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You had a long day—there was a crisis at work, you have a major school assignment, or one of your kids has a cold. Exhausted, you’re finally plumping up your pillow, ready to catch some Zs. But sleep won’t come. Why? Because you’re stressing out about your credit card debt.

You aren’t alone. Americans are carrying more credit card debt than they ever have before, and as of January 2020, the average credit card APR, or annual percentage rate, on new offers is 17.30% (and has been hovering around 17% and 18% for the last six months).

When it comes to debt, credit card debt is sometimes classified as “bad debt,” while student loans or a mortgage may be categorized as “good debt.” This is because student loans or a mortgage loan imply that your debt is an investment in something—whether in a house that could appreciate in value or an education that can boost your income. In contrast, credit card debt is rarely an investment. And because of the way credit card interest is charged, it can end up costing you a lot.

Not only can credit card debt mount quickly, but a large credit card balance may adversely impact your credit score. And a credit score plays a big role in our lives in terms of qualifying for mortgages, car loans, and apartment leases, among other things.

If you feel underwater when it comes to carrying a credit card balance, it’s good to know that there are tools you can use to help get out of high interest credit card debt.

Unfortunately, there is no magical quick fix to help you escape credit card debt, but there are actionable steps you can take to reduce and eventually eliminate your credit card debt. It can take some time and effort, but being free of the emotional and financial burden credit card debt can create is often worth it.

The Problem with Carrying Credit Card Debt

Having credit cards is not an inherently bad thing. They help you establish a credit history, which in turn can help you towards owning a car, a home, or your own business. But on the other hand, it’s not hard to amass a large amount of credit card debt.

This is because for every billing cycle where you’re not able to pay the statement balance in full, you’re charged interest. This might show up on your credit card statement as a “purchase interest charge.”

The interest you’re charged on a credit card compounds. Compound interest means interest is calculated not only on the principal amount owed, but also the accumulated interest from previous pay periods.

Essentially, it means your interest is earning interest. Compound interest can pile up quickly, to the point where it might feel like you’re paying financial catch up month after month.

By the time you pay off your credit card debt, you could not only be paying off your purchases, but you could also be paying every interest charge you’ve incurred on that balance.

Getting Out of High Interest Credit Card Debt

Because interest charges grow your credit card debt, it can be hard to get rid of it once and for all. And as already noted, credit card interest rates run pretty high—averaging between 17% and 18% currently. That is because credit cards are considered to be “unsecured” debt vs a mortgage loan which is recorded as a lien on the home. To put that in perspective, as of January 2020, mortgage interest rates are around 3.84%.

So the interest you’re paying on a credit card is approximately four times as much as the interest you would pay on a mortgage. Reducing your credit card debt comes down to the financial strategies you use. Here are three ways you can potentially manage your credit card debt, and in time, completely pay it off.

There’s no single right way to pay off debt, and certain methods might suit you better than others. While paying off high interest debt is a numbers game, it’s also an emotional one.

The best method may be the one you‘ll likely stick to—the debt repayment method that motivates you. If you want to repay your debt, it may not matter which method you select, as long as it helps you stay on track to repay.

To get an idea of the total amount of interest you are likely to pay on your debt, you can consult our Credit Card Interest Calculator.

1. Using the Snowball Method

The snowball method is a popular debt payoff option—people use the snowball method to pay off their student loans, too. For credit card debt, the snowball method works if you have debt across multiple credit cards. First, you’d make a list of all of your credit card debts and put them in order of the smallest to largest balance.

Then, you would focus on paying off the smallest balance first (while making the minimum payments on your other credit cards). Once you’ve paid your smallest balance, you could focus on the next smallest balance, and so on.

By paying the smallest balance first, you will potentially gain momentum that may motivate you to pay off your other debts. Thus, your effort “snowballs.”

Say, for example, you have the following loans:

•   $1,200 medical bill with no interest and a $150 monthly payment

•   $11,000 student loan with 5.5% interest and a $235 monthly payment

•   $15,000 credit card balance with 16% interest and a $400 monthly payment

Using the snowball method, you’d work to tackle the medical bill first, while still paying the monthly minimums on the rest of the debt. Once you pay off the medical bill, you could start contributing its monthly payment, plus additional spare funds, towards the student loan, and so forth. The small debt repayment snowballs into the larger debts.

