Sep
05
2024
Low-Cost Hobbies That Are Fun and Inexpensive

Low-Cost Hobbies That Are Fun and Inexpensive

By | Budgeting & Goals, Financial Independence, money | Comments Off on Low-Cost Hobbies That Are Fun and Inexpensive

Too often, free time winds up costing us money, whether that means going to the movies, hitting the mall, or paying for an in-demand yoga class. But the truth is, passing time outside of work doesn’t have to be expensive.

Having hobbies can be a smart, creative, and moneywise way to fill your free time. The best endeavors are those that ignite a real passion and that we can’t wait to pursue. And there are numerous hobbies that don’t require investing a lot of money in equipment, materials, or training to get started.

Here, we have compiled a list of 19 fun, fulfilling pursuits that are also typically very affordable.There’s every chance that you will find at least a couple of these inexpensive hobbies to pique your interest.

Questions to Ask Before Starting a Hobby

Before you begin a new hobby, you may want to ask yourself the following questions.

What Is the Cost of the Hobby?

There are many inexpensive hobbies to choose from, so a good place to start is by making a list of the hobbies that spark your interest. From there, you can do some research to determine what the cost of the hobby is and if it fits into your budget (or if you need to pursue a less expensive pastime for now). Something with very specialized instruction, like making gold jewelry or blowing glass, is likely to push your budget limits. You might want to aim for more accessible pursuits to start.

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Is This Hobby Worth It?

No matter what the price tag of the hobby is, it can be helpful to think about whether or not the costs associated with the hobby are worth the enrichment and enjoyment the pursuit can bring to your life. Some hobbies may cost more, but may also give a higher return on investment if they offer an incredible experience and turbocharge your mood.

What Are the Benefits?

While most hobbies are fun, they can also bring a lot more to the table than just a good time. When evaluating hobbies, it can be helpful to think of what other benefits are associated with them. For example, a fitness-based pursuit is good for your health. Gardening can be a terrific way to connect with nature and clear your head. And a creative endeavor, like painting or photography, can wind up turning into a part-time job or lucrative side hustle.

Could This Hobby Be Cheaper?

If you are considering a hobby and are concerned about cost, you don’t necessarily have to limit yourself only to what would be classified as a cheap pastime. You might instead dive into what speaks to you but find a way to make it less costly.

For example, if you want to ride horses (which can be a very expensive hobby), you could pay to ride a horse by the hour at a local stable instead of buying a horse and paying for all of its care, food, and housing. Or you might find that volunteering at a local stable occasionally earns you some free time on horseback.

Recommended: 39 Passive Income Ideas to Build Wealth in 2022

Will This Hobby Hurt Future Finances?

When considering a hobby, it’s a good idea to take into account what the average cost per month will be. For instance, if you want to take up skiing, consider how it might affect future finances:

•   What equipment will you need?

•   How much will lessons cost and how many will you likely need?

•   What kind of transportation costs will be involved in pursuing skiing?

If a hobby is likely to drain your emergency savings or cause you to take on credit card debt, then it may be too expensive to pursue. Instead, you may want to do some research into more affordable hobby ideas (there’s plenty of inspiration below.)

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.20% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


19 Hobbies That Are Fun and Inexpensive

A cheap hobby can be just as fun and rewarding as an expensive hobby. Let’s take a look at some inexpensive yet highly enjoyable pastimes.

1. Gardening

Spending time outdoors feels good; research has shown it can improve your mood, putting you in a more positive, peaceful frame of mind. Gardening is also a great way to make your home more attractive and enjoyable to spend time in. Try planting flower seeds in window boxes or creating a windowsill herb garden to start.

2. Camping

Travel can be an expensive hobby, but camping can be done on a budget and scratch that travel itch. After all, renting a campsite for a night is typically cheaper than booking a hotel. Plus the sound of the birds and the view of the constellations at night can be priceless.

3. Discovering New Music

Instead of going to see only famous musicians play at large stadiums (ka-ching), try a creative way to save some money and check out some more affordable and unique local musicians. You’ll support the local music scene, get out of the house, and enjoy live entertainment in one fell swoop. What’s more, many towns have free concerts in warmer weather.

