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When a person takes on debt—whether it’s a student loan, mortgage, car loan, or credit card balance—they’re likely paying interest on that debt. This is a charge paid to the lender for the opportunity to borrow money. But interest rates aren’t all created equal.

In some cases, borrowers could find themselves stuck with high-interest debt, which can add up faster than they may realize. If you happen to be stuck with high-interest debt, don’t despair. The worst thing a borrower can do is ignore the situation and fail to make payments.

A borrower may have options for lowering interest rates and getting payments under control. Depending on the type of debt, that could mean consolidating debt, or perhaps even taking out a personal loan. Here’s what a borrower could do if they’re struggling with high-interest debt:

Identifying High-Interest Debt

The first step to tackling high interest debt is figuring out if you have it. Inputting every debt currently owed into a spreadsheet might be a good start. In the first column would be the current amount owed on each debt. In the next column could be the annual percentage rate (APR) for each debt. Then, the debts can be sorted from the one with the highest interest rate to the one with the lowest interest rate.

How High-Interest Debt Can Dent Finances

High interest rates can be sneaky. A borrower may have taken out a loan without paying close attention to the fine print. They may have signed up for a credit card with a 0% introductory interest rate, only to have the rate shoot up after the introductory period. Or they may have opted for a loan with a variable interest rate, which often starts out relatively low but can increase dramatically over time.

High-interest debt can seriously hurt finances. By sucking up any extra cash and increasing debt-to-income ratio, it can potentially prevent someone from achieving certain life goals, such as buying a home, saving for retirement, or traveling. If payments become unmanageable, a borrower may risk going into default, which could set them up for a hit to their credit score or even bankruptcy and garnished wages.

Options for Handling High-Interest Rates

Depending on the type of loan, here are some options for tackling those high-interest rates:

Student Loans

Whether it’s federal or private student loans, a borrower might be able to get a better interest rate if they refinance those loans, especially if they have a good credit score and solid income (among other factors that will vary by lender). Refinancing means consolidating all student loans—both private and/or federal—into a new loan with a (hopefully lower) interest rate through a private lender.

Keep in mind that refinancing federal student loans with a private lender means they will no longer be eligible for federal loan protections and perks like deferment or forbearance and income-driven repayment plans. So student loan refinancing won’t be right for everyone.

Credit Cards

Credit cards usually have the highest interest rates of all unsecured debt types—as of March 2020, the average APR for credit cards is above 21% . Borrowers who are stuck with a high balance on a credit card plus a high rate might want to consider a personal loan to pay it off.

An excellent credit score and steady employment might help a borrower qualify for a low-rate personal loan. Choosing a lender that doesn’tabove 21%
t charge origination fees or prepayment penalties could help to avoid extra charges.

Fixed (hopefully much lower) interest rates compared to credit cards and set repayment terms typical to personal loans can be helpful when looking for relief from the high-interest credit card debt burden, too.

Mortgages

If average mortgage interest rates have fallen, it may be a good idea to look into refinancing a mortgage. If eligible for mortgage refinance, a borrower may be able to lower their interest rate or pay off a mortgage faster. Shopping around for the best rate and considering lenders with cash-out refinancing options might be a good start.

Common Debt Repayment Strategies

No matter the interest rate, it’s often in a borrower’s best interest (get it?) to pay down debts in an effort to lead a debt-free lifestyle. Of course, if multiple debts are looming, it can be an overwhelming challenge to tackle.

Instead of giving up and declaring debt unconquerable, a borrower can follow one of the common debt repayment strategies listed below.

The Avalanche Method

With the avalanche method, a borrower can review the debt spreadsheet mentioned above to identify high-interest debts. While making minimum payments on all debts as required, a borrower can funnel extra money toward the debt with the highest interest rate first until it’s paid off, and then allocate that extra money to other debts in subsequent order of interest rate until those are paid off.

The logic behind this method is that, by saving money on the high interest rates, it should be easier to pay off lower-interest debts (and meet other financial goals) more quickly, even though the highest-interest debt may not be the loan with the largest balance. And while that’s a solid strategy, there is another common method that might sound better. (Yes, it also has a snow-related metaphor.)

The Snowball Method

The debt snowball method is another popular debt repayment strategy, but this one takes a different tack than the avalanche method above. Whereas the avalanche starts with the highest-interest loan, the debt snowball starts with the loan with the lowest total balance.

For instance, if a borrower has a credit card with just a few hundred dollars on it, then they’d start with that before moving onto the bigger debts, like student loans or a mortgage.

The logic behind this method is all about internal motivation. Reaching a money-related goal might make it easier for borrowers to motivate themselves to stick to an overall debt repayment plan. Since a smaller debt is a more manageable goal in the short term, paying off the smallest debt first could be a good way to get the snowball rolling, so to speak.

It might also be a more realistic strategy if a borrower doesn’t have a lot of extra money to throw at making large payments toward the highest-interest debt (but will still make all required minimum payments, of course).

