you may be looking for a new card that better suits your financial and personal goals. Shopping around to compare features, such as interest rates and rewards, can be a wise move.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

What are the main causes of credit card debt?

Credit card debt can crop up in a variety of ways. Sometimes it’s because expenses get pricier, whether due to lifestyle creep or inflation. Other times, it’s not being mindful about daily spending and making impulse buys. Given how many Americans have more credit card debt than money saved, it’s a common but challenging issue.

How much does the average person have in credit card debt?

Credit card debt facts reveal different angles on this number. The average American household has $6,731 in credit card debt.

How serious is credit card debt?

Credit card debt can be very serious. It’s high-interest debt, and it can be difficult to pay off. It can make it hard for individuals to save for their future and can negatively impact their debt to income ratio, which can be an issue when applying for loans.

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOCC-Q425-001

Getting a personal loan is typically a simple process, but it often requires 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, you can use a personal loan for a wide variety of expenses, from planned home repairs to unexpected medical bills. Learn more about personal loans and how to increase the chances that you’ll qualify for one.

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 $100,000, 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.

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, vs. online lenders.

Online banks tend to have a less time-consuming application process, and the loan may take less time to disburse.

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.

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, you may need to meet more stringent financial qualifications to get a personal loan from a bank than a private lender. Your best bet, however, is usually to shop around and compare a variety of personal loan options, then see where you’ll get the most favorable interest rate and terms.

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 $100,000, 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 usually 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.

Recommended: Personal Loan Calculator

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, the lower the interest rate will usually 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. See your rate in minutes.

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 and an existing relationship with a bank.

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.

SOPL-Q425-034

If you’re like many Americans, you may carry thousands of dollars of credit card debt. A recent analysis by TransUnion^® found that the average citizen has $6,473 in debt as of mid-2025. 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 just over 24% as of November 2025) 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.

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 consolidate your credit card debt and potentially pay a 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.

Recommended: Personal Loan Interest Rates

The Takeaway

The average American carries several thousand dollars in credit card debt. If you are trying to pay down this kind of high-interest debt, try budgeting, debt payoff methods like the avalanche and snowball techniques, or consolidating debt with a personal loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

How long does it take to pay off $10,000 in credit card debt?

There’s no set amount of time for how long it can take to pay off $10k in credit card debt. The timing will depend on whether you pay the minimum amount or more per month and what your interest rate is. The debt could be paid off in a couple of months or many years.

What is the 2/3/4 rule for credit cards?

The 2/3/4 credit card rule is a guideline that says a person can only get a maximum of two new cards in a 30-day period, three new cards in a 12-month period, and four new cards in a 24-month period.

How many people have $10,000 in credit card debt?

According to one study in 2025, one in four Americans who carry credit card balances has $10,000 or more in credit card debt.

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.

SOPL-Q425-036

The Federal Reserve Bank of New York announced that U.S. citizens hit a new milestone: $1.23 trillion in credit card debt as of Q3 2025. And when you look at overall debt, the number soars to an eye-watering $18.59 trillion, with the typical American household having $105,056 in debt.

Taking a closer look at how debt is tracked by age can help as you examine your own situation and think carefully about how you will manage your own debt load. Keep reading to learn more.

Breakdown Of Average Debt By Age

Here, you’ll learn more about the latest data and what it reveals about how Americans are using credit. Overall, people in their high earning years (early middle age) carry the most debt, typically in the form of mortgages, while younger families carry more student loan debt. Let’s take a closer look.

Age 18-29

Total debt: $1.05 trillion

Average per person: $19,972

During this stage of life, debt typically comes from a mix of student loans, credit cards, and auto loans, not mortgages, because many in this age group haven’t yet bought homes. The relatively high levels of education-related and personal debt for these younger adults highlight the financial burden they face early in their careers.

Age 30-39

Total debt: $3.89 trillion

Average per person: $84,565

Adults aged 30-39 carry a significantly higher debt load than younger cohorts, with a per-capita average of around $84,565, according to Federal Reserve–based data. By this age, many people have transitioned into more long-term financial obligations: mortgages make up a large share of their debt, as they often purchase homes and take on large loans to finance them.

Credit card debt in this age bracket is climbing, too, with 80% having a credit card (ages 30-44) and 53% carrying a balance. These increases show that people in this age range are taking on more debt — likely because they’re earning more and doing more: they’re settling into their careers, buying houses, and starting families.

Age 40-49

Total debt: $4.76 trillion

Average per person: $111,148

People aged 40-49 carry the most debt burden of all age groups, with an average per-capita debt of $111,148. At this stage, much of their debt stems from long-term obligations like mortgages, as many in this age group have purchased homes and are building significant home equity, as well as from auto loans and credit card balances.

Despite this high level of indebtedness, the New York Fed’s reports show that serious delinquency (90+ days past due) rates for major debt categories like mortgages remain relatively stable among this cohort. However, the concentration of debt also reflects that 40- to 49-year-olds are in a peak earning and borrowing phase — balancing large housing loans, potential family expenses, and other financial priorities.

Age 50-59

Total debt: $4.02 trillion

Average per person: $97,336

This age bracket continues to see drops in overall debt. They owe less on their mortgages and even less on education loans. With fewer large expenses related to education, housing, and family rearing, households in this age bracket can focus on paying down debt and building savings as they prepare for retirement.