Some argue that the snowball method isn’t the most efficient way to pay off debt, but in some cases it may be the most effective. The snowball method could dictate paying off a small no-interest loan in its entirety even if a high-interest credit card carried a higher balance.

But, for some people, paying off those small debts is a motivating experience, and can help them stay on track. If those small wins make a difference for your mentality, the snowball method could be for you.

2. Tackling the Highest Interest Debt First

If the snowball method doesn’t appeal to you, you can try tackling your highest interest debt first, sometimes called the debt avalanche. This is similar to the snowball method, except you start with your highest interest debt instead.

A good first step might be making a list of all of your credit card debts and their interest rates. Then, you could pay off the credit cards with the highest APR first, while making the minimum payments on your other debts.

When the highest-interest card is paid off, you could tackle the credit card with the second highest APR, and so on—until your credit card debt is completely paid off. If you choose this payoff method, the goal is to reduce how much you spend on interest overall.

So using our earlier example, you have the following loans:

•   $1,200 medical bill with no interest and a $150 monthly payment

•   $11,000 student loan with 5.5% interest and a $235 monthly payment

•   $15,000 credit card balance with 16% interest and a $400 monthly payment

In this case, you’d throw your support towards paying off the credit card balance first. Once it’s paid off, you’d allocate that $400 a month towards the student loan, making the repayment much faster with additional payments each month. Finally, you’d tackle the medical bill.

This method focuses on building momentum, leading to an “avalanche” of repayments once you really get moving. For some, this method can be discouraging, because, unlike the snowball method, you are budgeting for the long game. However, once the wins come, they may avalanche much faster.

3. Consolidating Your Credit Card Debt into a Personal Loan

If you are paying off several credit cards every month, it may be overwhelming. But if you consolidate all your debt into a personal loan, you’re likely only making one payment each month.

Here’s how it works: You’d take out a personal loan, consolidate all your credit card debt with it, and then you pay back the single personal loan.

The best part? Personal loans typically come with a lower interest rate than your credit cards, and you may be able to set more manageable terms with your lender. And since you’ll only have one payment every month, and you can usually choose a fixed interest rate, it may be easier to keep track of.

Using the above example debt profile, you could end up putting your medical bill and credit card debt into one monthly payment, making a simple single transaction for those two debts each month. (You can’t typically use a personal loan to pay for education debt, but you can refinance your student loans or consolidate them, hopefully, for better rates and terms.)

In paying your credit card debts off with a personal loan, you can consolidate into one simple payment, and possibly save money by potentially paying a lower APR.

SoFi offers personal loans with no fees required. You can apply online in just minutes and manage your payments online as well. Additionally, you’ll have access to customer support, 24/7. With a SoFi personal loan, depending upon the terms, you could potentially get out of debt faster and with less stress—setting you up for a better financial future.

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.

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.

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 .

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.

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Public service loan forgiveness has been in the news a lot over the last year—and not for good reasons. There was the news that very few people have actually had their federal student loans forgiven.

Then there was the Public Service Loan Forgiveness (PSLF) news that the whole program might be cut . And now a lawsuit has been filed on behalf of a number of teachers who had their PSLF forgiveness denied, alleging mismanagement of the program.

What does this news mean for you? Should you still try to get your federal student loans forgiven, and how can you plan ahead for any more public service loan forgiveness updates?

What is Public Service Loan Forgiveness?

The public service loan forgiveness program is supposed to work in a fairly straight-forward way: After ten years of public service (and making payments on your loans), you can have the remainder of your student loans forgiven.

There are, of course, some requirements—and this is where it gets more complicated. To qualify for public service loan forgiveness you have to:

•   Work full-time in a qualifying public service job.
•   Make 120 monthly loan payments on a qualifying repayment plan, which is typically an income-driven repayment plan.
•   Have a federal Direct Student Loan.

For the majority of people who have their PSLF applications denied, it’s because they allegedly didn’t meet these requirements.

Most importantly, only federal Direct Student Loans qualify. Federal Family Education Loans (FFEL) or Perkins loans do not qualify—even though many of the federal loans when the loan forgiveness program was created in 2007 were FFEL loans.