Debt Consolidation: How Does It Work?

In some ways, debt consolidation might sound counterintuitive, because it does involve taking out more debt when a borrower already has multiple existing loans.

Basically, debt consolidation is a debt repayment method in which a borrower takes out another line of credit or debt with the express purpose of paying off existing debts. For example, instead of paying separate credit card bills, a borrower could take out a personal loan that would cover the balances on all other debts and pay them in full, then the borrower would repay only the personal loan.

This could be a significant financial improvement for a number of reasons. For one thing, it’s simply easier on a logistical level: When you’re dealing with multiple debts that are all due at different times of the month, it’s all too easy to accidentally miss a payment and fall behind.

But aside from keeping stress at bay every few weeks, debt consolidation could actually save you money. Let’s take a closer look at the example we outlined above, in which three existing debts are consolidated.

One common way to go about debt consolidation is to take out an unsecured personal loan in an amount that will cover existing debts. (There are other methods, however; for instance, some people perform a balance transfer from existing high-interest credit cards to a new credit card offering a promotional 0% interest rate.)

SoFi offers personal loans with competitive rates and, unlike many other lenders, SoFi loans don’t come with a bevy of hidden fees. That said, debt consolidation isn’t the only option when it comes to finding a way to ease a debt burden. After all, an unsecured personal loan is still a debt, although ideally a debt with better rates and terms than a credit card.

Refinancing

Instead of taking out another line of credit to cover multiple existing loans, with refinancing a borrower is taking out a new loan to cover one specific debt, often a mortgage or a student loan.

The power behind this financial move is pretty simple: If a borrower’s credit score or other qualifying factors have improved since the time they took out the original loan(s), they could be eligible for a loan with a more reasonable monthly payment or a lower interest rate. That could make it easier and/or faster to go through the snowball or avalanche methods described above, or simply to save up more money for other financial goals.

SoFi offers student loan and mortgage refinancing, as well as a broad range of other financial products that could help money woes back on track.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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.

BR18132

If you’ve taken out student loans to invest in your education, you know that paying interest on those loans is simply part of the deal. But while “interest” can seem like an abstract notion when you first take out loans, over time it can become a force to be reckoned with—particularly for the many MBA, law, and med school grads with six figures worth of education debt to repay.

For example, using a student loan calculator to get a rough estimate, you can see that a borrower with $100K in student loan principal at a 6.8% weighted average interest rate and a 10-year term can expect to pay an estimated $38K in interest over the life of the loan. And that’s if they make every payment on time.

Paying interest on student loans may be unavoidable, but there are a few mistakes that can cause some borrowers to pay more interest than they need to. Read on for tips on how to help prevent these blunders from affecting your bottom line.

Mistake #1: Using Forbearance When It Isn’t Absolutely Necessary

Most federal loans and some private loans may allow borrowers to use forbearance to temporarily reduce or suspend loan payments in the event of qualifying financial or medical difficulties.

But in most cases interest continues to accrue while payments are on pause—which means that the longer borrowers remain in forbearance, the more they may have to pay in the long run. (See Mistake #5 below.)

So if the goal is to minimize interest expenses, forbearance is typically an option best reserved for extreme financial hardship. Resuming regular payments as quickly as possible could be another way to minimize accrued interest.

If the borrower has federal student loans, enrolling in an income-driven repayment plan might be another option to consider. The monthly payment for an income-driven repayment plan is based on the borrower’s discretionary income and family size.

In certain cases (qualifying unemployment or the inability to work because of an illness, for example) payments could be as low as $0. After the period of financial hardship has passed, the borrower re-certifies the loan using new income information. (Recertification is required every year.)

Mistake #2: Unnecessarily Extending the Repayment Period

Federal student loan consolidation with a Direct Consolidation Loan allows borrowers to combine two or more eligible federal loans into just one loan, helping to streamline their monthly bills.

When borrowers consolidate, they’re typically given the option to lower their monthly payment by extending their repayment period. (With federal loan consolidation, the new interest rate is the weighted average of the borrower’s existing loans, rounded up to the nearest one-eighth of a percent. So extending the repayment period is the only way to lower the payment.)

For those who are struggling to make payments, that may be tempting. However, those smaller monthly bills can come at a price. Extending the payment term from 10 to 30 years, for example, would mean the borrower has to pay considerably more interest over the life of the loan. (Because the borrower would be accruing 20 additional years of interest.)

Mistake #3: Not Prepaying When Possible

All education loans, whether federal or private, allow for penalty-free “prepayment,” which means borrowers can pay more than the minimum required and pay off their loan balance early, without incurring any extra fees. Even paying an extra $100 per month could go a long way.

Whether it’s increasing monthly payments after receiving a raise or putting half of a bonus toward student loans each year, every little bit helps to drive down total interest.

Student loans are amortized, which means a portion of each payment is applied to the principal each month and a portion goes toward interest.

