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Raising a child could be one of the most rewarding experiences you’ll ever know, from watching your little one grow, seeing their interests take shape, and sharing all kinds of experiences with them, from baby’s first trip to the beach to high school graduation.

But there are practical matters to consider as well when a baby arrives, including paying for your child’s care. Those expenses start coming at you quickly after your little one is born. Daycare, for instance, can be an urgent expense. Currently, the average weekly cost of daycare is around $216, which is just over 17% of the median national household income.

Making ends meet can be a challenge for many families. Perhaps your budget was running smoothly but now you have to accommodate this expense. Or maybe you are wondering how you can move ahead with saving for a house when you’ll have less money to stash into savings. Read on to take a closer look at the kinds of daycare available and wise strategies for making ends meet.

Types of Daycare

Yes, there’s a considerable cost to raising a child, and daycare is part of that. It can allow you to continue to work or attend to other priorities and ensure your little one is well cared for.

That said, there are a number of different types of daycare, but one of the most important distinctions is the difference between home-based care and formal daycare programs.

Home-based Daycare

Home-based, or informal, care is typically cheaper than formal daycare options, but there can be some drawbacks so it’s important to thoroughly review your options.

Each state determines their own regulations for home-based daycares. Most require providers to meet a certain level of training in order to provide care. Before you select a home-based daycare, you can check the requirements and regulations on sites like this one at Childcare.gov or visit your state’s website. You can likely find the information you are seeking via the Office of Children and Family Services.

It’s likely that safety will be one of your top concerns. Check that childcare providers are fully licensed and credentialed. Since many of the home-based providers are run by a sole proprietor, you may get less oversight than at a formal facility. That is, the operator may be so small that it’s not required to be licensed.

Licensing, however, can be a very important factor. It ensures such things as:

•   Criminal background checks for the staff

•   Training in such matters as CPR, safe sleep habits for children who are young enough to be napping at daycare, and first aid

•   Proper sanitation

•   Emergency and safety preparations.

Ask about the care providers’ background and qualifications. It’s more likely that those working at formal daycare centers (more on those below) will have specialized training. For instance, the work could be a side job for a teacher.

If you do decide to go with home-based daycare, make sure to check the provider’s references carefully, even if they have the appropriate licenses. You can also talk to them about the schedule for children in their care and how they will work to stimulate your child’s learning so that they’re ready for preschool. Many parents or prospective parents may ask to visit and observe how the daycare operates.

Formal Daycare

When it comes to formal childcare programs, there are also a lot of different options. Some employers offer childcare programs on site; others are Montessori schools or affiliated with other educational institutions. There may be some that are operated as franchises in your area.

Their approaches will probably vary as well: Some formal daycares aim to provide a cozy, relaxed atmosphere, while others focus on early childhood education and skill-building.

It may be wise to tour a few different options, just to get a fuller picture of how your child will spend their day. You’ll want to see what the premises and caregivers are like and understand the flow of the day.

Often, the more additional services that a daycare provider offers, the more it will cost. For instance, if you are looking for a bilingual daycare, it will probably cost more than one in which just English is spoken, as the provider has to spend more time and energy hiring its staff. Also, the more personalized the care (as in, the lower the child-to-caregiver ratio), the more expensive it may be.


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

Paying for Daycare

When you start a family or expand it, the expenses can come at you in a flurry: doctor’s appointments, food, clothing, furniture, strollers, and so forth. That alone is enough to stretch your budget to the max. Add daycare to the mix, and your income can feel the pressure.

Here, some steps to help you afford childcare.

Retool Your Budget: The first thing you can do is cut back on other areas of your budget in order to free up money to put towards daycare costs. You might be able to lower your food costs, say, or have staycations for the next few years.

If you don’t have a budget or aren’t happy with how yours is working, consider the different budgeting methods available, and experiment to find one that’s the right fit.

You might also look into apps to help you monitor spending. Your financial institution, whether a traditional or online bank, may have tools to help you do this.

Save in a Dependent Care Account: If your employer provides you with a Flexible Spending Account (FSA), then you can put up to $5,000 in your account tax-free that can be used for daycare. Beware of over-contributing, however; anything you don’t use by the end of the year will be forfeited.