You may still be able to qualify if you have one of those loans, but you would need to consolidate your federal loans into a Direct Consolidation Loan and none of the payments made before the consolidation would count.

You also need to be on a qualifying payment plan, which is either the standard ten-year repayment plan or an income-driven repayment plan. These determine how much you’re required to pay each month as a percentage of your income.

And you need to work for a qualifying employer. To verify that your public service job qualifies, fill out the public service loan forgiveness employer certification form .

Once you meet all these requirements, you still have to apply for loan forgiveness after your ten years of qualifying payments. It doesn’t happen automatically. This is where much of the public service loan forgiveness news comes in.

What Is the Latest Public Service Loan Forgiveness News?

Since the Public Service Loan Forgiveness program was launched in 2007, the first federal student loans became eligible for forgiveness in late 2017.

However, instead of a rash of loans being wiped clean, more and more news has come out about the number of applications being denied.

The latest data from the U.S. Department of Education found 73,554 borrowers have submitted applications for loan forgiveness, but only 864 have been approved. That’s not very many.

Over 2 million people also took the first step of having their employer certification approved. Since not all of those people followed through the rest of the process, critics argue it suggests there continues to be confusion around the requirements.

In fact, this was exactly why Congress approved the the Temporary Expanded Public Service Loan Forgiveness (TEPSLF) opportunity in 2018—which allows people who had their loan forgiveness applications initially denied because they were on the wrong repayment plan to get re-approved under the new requirements.

But the most recent numbers found only 442 of those TEPSLF applications had gotten their loans forgiven. That’s been frustrating for a lot of applicants and lawmakers. It’s even prompted a lawsuit from a number of teachers who’ve had their applications denied.

Even with all the distressing public service loan forgiveness news, many were still frustrated to hear the program was at risk of being eliminated in the most recent budget proposal .

What does all this mean for you?

Should You Still Try for PSLF Forgiveness?

Just because there’s been a lot of bad news for PSLF lately doesn’t mean you should necessarily give up on loan forgiveness.

Some of those applicants have been successful and, according to the data, the average amount of loan forgiven was $59,224. That’s worth following up on—even if it takes a lot of attention to detail.

The number-one reason applications were denied was because of qualifying payments—either not enough payments had been made yet or they weren’t made under a qualifying income-driven repayment plan.

That doesn’t mean those applications won’t eventually be approved, either after making additional payments or through the new temporary expanded program. (The average loan amount forgiven under the TEPSLF program was $39,723.) But it does mean you want to double-check all the requirements.

To do this, you may want to use the Department of Education’s PSLF Help Tool. Many who applied for loan forgiveness simply didn’t actually qualify for it in the first place.

It also means you should have a back-up plan and shouldn’t assume you’ll get your loans forgiven. Because employment gaps or payment forbearance periods (for instance, if you went to graduate school) can lead to delays in meeting the 120-month time requirement, you may want to plan ahead.

In this case, it may take an extra year or two to qualify for loan forgiveness. It also may take extra work on the application.

And if you’re working in a qualifying public service job just to get loan forgiveness, then you may want to consider your options if there are other jobs you’d want instead that might have a higher salary.

Regardless of the latest public service loan forgiveness news, you can always ask yourself: Is PSLF right for you?

How Can You Plan Ahead for Any Changes to Public Service Loan Forgiveness?

The good news is if you’re currently working towards Public Service Loan Forgiveness, then you could still qualify even if the program is cut. The proposal is only to eliminate loan forgiveness for students taking out new loans starting July 1, 2020, so it hopefully wouldn’t negate those already making qualifying payments.

It also may be true that federal loan forgiveness programs may yet get revised or amended to address the many rejections. But because these things can be uncertain, it may be a good idea to budget with the plan of paying your full student loans.

Ultimately, your goal is probably to save money and do good in the world. Public Service Loan Forgiveness is a great way to have any remaining loan balance after 10 years of payments wiped clean if you work in public service, and if you qualify, but it also has some drawbacks.

It means you have to stick to an income-driven repayment plan, which means your monthly payment amount will increase as your income increases. In that case, the loan could potentially be repaid in full before the standard 10-year repayment period ends, leaving no balance to be forgiven.