Early on, a larger portion typically goes toward interest, so the principal balance goes down pretty slowly. Usually, it isn’t until the borrower has made years of payments that a noticeable amount starts being applied toward the principal. One way to speed up that progress—and knock down the debt faster—is to pay more than is required each month.

(Borrowers should be sure to tell their lender what they’re doing and verify that their prepayments will be applied to their loan principal.) Borrowers can use this calculator to see how prepayment could help them get out of student loan debt sooner.

Mistake #4: Starting Accelerated Repayment Efforts with the Wrong Student Loan

Borrowers who have more than one student loan may choose to make extra payments on one loan at a time. It can be tempting to start on the loan with the smallest balance, put extra payments toward it while making timely minimum payments on other loans, get the emotional boost from eliminating that bill, and then move on to the next.

This approach is sometimes referred to as the “snowball method,” and it can be useful for borrowers who need the gratification of a faster payoff to stay motivated. But it might not save the most interest.

Prioritizing the loan with the highest interest rate (the “avalanche method”) can make more sense mathematically and might be more efficient for those who have the discipline to stick with it. And borrowers still can be excited as they watch the balance on that high-interest student loan go down.

There are a few online calculators that could be used to compare the avalanche method to the snowball method . Comparing the estimated interest payments and debt free dates could help borrowers determine which method will work best for them.

Mistake #5: Underestimating the Impact of Interest Capitalization

Deferment and forbearance periods may feel like a helpful option to escape making federal student loan payments when a borrower is struggling financially. But taking a break can be tricky.

The federal government will pay the interest on subsidized loans during deferment periods, but it won’t pay the interest on unsubsidized loans during deferment or on any loans during forbearance.

Unpaid interest also may accrue if a borrower is repaying federal student loans under an income-driven repayment plan and the monthly payment is less than the amount of interest that accrues between payments.

If a borrower doesn’t pay the interest as it accrues, that interest can be capitalized, or added back onto the principal balance of the loan. And any interest payments made after that will be calculated based on this new balance.

Interest also can capitalize when a student loan enters default, or when the six-month grace period ends. So, if it’s at all possible, borrowers who choose to press pause on their loans may want to try to make interest-only payments during that time.

Mistake #6: Failing to Claim the Student Loan Interest Deduction

OK, technically, this isn’t a way to save money on interest. But it can help alleviate some pressure for borrowers with qualifying student loan debt, since this student loan interest deduction can potentially reduce the amount of income that is subject to tax. (Reminder: Taxes can be tricky, and we are not here to provide tax advice. This is just a high-level look at a potential tax deduction, and isn’t a definitive accounting of the information available. Always consult with a tax professional about tax deductions and any questions around them.)

Borrowers may be able to deduct up to $2,500 on federal and student loans on their federal return each year. That’s $2,500 per return, so those who are married and file a joint return have the same $2,500 cap even if both spouses have student debt.

The deduction begins to decrease at a certain income threshold, depending on the taxpayer’s filing status. For the 2019 tax year, the deduction starts to phase out at a modified adjusted gross income (MAGI) above $70,000 for single and head of household filers, and it’s eliminated entirely at a MAGI above $85,000.

For those who are married filing jointly, the phase-out starts at a MAGI above $140,000 MAGI and is eliminated for those with a MAGI above $170,000.

For a student loan to qualify under the IRS’s rules , it must have been obtained with the sole purpose of paying for qualified education expenses for the taxpayer, the taxpayer’s spouse, or someone who was the taxpayer’s dependent at the time he or she took out the loan.

The person for whom the loan was taken must have been enrolled at least half-time in a program that leads to a degree, certificate, or other credential. The loan can’t have been from a relative. Qualified education expenses can include things like tuition, books, supplies, equipment, and, in some cases, room and board.

Because this deduction is claimed as an adjustment to income, taxpayers don’t have to itemize to take it, but it does require proper documentation. If the loans are officially referred to as student loans—whether they’re federal or private student loans—the lender would send a Form 1098-E, Student Loan Interest Statement. Borrowers can claim the interest from some other types of loans but will have to track those amounts on their own.

Again, taxes can be tricky, so definitely consult with a licensed accountant or tax professional to get the low-down on all the details of this or any other tax deduction.

Mistake #7: Not Signing Up for Autopay

With automatic payments, student loan payments are transferred directly from a borrower’s bank account to the lender, which reduces the chances of a late payment and gives the borrower one less thing to worry about.

There’s often another important perk: Some lenders will reduce the interest rate on the student loan by a certain percentage.

For those who keep enough funds in their account to cover their bills every month, it’s another potential way to save. And if the situation changes, and a manual approach becomes necessary, a borrower should be able to stop automatic payments at any time.

Borrowers who like the idea of making extra payments could set up their autopay to make a half payment every two weeks, or 26 half payments each year. That option adds up to 13 full payments instead of 12—or one extra payment. (This can be done manually, as well—it’s just that autopay typically makes it easier.)