Check on State Money: Each state has a child care assistance program designed to help low-income parents pay for care for dependents under 13. This program is funded by the federal government. You might see if you qualify.

Use the Child Care Tax Credit: While it won’t help you pay for daycare upfront, you can get a refund on some of your daycare costs by applying for the Child Care Tax Credit. If you itemize your taxes, you can get a tax credit by including up to $3,000 in daycare expenses per year per child or $6,000 per family.

Look into a Loan: If all else fails and you can’t find the money to pay for daycare, you may consider borrowing a personal loan rather than putting your daycare expenses on a credit card. You’ll likely enjoy lower interest rates with a personal loan.

Recommended: Guide to Paying for Child Care While in School

The Takeaway

Finding the right childcare for your family is a personal choice. The main options are home-based or formal daycare. Regardless, you’ll have to balance your child’s needs with your budget and financial plan. There are options such as budgeting, taking tax credits, getting government assistance, or taking out a 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. Checking your rate takes just a minute.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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

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.

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.

SOPL1223017

Most people in the US have at least one credit card. These cards are a popular, convenient way to pay for items as you go about your day, tapping and swiping. They can also allow you to buy items that you can’t afford to pay for in one fell swoop, such as airfare to Hawaii or a new laptop.

But they have downsides, too; perhaps most notably, their high interest rates. At the end of 2023, one analysis found that the average interest rate was nudging close to 25%; two years earlier, the rate was hovering around 15%. That’s a considerable increase.

Here, you’ll learn more about how and why credit card payments can balloon as interest rates rise. You’ll also read advice on keeping your credit card in check, which can benefit your financial wellness.

How Interest Is Calculated

If you’re confused by all of the fine print that accompanies a credit card offer or the thought of an annual percentage rate (APR) calculation makes you wince, you probably aren’t the only one. To understand how rising rates can affect your credit card payment, it helps to understand a bit about how credit card interest is calculated.

•   First, there are two types of consumer loans: installment loans and revolving credit. A mortgage, student loan, or car loan are all examples of installment loans. With an installment loan, the borrower is loaned an amount of money (called the principal), plus interest to be paid back over a designated amount of time.

•   Revolving credit, on the other hand, is not a loan disbursed in one lump sum, but is a certain amount of credit to be used by the borrower continuously, up to a designated limit. A credit card is revolving credit. A borrower’s monthly payment is determined by how much of the available credit they are using at any given time; therefore, minimum payments may change from month to month.

Installment credit is sometimes easier than revolving credit to understand and calculate. First, installment loans often come with fixed rates, which means that the interest rate doesn’t change (unless you miss payments). For example, the rate on a federal student loan or a 30-year fixed mortgage won’t change, even if government-set interest rates shoot to the sun.

Revolving credit almost often has a variable rate, which means that the interest rate applied to the credit balance fluctuates.

The average rate on credit cards is quoted as an annual percentage rate, or an APR. The APR is the approximate interest rate that a borrower will pay in one year. Why approximate? The prime rate could fluctuate based on when the Fed changes the federal fund target rate.


💡 Quick Tip: Need help covering the cost of a wedding, honeymoon, or new baby? A SoFi personal loan can help you fund major life events — without the high interest rates of credit cards.

How Credit Card Interest Rates Change

Generally, when the Fed raises the federal funds rate, it can slow economic growth because it dissuades banks from lending money — and discourages consumers from borrowing at a subsequently higher interest rate. Raising rates is also used as a technique to combat rising inflation.

While this may be a normal and natural part of an economic cycle, rising rates can be frustrating for anyone who is currently carrying a credit card balance.

Credit card interest rates have risen as a result of 11 rate hikes enacted by the Federal Reserve (the Fed) since March 2022. Although the Fed does not control interest rates on credit cards directly, credit card interest rates are often pegged against the prime rate, which changes with the federal funds rate.

What Does a Rising Prime Rate Mean for Credit Card Holders?