If you choose to consolidate federal loans that don’t qualify for PSLF without consolidating them, such as the Federal Perkins Loan and the Federal Family Education Loan (FFEL), keep in mind that the interest rate for the consolidation loan could be higher due to how the rate is calculated (and the interest rate of a Direct Consolidation Loan has no cap).

So, might you save money with the PSLF Program? The answer is a firm maybe. Another option, which would make you ineligible for loan forgiveness and other federal repayment benefits and protections, is to refinance your student loans at a lower interest rate or more ideal terms for your situation.

Refinancing is typically a better option for those who are in a stronger financial situation than when they graduated.

Through refinancing, borrowers consolidate their student loans into one new loan, ideally with rates and terms that work better for them.

For example, if you qualify for a lower interest rate that could help save money over the life of the loan and could allow you to pay off your student loans quicker— depending on the loan term you choose. You may want to weigh the pros and cons to consider what makes the most sense for you.

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.

SOSL19101

Credit card debt is an increasingly severe problem in the U.S. As Americans become more dependent on their small plastic cards, the amount of debt seems to just get bigger. And bigger.

According to Experian , the average American has a credit card balance is almost $6,200. Along with individual and household debt, the total amount of credit card debt in the U.S. has reached its highest level ever.

Whether debt has got you down, or you’re wanting to consolidate your existing credit cards and opt for ones that have the best perks and benefits for your circumstances, the question of canceling a credit card can be an extremely sticky one.

Many of us find ourselves wondering the best course of action to reduce credit card debt without affecting credit score, and the concern is valid.

While closing an account may play a role in getting a better handle on any existing debt, it’s important to understand ways to cancel a credit card in a way that doesn’t end up setting you back even more.

Ahead are some common steps that are typically needed to be taken in order to fully cancel a card, including sending a written confirmation and keeping a watchful eye on your credit report after you’ve put through a cancelation request.

Do You Really Need to Cancel?

It can be tempting to cancel cards or close accounts when things get overwhelming. But sometimes this may not be the best option.

In many cases, canceling a credit card can actually damage one’s credit score. In fact, canceled accounts may remain on a credit history for several years after the date they are closed. (With a card in negative standing, it will remain on your credit history for up to seven years, and a cancelled card in positive standing typically remains for 10 years.)

It’s important to take the time and analyze your motivations behind canceling an account before you actually do. After all, it may be smarter to simply cut up or hide a credit card rather than officially canceling.

As always, the decision is up to you, but it’s helpful to take these considerations into account before finalizing a decision that may have a long-lasting impact on your credit health and your long-term financial future.

Closing One Account at a Time

If you’ve decided that canceling your card is the best way to go for you, there are some things you may want to keep in mind before getting started.

First of all, when it comes to canceling credit cards, it’s important to remember that not all of them are created equal.

Depending on the exact reasons that led you to wanting or needing to cancel a card, you may want to consider a few things before pulling the trigger.

For example, if you’re thinking of canceling a card, you may want to consider canceling new ones instead of old ones to avoid impacting your credit score.

In the world of credit, older, more established credit in good standing is looked upon more favorably than new, and so you may want to keep this in mind when choosing which card you would like to cut.

On top of this, some credit cards may offer more appealing rewards programs for your lifestyle than others, so you may want to take stock of the perks that come with each card before deciding which one you want to stop using.

Paying Off or Transferring Your Balance

Depending on the total amount of credit you have available, closing a card account with a high credit limit could run the risk of damaging one’s credit score.

If you are carrying high balances on other cards or have active loans, this damage could be especially noticeable, since your debt-to-credit ratio (also called your credit utilization ratio) may affect your credit score. (Typically, you’d want to stay at 30% or below.)

If you’re planning on canceling a credit card, you will likely want to ensure that you’ve paid off any remaining balances on that account. If you fail to do so, you may end up having to pay interest charges on any remaining balance.

If you normally carry a balance from one month to another, you may need to take extra care to pay the full statement balance before canceling a card in order to make sure there is no money left in your balance and avoid future interest charges.

You may also want to take some time to brush up on your knowledge of credit card utilization, as it can be important to understand when it comes to canceling your credit cards smartly.

In order to lessen the negative impact of closing one of your credit card accounts, you may want to pay off all of the balances you carry on all of your cards first.