Mistake #8: Making Late Payments or Going into Default

Failing to make payments can have several negative repercussions, including legal consequences if the borrower defaults on the loan. Both delinquency and default can also negatively impact the borrower’s credit score.

A lower credit score may reduce a borrower’s chances of getting a competitive interest rate on a refinancing loan, or on other types of loans or credit cards in the future.

Mistake #9: Neglecting to Explore Refinancing Options

Another opportunity that could allow borrowers to stick it to student loan interest is to refinance student loans at a lower interest rate and, possibly, a shorter repayment term. And some lenders, including SoFi, offer both variable and fixed rate loans, so borrowers can choose what best suits their needs.

Refinancing can typically be an attractive option to borrowers who have a solid financial situation—for example, a comfortable debt-to-income ratio (among many other possible considerations). However, before refinancing federal student loans, borrowers should check to see if they qualify for any forgiveness programs or other federal benefits (like income-driven repayment plans) and other repayment options that are forfeited when refinancing federal student loans with a private lender.

Bottom line: Refinancing to a shorter term with a lower interest rate can help eligible borrowers take a big bite out of total interest.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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.

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.

SLR14100

Finishing veterinary school is an incredible achievement. After so much training and dedication, it’s finally time for new vets to turn their passion for improving animal health into a rewarding and meaningful career. But one thing might be standing in their way: student loan debt.

Veterinarians graduating in 2018 had an average student debt load of $183,014, including vets who didn’t take out any loans.
That’s a pretty steep hurdle for anyone starting out in a career. Based on these numbers, it’s no wonder that recent Doctors of Veterinary Medicine, or DVMs, might be struggling to find a healthy balance between loan repayment, saving for retirement, and helping their furred and feathered patients.

Luckily, there are more than a few repayment options out there that cater specifically to veterinarians. Some programs offer tuition repayment assistance in exchange for short-term work, while others offer student loan forgiveness for long-term service. In addition to these, there are a few often-overlooked refinancing options that might also help borrowers reduce their debt. Let’s take a look to see which financing options might fit different vets’ unique career needs.

Veterinary Loan Repayment Programs

If a vet specializes in large animal or veterinary agricultural medicine, there are a few loan repayment programs that might reduce their debt in exchange for a few years of work.

For a student still in the process of researching and applying to veterinary schools, it might be worthwhile to take note of which state universities offer student loan repayment assistance to their students in exchange for several years of post-graduate service in local agricultural veterinary medicine. Some schools offer a wide range of loan repayment assistance for veterinary students. Here are just a few:

The Veterinary Medicine Loan Repayment Program

The Veterinary Medicine Loan Repayment Program (VMLRP) is a federal program established in 2003 by the USDA. In exchange for three years of service in a location where there is a shortage of veterinarians, a borrower can receive up to $25,000 each year (up to three years) in loan repayment assistance.

State Veterinary Loan Repayment Program

Some individual states also offer loan repayment programs to attract large-animal vets to remote areas. While some of these programs are tied to specific state university veterinary programs, others are designed to attract recent graduates.

For example, North Dakota offers up to $80,000 in repayment assistance for four years of service working with food supply animals, and Maine provides up to $100,000 for up to four years of service. On the other hand, Pennsylvania only forgives a maximum of $10,000.

Veterinarians might want to contact their state before accepting a job solely because they believe their loans will be forgiven. Funding sometimes varies from year to year in certain states, so it can be helpful to double-check that the state is participating in loan forgiveness at the time they want to enroll.

The U.S. Army Medical Department

The U.S. Army Medical Department (AMEDD) also offers loan repayment as a benefit to qualifying veterinarians. For active-duty servicemembers, vets are eligible for up to $120,000 in student loan repayments over a three-year period, receiving $40,000 per year. For those who enter the reserves, up to $50,000 is offered over three years, receiving $20,000 the first two years and $10,000 the third year.

The Federal Faculty Loan Repayment Program

If someone comes from a disadvantaged background and plans to go into academia, the Federal Faculty Loan Repayment Program offers up to $40,000 in repayment for veterinarians who serve on the faculty of eligible universities for two years. The program also offers funds to offset the taxes associated with repayment assistance. In 2018, 164 veterinarians applied for the repayment program, and 23 received awards.

The National Institutes of Health (NIH) Loan Repayment Program

The NIH Loan Repayment Program is for veterinarians or other health professionals who focus on research, rather than practical medicine.
The NIH provides eight awards total—five are extramural, meaning they’re given to people who aren’t employed by the NIH, and three are intramural, or for researchers who are employed by the NIH. DVMs qualify for both extramural and intramural awards.

Most contracts last for two years. The repayment amount will total one-quarter of a researcher’s eligible student loans, up to $50,000. People can receive up to $100,000 if they owe more than $200,000 in student loans. Researchers do have the option to renew their awards if they meet certain qualifications.