A change in interest rates is likely to impact anyone with a variable rate on their credit card balance. When the Fed raises federal funds interest rates, it can be expected that credit card interest rates may follow.

How much would your credit card interest rate increase? It depends on your credit card. Generally, credit cards move in sync with rate hikes, which usually happen in quarter-percent increments.

However, the Fed has said, as of the end of 2023, that they don’t plan to raise rates further in the immediate future.

How to Combat a High Credit Card Bill

Here are some ideas for battling a high credit card bill and potentially paying less in interest over time:

1. Pay More Than the Minimum Payment

If at all possible, pay off as much of your credit card balance as you can each month. Making payments greater than the minimum amount due can help reduce your balance. The faster you can work on reducing the actual principal balance on your credit card, the less interest you’ll likely pay. If you only pay your credit card’s minimum payment, you may wind up in debt longer and paying more interest in the long run.

2. Switch to a Balance Transfer Card

Balance transfer credit cards typically have 0% APR introductory offers lasting for several months to a couple of years. If you’re serious about getting rid of your debt, you could transfer your debt over to one of these cards and then actively work on paying off the debt while you’re not paying interest.

If you do this, make sure to look for a card that has no transfer fee. Beware: If the root of the problem is actually overspending, this will not be a good long-term solution. Sometimes, 0% APR cards have interest rates that jump up dramatically after the trial period is over. And the 0% APR may no longer apply if you make a new purchase on the card.

3. Negotiate a Lower Rate

You might be surprised to find out that a credit card rate can be negotiable. It may be worth giving your credit card company a call and seeing whether they can reduce your rate.

When talking to the person on the other end of the line, explain your situation, be kind to them, and see what happens. Again, this isn’t a permanent solution or a guaranteed outcome, but it could help give you a leg-up on the payback journey.

4. Sign up for Credit Counseling

You might benefit from professional credit counseling to help with your credit card debt. The National Foundation for Credit Counseling (NFCC) is a nonprofit organization that offers free and affordable advice for people who are struggling to manage debt on their own. If you’re unable to envision a path to paying down debt, it could be a good idea to ask for assistance.

5. Consider a Personal Loan

One tactic to consider in an environment where prime interest rates are rising is paying off credit card balances with a fixed-rate unsecured personal loan.

These are sometimes referred to as “debt consolidation loans” and allow a qualified borrower to pay off high-interest debt, such as credit cards, with this lower-rate personal loan. With a fixed-rate personal loan, the rate never changes (as long as payments are made on time), and it helps provide the borrower with a defined plan to pay off the debt.

If you decide to go this route, it’s a good idea to shop around to ensure that you’re getting a fair rate. You can get a personal or debt consolidation loan from banks, credit unions, and online lenders.

To compare estimated personal loan interest charges to credit card interest charges, you can use a tool like a personal loan calculator.

Shopping for a Personal Loan

Each lender sets its own terms for making these types of loans, so be sure to ask lots of questions about rates, terms, and fees.

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

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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.

SOPL1223013

The prime interest rate is the interest rate that banks charge their best customers. It’s the lowest rate offered to individuals and corporations that are considered low risk by banks — those with good credit history who aren’t likely to miss payments or default on their loan.

But when you run into the term “prime interest rate” in your daily life (maybe you’re taking out a personal loan or applying for a mortgage), it’s pretty common to feel a little confused, unless you majored in economics in college.

To get a better handle on this financial term and know how it relates to your money, read on. You’ll learn how this interest rate is set, a bit about its history, and how it can impact you.

How Is the Prime Interest Rate Set?

You’ve just learned that the prime interest rate is the rate that banks charge their best customers. Take a closer look at how the prime interest rate is set, as well as how this figure fits into the larger financial landscape.

Individual banks determine their prime interest rate. While the Federal Reserve has no direct role in setting the prime rate, many banks choose to set their prime rates based partly on the target level of the federal funds rate.

The federal funds rate is the rate that banks charge each other on an overnight basis and is established by the Federal Open Market Committee.

Why do banks lend each other money? They do so in order to meet the reserve requirement, which is also set by the Federal Reserve.