If you cancel a card while carrying zero balances on all your cards, your credit utilization rate should stay at zero, so even if you cancel a card and remove its balance, your rate shouldn’t be impacted.

Contacting a Credit Card Company

Once you’ve paid off your credit card balance, you will want to contact your credit card company to put through your request to close your account.

Sometimes, you will be able to cancel a credit card without making a phone call. It may be helpful to look up how to cancel a particular credit card online to see if your credit card company offers this option.

In most cases, you will want to contact your credit card company by phone. Usually, your customer service number will be printed on your credit card.

From there, you’d inform your credit card company that you are canceling your card. Keep in mind that some companies require you to speak to a customer service representative in order to complete this process, while others are more flexible.

It’s helpful to know that credit card representatives may be trained to try to convince you to keep your account open. Remember that you have the right to close your account at any time.

Before you hang up the phone, you may want to ask your representative for their name so that you can include it along with your written notice of cancelation.

Sending Written Confirmation

Once you’ve called and canceled your card, you may choose to mail a written confirmation letter to your credit card company. This can be a good option in order to protect yourself generally, but also in the event that the customer service representative made a mistake while putting through your card cancelation request.

In the letter, you would write things like your name, phone number, address, and account number as well as the details from the call you had with your credit card representative. If you got their name, you may want to also include it here.

You might choose to also state that you’d like your credit report to show that the account was closed at your request.

If you choose to mail a letter, consider sending it via certified mail so that you can ensure the company receives it, and make sure to keep a copy for your records.

Keeping an Eye on Your Credit Score

When canceling credit cards, patience is key. From the moment you begin the process to the moment your credit card is officially canceled, it may take one month or even longer, depending on the company.

After your account has officially been canceled, you may wish to keep tabs on your credit report to ensure that your credit card has in fact been listed as closed.

If, for some reason, the card is still marked as open, you may need to get back in touch with your credit card representatives and, possibly, repeat some or all steps in this process.

Know that it can sometimes take several weeks for changes to show up on your credit card report. For this reason, it’s good practice to get into the habit of checking your credit score regularly, whether or not you’ve recently closed a card.

Of course, if you did just cancel a card, you may want to wait a month or so to see whether or not closing your account impacted your credit score.

Keep in mind that, every twelve months, you can get one free copy of your credit report online through AnnualCreditReport.com . Some credit card companies may also offer apps that allow you to check your score for free.

Destroying Your Card

Once you’ve confirmed that your card is canceled, then you’re almost done with the process.

If you’ve ensured that the account is in fact closed, then you can officially destroy your card in the manner of your choosing.

Though cutting up a credit card may provide a feeling of freedom and catharsis, it’s important to be careful to choose a method that makes sure the information on your card is not recoverable.

If you have access to a shredder, shredding your card may be the most efficient and secure way of destroying it.

If you’re using scissors, make sure that you properly cut up all the identifying pieces of information on the card, including your signature, the expiration date, CVV number, and the credit card number itself.

From there, ensure you properly dispose of the shards. For an added layer of security, consider throwing them away in more than one garbage can.

Maintaining a Healthy Relationship with Credit

Despite the array of credit card-related woes many Americans experience, it is possible to leverage credit cards in a healthy and productive way.

Depending on your needs and financial circumstances, finding ways to use credit to your advantage is a great way to ensure that you don’t wind up with more debt than you can handle.

A credit card cancelation can often offer an opportunity to take stock of the way you’re using credit, and establish better practices moving forward.

Once you’ve familiarized yourself with your credit utilization, and taken a look at the rewards you are currently signed up for, you may choose to go about things differently in the future.

One of the best ways to help you keep tabs on your credit is to build a practice of checking your balance and your credit score regularly.

This may look like downloading an app that lets you see all of your savings, checking, and credit card accounts in one place, or just getting into the practice of logging into all of your account on a regular basis.

Whichever way you choose to go about it, there are several strategies you can try out that may help you to keep your credit in check.

From leveraging balance transfers to using the snowball method to help pay off any debt balances you currently have, there are ways to help you get your credit card debt and finances under control—regardless of whether or not you decide to get rid of some of that seemingly precious plastic.

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.

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 .

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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