Intramural General Research awards, which are open to researchers in any field, last for three years. Borrowers who receive the competitive General Research award will have one-quarter of their eligible student loans forgiven, or up to $50,000 per year. Those who receive the non-competitive General Research award will receive one-quarter of their eligible student loans, up to $20,000 annually.

Veterinary Loan Forgiveness Programs

For vets who specialize in areas outside of agriculture, there are fewer well-funded repayment options. However, loan forgiveness programs could be a potential benefit if a vet wants to pursue a career in public service, helping animals in need.

The Public Service Loan Forgiveness Program (PSLF) is a program meant for qualifying federal student loan borrowers working full time in a qualifying position in government, social work, or education, or if they work for a qualifying tax-exempt nonprofit like the American Society for the Prevention of Cruelty to Animals (ASPCA). After they have made 10 years’ worth of on-time monthly payments under a qualifying repayment plan, they could have the balance on their federal Direct loans forgiven.

To anyone who thinks having their vet school loans be forgiven in just 10 years is too good to be true—well, they might be right. It can be difficult to qualify for this program. As of 2019, 110,729 borrowers had applied for PSLF and only 1,216 had been approved.

Reasons for denial range from applicants failing to make payments correctly to working for ineligible employers to attempting to qualify for
ineligible loans.

In President Trump’s 2020 budget proposal, he explains that he wants to eliminate PSLF altogether. If the budget passes, borrowers who take out student loans after July 1, 2020, cannot enroll in PSLF.

Income-Driven Repayment (IDR) Plans

The federal government offers four types of income-driven repayment plans for federal student loan borrowers with eligible student loans. These programs consider a borrower’s discretionary income, which is the amount someone earns after subtracting taxes and essential living expenses. People who enroll in one of these programs could have their vet school loans forgiven after 20-25 years.

•   Income-Based Repayment (IBR): Those who are new borrowers on or after July 1, 2014, will pay 10% of their discretionary income for 20 years. People who were not new borrowers by July 1, 2014, will pay 15% for 25 years. After a borrower has paid for the designated amount of time, their remaining loan balance will be forgiven.

•   Income-Contingent Repayment (ICR): When a borrower enrolls in ICR, they may choose the lesser of two options. They can either pay 20% of their discretionary income each month or whatever they would pay if they spread their loan payment evenly across 12 years—whichever is cheapest. After 25 years, the remaining amount will be forgiven.

•   Pay As You Earn (PAYE): People pay up to 10% of their discretionary income monthly. However, they’ll never pay more than they would had they enrolled in the 10-year Standard Repayment Plan. The remaining balance will be forgiven after 20 years.

•   Revised Pay As You Earn (REPAYE): Borrowers typically pay 10% of their discretionary income. People whose loans were solely for undergraduate studies would make payments for 20 years before the remainder is forgiven. However, people who took out loans for graduate or professional studies (like veterinarians) will make payments for 25 years.

Income-driven repayment plans can be amazing solutions for some borrowers, but they aren’t necessarily the best fit for everyone.

Veterinarians can use a repayment calculator to determine which type of plan is the best match for their needs. Some will discover that one of these income-driven programs will save them the most money, while others may choose to enroll in a standard or graduated repayment plan.

Refinancing Veterinary Student Loans

There’s one other option that might give vets the freedom to design the ideal payback schedule: refinancing their loans. If borrowers have a good credit score and financial profile, they might be able to refinance their loans with a bank or student loan refinancer to get a lower interest rate. Over time, a lower interest rate could potentially save a vet thousands over their repayment period.

Refinancing student loans involves taking out a brand new loan with a new interest rate, and using that loan to pay off existing loans. Lower rates and/or term could help vets pay less in the long run and/or pay off their debt more quickly.

Not only could borrowers improve their loan terms, but making only one payment per month (rather than a separate payment for each individual loan) has the potential to simplify their lives.

When a borrower refinances federal loans, it’s important to keep in mind that they will no longer have access to federal loan benefits, like the PSLF, income-driven repayment, or deferment and forbearance.

But if they don’t plan on taking advantage of these benefits, have a steady income (among other positive personal financial factors), and want better loan terms, refinancing could be the best fit for their needs.

By refinancing with SoFi, vets can refinance both federal and private student loans into one new loan. SoFi members even have access to bonus features, including live customer service and career coaching—at no extra cost!

Those ready to refinance can quickly apply online for free. SoFi offers competitive rates and doesn’t charge application fees, origination fees, or pre-payment penalties.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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.

SLR18103

Imagine this: Your friends text you, let’s go skiing! And you want to say yes. Who wouldn’t want to glide down a mountain and enjoy an apres ski in a cozy lodge? And no worries, you say, I’ll just put it on the card! Or this: Your best friend plans a destination wedding to France.

Of course you’re going to RSVP yes—you couldn’t miss out on witnessing such a momentous day. And hey, when you use your credit card you’ll earn a few rewards.

Or even this: Your little sister needs a dress for prom, and asks if you’ll cover the cost. It’s a once-in-a-lifetime experience, you think as you hand over your card.