This is the minimum amount of cash a bank must have in their vault or at the closest Federal Reserve bank. If one bank has excess cash, the bank has a financial incentive to lend that excess cash to a bank that has less than its federally mandated amount. The reserve requirement acts as a lending limit for banks and also ensures that they have enough cash on-hand for the start of business each day.

How Does the Prime Rate Compare

Generally, the prime rate is about three percent higher than the federal funds rate. That means that when the Fed raises interest rates, the prime rate typically goes up as well.

Because the prime interest rate is typically aligned with the federal funds rate, it’s highly susceptible to change. How often could the prime rate change? It can shift quite a bit. Take, for instance, the fact that the prime rate was 3.25% on March 16, 2020. From that date to July 2023, it rose 11 times to 8.50%.


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

Why Is the Prime Interest Rate Important?

The prime interest rate impacts all kinds of loans, including interest rates for mortgages, credit cards, auto loans, and personal loans. Typically, banks and lenders will use the prime interest rate as a benchmark for setting interest rates for their customers. Consider some of the ways this can impact personal finance and the economy:

•   Changes in the federal funds rate and prime interest rate can impact variable rate credit cards, adjustable-rate mortgages, home equity lines of credit (HELOC), and more. The interest rates on variable loans are based on these market interest rates and therefore change over time. In fact, variable interest rates, including those on credit cards, are often expressed as the prime rate plus a certain percentage.

Unlike fixed-rate loans, monthly payments on any variable loan could change considerably from month-to-month. This is why fixed-rate loans can be a more desirable alternative than variable loans for some borrowers.

•   Though rates are largely influenced by the Federal Reserve, borrowers have little control or way of predicting the rates from year to year. Even when the Federal Reserve predicts growth, interest rates can rise due to a variety of factors, causing your monthly bill to rise with it.

•   Beyond individual borrowers, the prime interest rate also influences the financial market as a whole. A low prime rate makes it easier and less expensive to borrow loans which increases liquidity in the market.

•   Historically, when the prime rate is low, the economy grows. That’s why, if there’s a recession, rates may go down, with the goal of getting consumers and businesses to borrow again and stimulate the economy.

When the prime rate is high, economic growth slows down. For instance, recently interest rates were raised, which can nudge consumers to think twice about spending. This can lower demand and help bring down inflation’s impact.

•   The prime rate isn’t the only benchmark that banks use to inform interest rates. Banks also often use the London Interbank Offer Rate (LIBOR). The LIBOR is the rate that banks charge each other for short-term loans. The federal funds rate, prime interest rate, and LIBOR rates generally fluctuate together. When the three rates are out of sync, this can be an indicator of an issue with the financial markets.

Recommended: Can You Refinance a Personal Loan?

Personal Loans with SoFi

An increase in the prime rate and federal funds rate can be an indicator that changes are ahead for consumers. Variable rates may be on the rise, too, so think carefully about how that might impact your finances.

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

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPL1223015

Your home’s roof can take a beating, whether roasting in the sun during the summer, getting coated with ice in winter, and withstanding wind and rain year-round. In other words, it’s one of your house’s key MVPs. But eventually, roofs wear out and need to be replaced or fixed. You may notice a small (or big) leak. It could be 15, 20, or even 50 years, but at some point, your roof will likely need to be repaired or replaced. While costs can range widely, the average roof replacement currently costs $11,500.

In this guide, you’ll learn about roof replacement costs, as well as what your options are for paying for roofing expenses.

How Much Does a New Roof Cost?

The average roof lasts 25 to 50 years, though repairs (both minor and major) can pop up more often. Sometimes, damage to one part of a roof can nudge a homeowner to go ahead and replace the whole thing.

You likely got a general idea of the condition of your home’s roof during the home inspection, when you were buying your property. If now is the time to get the job done, though, you’ll want to understand the costs involved.

When looking at new roof installation costs, there are a number of factors that will impact the overall price:

•   Size of the roof being replaced

•   Material to be used on the roof

•   Style of the roof (those with multiple eaves, lots of detailing, or steeper pitches could take longer and cost more)

•   What part of the country you live in (cost of living can vary considerably)

•   What time of year you are having work done (doing so off-season could potentially save you extra money; roofers tend to be most in demand in late summer and early fall).