Age 60-69

Total debt: $2.73 trillion

Average per person: $67,574

Households in this age range are likely beginning to or have begun their retirement. At this point, they are probably tightening their budgets to live on retirement savings, pensions, and social security. As a result, they’re spending — and borrowing — less.

While average balances may still be substantial, most of these older borrowers continue to manage repayments. For many in their 60s, carrying this level of debt can be part of a long-term wealth management strategy — balancing ongoing liabilities while preserving or building on accumulated assets.

Age 70 and up

Total debt: $1.73 trillion

Average per person: $43,142

Seniors in this bracket are most likely retired and living on a fixed income. While there are fewer and lower levels of borrowing in this bracket compared to the others, one report says that more than 97% of those ages 66-71 do still carry some form of debt. While much of this is accounted for by small mortgages, some of it may be related to high cost of medical care, senior living facilities, and credit card debt.

💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

How Much Debt Is Too Much?

Americans have clearly become accustomed to borrowing in order to move through their everyday lives. In fact, financing is often a necessary step in order to get the graduate level training needed for a professional career or to buy a home that will become a financial asset. But are we culturally becoming too comfortable with borrowing larger and larger sums of money? And how do you know when you’ve over-extended yourself?

One way to find out if you’re carrying too much debt is to calculate your debt-to-income ratio by dividing your monthly debt payments by your monthly income. For instance, if your total debt payments (student loan, credit card, mortgage, car loan, etc.) come to $2,500 per month and your after-tax monthly income is $8,000, your debt-to-income ratio would be 31.25%. That means that a little over 31% of your income goes straight to your debts.

As a rule of thumb, the lower your debt-to-income ratio, the better: a ratio of around 30% is considered very good, while a ratio of 40% or higher could threaten your financial security.

Recommended: Which Credit Bureau Is Used Most?

How to Take Control Of Your Debt

Carrying debt can be extremely stressful, especially if it keeps you from being able to save enough to feel financially secure. Here are some solutions if you’re looking for a strategy for paying down your debt.

Make a Debt Inventory

Start by listing out all of your outstanding debts and sorting them based on whether they are “good” debts (debts taken out to help build wealth or income potential like mortgages and student loans) or “bad” debts (high-interest loans, credit cards, and auto loans). The bad, or high-risk debts, will be the ones you’ll want to take on first.

Create a Debt Pay-Down Goal

Creating a debt pay-down goal gives you a clear roadmap for reducing what you owe. Two popular strategies that can help you get there are the debt avalanche and the debt snowball methods.

With the debt avalanche method, you focus on paying off the debts with the highest interest rates first, which minimizes the total interest you’ll pay over time. The debt snowball approach, on the other hand, prioritizes paying off your smallest balances first, giving you quick wins and motivation to keep going. Whichever method you choose, setting a specific, achievable goal helps you stay focused and build momentum toward becoming debt-free.

Consider Consolidating Your Debt

If you are carrying a high credit card balance or other high-interest debt, but have a steady income and good credit, you may be able to make your repayment simpler and cheaper by taking out a lower-interest personal loan to pay off those debts. You can’t use an unsecured personal loan to consolidate student loan debt, but it can be immensely helpful if you’re trying to get out from under credit card debt.

Recommended: Can You Refinance a Personal Loan?

The Takeaway

Many Americans have debt, with younger people having more student debt and those in midlife having more in the form of mortgages.

If you’re concerned about managing your debt (especially from credit cards), you might consolidate your high-interest debt into one monthly payment, which might offer a lower interest rate that could help you get out of debt sooner.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

How much does the average American have in debt?

As of 2024, average household debt sits at $105,056. This may include mortgage debt, credit card debt, auto loans, student loans, personal debt, and more.

How many people have $10,000 in credit card debt?

Roughly one in four Americans (25%) who carry credit card debt owe more than $10,000. Keep in mind that about 46% of Americans have credit card debt, in general.

What percent of Americans are debt-free?

According to data from the Federal Reserve, about 23% of Americans are debt-free. Keep in mind, though, that not all debt is considered bad. Having mortgage debt, for example, is much better than carrying credit card debt.

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.

SOPL-Q425-065

If you are struggling with debt, you have options about the kind of help you can access. Credit counseling organizations are generally nonprofits 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. 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.

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

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

As mentioned briefly, 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 nonprofit 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.

Recommended: Debt Consolidation Calculator

How Does Debt Settlement Work?

Debt settlement companies are just what their name suggests: 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

Here, the potential upsides 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

Next, the possible downsides:

•  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

There can be several benefits to 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 nonprofit organizations may host community workshops and classes or provide you with free information.

Cons of Credit Counseling

That said, there are potential disadvantages to 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 Nonprofit 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. Nonprofit 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 Nonprofit 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 labor-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. Doing so can both streamline payments into one monthly bill and may be able to save you money, depending on the personal loan you qualify for.

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 nonprofit organizations that have your best interests and a firm financial future at heart. If you are dealing with high-interest debt, there are various ways to address the situation, from budgeting to taking out a personal loan.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

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. Credit counseling, on the other hand, is typically provided by nonprofit organizations and aims to help you better understand and manage your overall financial situation, including debt.

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 establish 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.

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 negatively impact 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

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.

SOPL-Q425-005