It’s easy to say yes in the moment, offer up your credit card, and think about the cost later. But the shock and stress of looking at your credit card statement after a month of spending can be overwhelming. And when your spending goes unchecked or your balance doesn’t diminish, credit card debt can rack up quickly.

When used responsibly, credit cards can provide the opportunity to do things like build credit and earn rewards points or cash back that can be used for other purchases. When used with abandon, however, careless spending on credit cards can lead to debt—which may feel insurmountable.

It’s no secret that credit card debt is a problem that plagues many Americans. According to the Federal Reserve, consumer debt in 2019 exceeded $4 trillion , over $1 trillion of which is credit card debt.

Nearly 55% of Americans who have a credit card are in credit card debt. The average credit card balance during the first quarter of 2019 was $6,028 , according to Experian. That balance can grow quickly, considering that annual percentage rates (APRs) for credit cards can be quite high (the average APR has hovered around 17% for some time).

Common Ways to Deal with Credit Card Debt

If you’re currently dealing with or have dealt with credit card debt in the past, you know how hard it can be to dig yourself out of the hole. While it can feel like an impossible problem to solve, there are strategies and resources available which may put you on a path toward eliminating your credit card debt once and for all.

When taking action on your credit card debt, it is generally recommended to put a plan in place. There are plenty of strategies that are touted for their ability to help you crush debt. Creating a debt reduction plan might provide the structure you need to meet your goal of debt repayment.

For some, the avalanche method, which organizes debts based on interest rate so the debt with the highest interest rate is targeted first, may make the most sense. For others, the built in reward of the snowball method, which targets debts with the smallest amount first may be preferred.

Regardless of the method you choose, it’s considered best practice when using these programs to try and stick with the debt repayment plan you’ve developed unless you see a compelling reason to switch. It can also be an opportunity to check in with your spending to determine what habits have gotten you into debt. You may find you’ll need to make a few changes to your spending habits to truly eliminate credit card debt from your life.

Beyond aggressively making payments on your debt, there may be other strategies worth considering. For some, it may be helpful to find a way to consolidate your credit card debt into better repayment terms.

One option for this is to use a balance transfer credit card. In concept, these are pretty straightforward. Basically, you open a new no- or low-interest credit card and transfer the balance of your existing credit card to it. You’re then able to pay off your debt with a lower interest rate as long as the balance is repaid within the given timeframe.

This, in theory, could put you on the path to pay off your credit cards in a more timely manner because you may not face high interest payments. But the low interest rate on balance transfer credit cards is usually only offered for an introductory period, commonly anywhere between six and 18 months. After that period expires, the rates usually increase.

If you can pay off the balance transfer card before the low initial rate expires, it could be an avenue worth pursuing. However, balance transfers often come with a fee—usually 3% to 5% of the total amount you’re transferring.

If it’s a large debt, you may end up paying a hefty fee, which may make this option a less attractive method. Another option is borrowing a personal loan for credit card debt consolidation. While it may seem counterintuitive to take out a new debt to help get out of an old debt, it could be worth considering.

FAQs: Paying Off Credit Card Debt with an installment Loan

For some, paying off credit card debt with a personal loan (which is an installment loan) might be a helpful strategy for getting out of credit card debt. Here are some commonly asked questions about debt consolidation loans:

Why use a personal loan to pay off credit cards?

If you have a lot of high-interest credit cards, you can rack up debt much more quickly if you don’t pay off the entire monthly balance, which ultimately might hold you back from building a solid financial future.

Carrying a balance from month to month means you’re not only paying for the upfront cost of your purchases, you may also be paying a hefty fee in interest. On average, households with a revolving balance of credit card debt paid $1,141 in interest.

If you’re in this situation, using an unsecured personal loan to pay off credit card debt can be an avenue worth exploring.

Ways to use a loan to pay off credit card debt

Instead of owing money on multiple credit cards, some people take the total amount owed among all their cards, consolidate that debt into a single loan amount to pay off the credit cards. That is what’s known as an installment loan known as a personal loan.

By doing this, you would then start making payments toward one single personal loan instead of payments to multiple cards. The hope would be that the interest rate on the personal loans would be lower than any combined interest rates on any credit cards you might have.

Is using a personal loan to pay off credit cards the right option for you?

Whether consolidating your credit card debt through a personal loan is right for you is based on different factors.

For instance, what are the balances and terms on your current credit card debt vs the terms you could obtain on a new debt consolidation loan? Try utilizing a debt calculator to help you gather some estimated numbers. If you qualify for a lower interest rate, paying off credit debt with a personal loan has a number of potential advantages. For one thing, consolidating or refinancing debt can help simplify your payment plan, turning multiple bills into one.

Taking out a personal loan to pay off debt can be one way to take advantage of better financing terms such as lower interest rates, which could help save you money in the long run.