•   The size and style of the roof may contribute to the overall cost. The height and pitch of your roof are also important factors because there are additional safety and labor costs to consider.

The average cost to replace a roof is approximately $11,500 on average, but the price could range from $6,700 to $80,000.

When creating an estimate, roofers sometimes define costs per roofing square. One roofing square is equal to a 10-by-10-foot (100 square feet) area. So a 1,700-square-foot roof would be 17 squares. Currently, squares can range in price from $450 to $750, depending on materials and other costs.


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

Getting a New Roof

Some pointers on getting a new roof:

•   If you are replacing your roof as a part of general home maintenance, you may have a little more time to prepare for the costs associated with the repairs. It allows you to be more methodical about pricing the project out and selecting a roofer. And having a bit of a runway will allow you to start saving and develop a workable budget for the project.

•   Get an estimate from several reputable contractors. When doing so, be sure to pay close attention to the quality of the materials specified in the estimate. It’s even better if you can get a recommendation from someone you know. Regardless, definitely check reviews and references carefully.

•   Remember that, while a new roof can be a major expense, it can improve the value of your home for future sale, stave off ongoing repairs from leaks, and, of course, protect the residents.

Paying for Roof Repairs

If your roof is damaged, then you are faced with a different challenge than figuring the roof replacement cost.

•   In the case of a natural disaster caused by an earthquake or hurricanes, you may even be eligible for help from the Federal Emergency Management Agency“>Federal Emergency Management Agency (FEMA). Whatever the cause, it could be helpful to take photographs sooner rather than later to document the damage.

•   Your homeowners’ policy or home warranty may include coverage that could possibly help defray some of the costs, depending on the cause of the damage and the age of the roof.

•   If it’s determined that the damage is from normal wear and tear, then it will likely be considered regular maintenance and may not be covered. Many roofing jobs fall into that common home repair category.

•   Also, if your roof is older than 10 years, you may only be eligible for part of the cost determined to be a depreciated value of the roof. Whatever the circumstance, it could be worthwhile to call your insurance company and find out if you’re covered and to what extent.

•   And, before you start work, it bears repeating that it’s wise to get multiple estimates to help you make an informed decision and ensure that you’re getting the most value for your investment. You may want to consult with a few licensed roofing contractors and compare bids.

Recommended: How to Pay for Emergency Home Repairs

Ways to Help Pay for Home Repairs

Whether you are replacing your entire roof or just replacing a damaged portion, you may want to consider financing all or part of the work. One option worth considering: a personal loan.

•   A personal loan can be a good option for some homeowners. With a personal loan, you’ll usually get a lower interest rate than credit cards. Also, with an unsecured personal loan, there typically is no additional lien against your property. Often, these loans can be processed quickly and with minimal fees.

•   Another financing option homeowners turn to for home improvements is a home equity loan or a home equity line of credit (HELOC). The application for a HELOC is akin to that of a mortgage. How much you’re able to borrow depends on several factors, including the value of your home. You may also have to arrange and pay for a home appraisal.

As you consider your costs associated with a roofing or other home project, you may want to use a home improvement cost calculator to help you budget appropriately.

The Takeaway

Replacing your home’s roof is typically a big-budget home repair project; it often costs in the five-figure range. However, it’s an important investment in your home’s value and integrity. You can look into financing options such as HELOCs and personal loans to help you pay for the work.

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

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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.

SOPL1223014

A personal loan gives you access to a lump sum of cash that you can use for virtually any purpose (like consolidating credit card debt, paying for a wedding, or making a large purchase). You then repay the loan, plus interest, in regular installments over time. You might wonder then, is a personal loan considered income? Will you need to pay taxes on it?

Generally, no. Unless the lender forgives some of your debt (say due to financial hardship), personal loans are not considered taxable income, since you repay the money you receive.

Read on to learn more about how a personal loan impacts your taxes, whether you can deduct the interest you pay (and lower your taxes), and how other popular types of loans might impact your tax return at the end of the year.

Are Personal Loans Considered Taxable Income?