Benefits of Taking Out a Personal Loan to Pay Off Credit Cards

Debt consolidation loans can be particularly useful for consolidating debt on multiple credit cards that may have less than favorable terms, and it’s easy to see why. Debt consolidation loans can potentially help you streamline your finances. Making a lower fixed payment on a single loan every month may also help reduce the chances of missing payments.

It is worth noting that some credit card interest rates can vary based on factors such as the type of transaction, purchase, or cash advance, whether the rate is fixed or variable, qualifying criteria, and more.

According to Bankrate.com the average interest rate on a variable credit card is running around 17% and sometimes reaching as high as 29.9% APR if you miss payments. One tool to help you understand how much interest you might be paying is our Credit Card Interest Calculator.

Personal loans, on the other hand, can typically be found at a lower interest rate. A lower interest rate could potentially reduce the amount of interest the borrower is required to repay over the life of the loan.

Depending on your circumstances, a percentage point or two off could make enough of an impact on your interest payments to place you on the path to paying off your credit cards in a more timely manner.

When you take out a personal loan it can be used for almost anything that’s a personal expense, such as general consumer/household purpose, home renovations, and debt consolidation; theoretically, you could use a personal loan to pay for anything from a wedding to an elephant (although good luck finding a low APR on that one).

Potential Considerations Before Taking Out a Loan to Consolidate Credit Card Debt

When considering a personal loan, one way to start could be by making a chart of your debts and their respective interest rates, and calculate how long it could take you to become debt-free.

Also, consider whether you have explored all options in determining how best to position your outstanding debt into better financing terms.

Once you’ve done the initial legwork, a good next step is to compare that credit card repayment plan with a personal loan, and see which is better for your budget.

Check the math and review the loan terms and interest rate to confirm you’d actually end up with a preferable repayment plan. For instance, a lower monthly payment might seem great, but if it ultimately extends the length of your repayment, depending on the rate and term, you might end up paying more in interest than you realize.

Consider your current and future financing terms: whether it’s simply peace of mind in the form of one monthly bill, or saving the maximum amount of money, what works best for one person may not be great for you. If you’re still in doubt about how to best get ahead of your debt, consider asking for help from a professional.

Those professionals could offer some valuable insight to help you create a personalized plan that can help you find the best path toward your financial goals, like living in a debt-free future.

Taking an intentional step toward tackling your debt can be challenging, but with a little creativity and discipline, you can work on managing your debt without letting it slow your financial plans for the future.

With SoFi, you may qualify to consolidate your high interest debt into one single unsecured personal loan, with loan amounts up to $100,000 and fixed interest rates with no origination fees or prepayment penalties.

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 .

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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.

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With graduation comes a fair share of celebration and changes. From grad parties to finding your first job to possibly a major move, life moves pretty fast during that first year out of school. While you’re busy setting up a new life, you may not even have time to think about those student loans you might’ve taken out for school.

When it comes to student loans, however, it’s not as easy as out of sight, out of mind. You might be busy setting up the next phase of your life, but don’t forget that your loan repayment will come calling, and likely sooner than you think.

Graduate students and undergrads currently leave school owing $29,200 on average, but the total amount you’ll pay back will depend on things like the interest rates on your student loans, the length of the loan term, and any loan forgiveness you may be eligible for. If you used student loans to get through college, you’re one of the 45 million Americans sharing the load of the country’s $1.6 trillion-plus student loan debt.

These figures are certainly daunting, especially for students who may face uncertainty about job prospects or find themselves having to leave school unfinished due to financial hardships or other reasons.

But one possible avenue for debt relief is that many student loans come with a grace period. A grace period is the length of time before you have to start student loan repayment, and the clock typically starts six months after you:

•   graduate
•   leave school
•   drop below part-time credit hours

Typically, you can use a grace period once per loan. During the grace period, you’re not required to make payments on your student loans. Most federal student loan grace periods are six months, but the Federal Perkins loan has a grace period of nine months. Some federal student loan grace periods can be extended even longer, for active duty military for instance. PLUS loans do not offer a grace period.

A grace period is different from other loan payment delays, such as deferments or forbearance, which have to be requested (grace periods typically begin automatically for those loans that have them)..

One important note: Grace periods are usually only available on federal student loans, and not all federal student loans have grace periods.

If you take out a private student loan some lenders, such as SoFi, may allow those with existing student loans in pre-repayment grace period status to align their first payment date with the soonest scheduled first payment date of those existing loans (up to a maximum of 180 days from the date of approval). In other cases, you may have to start repayment as soon as you graduate or leave school.

Theoretically, the grace period is there to give you time to get yourself financially settled and solidly employed, and for many students who are just leaving the campus life, a grace period feels like a no-brainer.

That said, there are other options during your grace period: You can get a jumpstart on your student loans and start paying them immediately, or start saving up to pay them. As with any financial decision, though, there are pros and cons to consider.

Here are some questions to consider during your grace period.