When you take out a personal loan, your lender agrees to loan you a set amount of money, and you agree to pay that money back with interest over a set period of time. While it may feel like a windfall that you could be taxed on, it isn’t. Since you are agreeing to pay that money back, it does not qualify as income the way wages from a job or income from investments would.

Generally, the only instance when money from a personal loan can be taxed as income is if your lender agrees to forgive the loan. Loan forgiveness is a relatively are occurrence and typically happens under the following circumstances:

•   You are renegotiating the terms of a loan you are struggling to repay.

•   You’re declaring bankruptcy.

•   Your lender decides to stop collecting on the loan.

This is called a cancellation of debt (COD), and it can carry tax liabilities since you’re technically keeping the remainder of the debt, rather than paying it back.

For instance, let’s say you took out a $10,000 personal loan and have paid back $8,500 of it when the debt is forgiven or canceled. The remaining $1,500 that you no longer have to pay back can be taxed as income during the year it is canceled.

Typically, your lender will send you a tax form (a 1099-C) stating the amount canceled that you’ll need to submit with your tax return when you file.

There are a couple of rare exceptions to the COD income rule: If the loan balance is forgiven as a “gift” from a private lender, or if the debt is forgiven in the lender’s will, the amount does not have to be reported as income.

Bottom line: In most situations, personal loans are not taxable as income — but if your loan is canceled or forgiven, the loan amount that you’ve yet to repay can be taxed the same way regular income is.

Is Personal Loan Interest Tax Deductible?

A tax-deductible expense is money a taxpayer can subtract from their overall gross income to reduce their reported income and therefore the taxes they have to pay.

Unlike some other common types of loans, the money you pay on interest for a personal loans is generally not tax deductible. So if you take out a loan and pay a few hundred dollars in interest over the course of your repayment, that’s not a cost that will reduce what you owe in taxes come April.

There are, however, some exceptions to the rule. One is if you are self-employed or own your own business and use some or all of the money for your business. You may then be able to deduct the corresponding amount of interest payments from your business income. You’ll want to be make sure the lender allows you to take out a personal loan for business use (some do, others don’t), and keep records of how you spend the money.

If you used all or a portion of a personal loan for business purposes, it’s wise to talk to an accountant or other tax professional before you claim this on your taxes.

Types of Loans with Tax Deductible Interest

Although personal loan interest typically isn’t tax deductible, there are many other types of loans that do allow interest deductions. Here’s a closer look.

Student Loan Interest

You may deduct up to $2,500 of interest on qualified student loans or the full amount you paid during the tax year — whichever is the lesser. You can take this deduction even if you don’t itemize. However, the student loan tax deduction is gradually phased based on your modified adjusted gross income, and is not available if you use the “married filing separately” status or if someone can claim you or your spouse as a dependent.

Home Loan Interest

The interest you pay on a qualified mortgage or home equity loan is deductible on your federal tax return, but only if you itemize your deductions and follow IRS guidelines. For many taxpayers, the standard deduction beats itemizing, even after deducting mortgage interest.

In order to deduct your mortgage or home equity loan interest, the loan must use your home as collateral (a personal loan you’ve used to improve your home, for example, doesn’t qualify as mortgage interest). In addition, the home must be your home or second home, and the loan proceeds must be used to buy, build, or substantially improve your home.

Business Loan Interest

If you are self-employed or own a business, you may be able to deduct the interest you pay on a business loan you use to cover business-related expenses.

To qualify, you must be liable for the debt and must have a true debtor-creditor relationship with the lender (i.e., the lender cannot be a friend or family member). You also need to have spend the funds — if the proceeds from your business loan are just sitting in your business bank account, the interest isn’t tax deductible.

The Takeaway

Generally, getting a personal loan does not have any impact on your taxes. Even though you’re getting a cash infusion to your bank account and you can spend that money virtually any way you want, a personal loan is a form of debt, not income. Thus, it won’t have increase you tax bill at the end of the year.

Taking out a personal loan generally won’t lower your taxes, either, since interest you pay on a personal loan isn’t considered tax deductible.

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

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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.

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