Some Advantages of Student Loan Grace Periods

The biggest advantage of the grace period is that you have a cushion of time before you have to start making loan payments, usually around six months after graduation/leaving school/dropping to part-time enrollment. Under certain circumstances, you may qualify for an extension.

Exceptions for most federal student loans include:

•   Active military duty. If you’re called for duty more than a month before the end of your grace period, you’ll have a full six-month grace period when you return.

•   Going back to school. If you go back to school before the end of your grace period, even just part-time, your grace period will reset to six months after you stop attending school.

•   Consolidating the loan. If you choose to consolidate your eligible federal student loans before your grace period ends, you’ll forfeit the rest of your grace period. In that situation, your payments will begin in about two months after the consolidation loan is disbursed.

Federal loans that have a six-month grace period include:

•   Direct Subsidized Loans
•   Direct Unsubsidized Loans
•   Subsidized Federal Stafford Loans
•   Unsubsidized Federal Stafford Loans

If you received a Federal Perkins Loan before the program expired, the average grace period is around nine months. You may want to check with your school to be certain.

The only federal loans that don’t offer a grace period are PLUS loans, which are reserved for:

•   graduate students
•   professional students
•   parents of dependent undergraduates

PLUS repayment begins immediately, but borrowers may be eligible for deferment. (Not sure what type of loan you have? Check the National Student Loan Data System .)

Used wisely, the grace period can serve its intended purpose — to give you some breathing room to find your first job, get settled, and build up a bit of income.

The bills come quickly during that first foray into post-college life, including moving costs, rental deposits, utility setup, groceries, decorations, and business attire. The grace period may give you adequate time to take care of all those necessities and get a few paychecks into your bank account before starting to pay back your loans.

Some Disadvantages of Student Loan Grace Periods

Even when you’re not required to make payments during your grace period, you’ll likely still accrue interest on your federal student loans. If your loan was large to begin with, this accumulation of interest could put you at even more of a disadvantage right out of the gate.

The exception to this rule is if you have federal Direct Subsidized Loans—these will not accrue interest during the grace period.

To make matters even more complicated, some loans simply accrue interest, while others capitalize unpaid interest into the principal balance of the loan, which means you effectively pay interest twice. Making interest payments on a student loan, even if you decide to use the grace period, may help you avoid any unpleasant surprises.

On top of that, graduation, moving, and getting a job can come with a bunch of unexpected spending. While emergencies and unanticipated bills come up, especially during your first year out of school, it’s encouraged to keep expenses down.

Remember when the grace period is up, you’ll have to start making monthly payments, or risk penalties such as delinquent marks on your credit report and late fees.

Choosing How to Handle Your Grace Period

If you decide that the pros of the student loan grace period outweigh the cons, you could use that payment-free time to start setting aside funds for later. During your grace period you can:

•   Use a student loan calculator to determine your monthly payments.
•   Work with your lender/servicer to see what your payments will be.
•   Make it a goal to try and put away at least a partial amount each month.

If you get used to living on a budget that doesn’t include your student loan payment, you may be setting yourself up for future stress. Instead, you could consider:

•   Waiving the grace period and starting student loan payments immediately. If you have enough wiggle room in your budget, you can start paying your loans down immediately. Since your loan wouldn’t be accruing unpaid interest during the grace period, it could lead to savings in the long term.

•   Setting aside a part of your monthly paycheck to start paying down the interest. If your budget doesn’t allow for monthly payments yet, you could try saving what you can to pay off some of the interest on your student loans during the grace period. Even a small contribution can make a difference.

But if your budget doesn’t allow for any payments during your grace period, don’t sweat it. Your grace period is there for a reason, to give you some breathing room while you sort things out financially.

Some Ways Refinancing Can Help

Although you might be stuck with the debt, you aren’t necessarily stuck with the terms of the original loan you took out. It may be possible to refinance your student loans to terms that work better for you. Refinancing lets you take out a brand-new loan with a new interest rate and new loan terms.

When refinancing, you may be able to qualify for a lower interest rate than the one you are currently paying. Refinancing student loan debt could also offer you the opportunity to shorten your term length or lower your monthly payment (possibly by extending your term).

If you are managing a number of student loans, refinancing may help to simplify your life by giving you one loan to pay, instead of multiple loans to remember.

Keep in mind that if and when you refinance your federal student loans, you will be losing out on potential benefits that come with them.

These benefits, like Public Service Loan Forgiveness (PSLF), income-driven repayment plans, or deferment or forbearance, can also save you money and stress, so make sure to do your research before deciding to refinance.

If you choose to refinance your student loan, you might consider doing it with SoFi. With flexible terms and low- or fixed-variable rates, SoFi can make it easy to save while repaying your student loans. There are no application or origination fees, and you can do it all online.

Don’t let your grace period’s end catch you off guard. If you plan ahead, and plan for future payments, you could end up on more solid financial footing.

About SoFi

SoFi offers student loan refinancing which may help you lower your monthly payments or shorten your loan term. Discover the different student loan refinancing options to see if refinancing could be a good option for you.

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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