4. Cooking

Learning to cook well is not only an affordable hobby, it’s also a great way to save money on food by making you less tempted to dine out. There are many ways to do this, including taking low-cost local classes, watching free videos on YouTube or public broadcasting shows, and simply looking up recipes online and teaching yourself some new skills.

5. Painting

There’s no reason we need to leave arts and crafts behind once we finish elementary school. Spending some quiet time with a paintbrush in hand can be very relaxing. Whether you use oils, acrylics, or watercolors is totally up to you, as is the subject matter — which could be anything from a self-portrait to a landscape to an abstract canvas. Again, you can find videos online, inexpensive books, and local classes that will teach you how to use basic materials in new ways.

6. Drawing

Drawing is a way to tap into your artistic side and only requires paper and a pencil. Or you might choose to buy a basic set of pastels or charcoal sticks (a dozen will set you back just a few dollars; perfect for trying out new shading techniques).

7. Working Out and Exercising

Walking, swimming in a lake, or playing pickleball are all fun, inexpensive hobbies that can help keep you fit and healthy. While some fitness pursuits, like private Pilates lessons, can be pricey, there are also options that are absolutely free. (But if Pilates calls to you, check out free online videos first.)

8. Starting a Podcast

Are you passionate about a topic, say, local politics, fiction, or travel? Starting a podcast can help you share your knowledge and find a community with similar interests. This can be a low-cost project; if you have a computer, you can get started experimenting. You can then decide if you want to invest in a microphone, editing software, and a podcast hosting platform.

9. Learning Smartphone Photography

Photography was once an expensive hobby, but you can skip all the pricey equipment and learn to get really good at smartphone photography. You may find that local nature centers offer free classes in photographing nature or wildlife. Simply shooting local architecture, bicycle races, and other areas of interest and playing with cropping and filtering can unleash your creativity.

10. Learning an Instrument

Another creative outlet is learning to play a musical instrument. If you have an instrument gathering dust, brush it off. Or check local Facebook groups, Craigslist, and freecycle sites to find one on the cheap.

11. Volunteering

Giving to the community may not feel like a hobby, but choosing a cause that matters to you — such as volunteering with animals or tutoring school-age kids — can be completely engaging.

12. Visiting a Museum

Interested in becoming an art connoisseur? Museums change their exhibits all the time. Consider signing up for a membership to get exclusive invites to new exhibits and special events. Or scope out which nights or days offer free admission; many museums offer this kind of perk. Local gallery openings are another option that’s free and fun and can elevate your knowledge of and interest in the arts.

13. Learning to Dance

You know what the song says about “the rhythm’s gonna get you.” Why not indulge or jump-start your love of dance? Whether it’s at home or in a dance club, you can start simply by hitting the floor. Or many Y’s and other local centers offer inexpensive classes in ballroom, ballet, tango, and other styles of dance.

14. Fishing

Fishing can be a fun and peaceful way to connect with nature. Saving on groceries is a fun bonus of this hobby. Few things can beat a fresh-caught trout dinner.

15. Learning a Language

Get ready for that international vacation you’re saving for by learning a new language. Even if you don’t have a trip planned, building your foreign language skills can help boost your brain power by creating new neural pathways. And there are a host of apps (whether free or for a low fee) that can make this pursuit easy and fun.

16. Learning How to Sew

It takes time to master sewing, but doing so can be an almost meditative practice. Plus there are cool new trends to try, like sashiko, a beautiful form of Japanese mending. What’s more, building your skills with a needle and thread could save you pricey trips to the tailor.

17. Doing Calligraphy

Calligraphy is both a pretty and practical hobby to pursue. Wow your next dinner party guests with handmade name cards. Or offer to do the invitations for your best friend’s engagement party. All you need is pen, ink, and paper.

18. DIY Projects

Save money and upgrade your home at the same time by mastering DIY projects. Books and online tutorials can teach you how to build shelving, retile a backsplash, and more. Also, if you are a homeowner and one of your money goals is to sell your home at a profit, this can be a terrific path forward.

19. Joining a Club

There’s no shortage of local clubs you can join thanks to online meetup sites. Whether you’re looking for a hiking buddy or a group to practice a language with, you can likely find a group to suit your needs. All kinds of options are available. You might find a coffee-lovers’ group that gathers on weekends to test-drive new cafes; it could be a fun, frugal way to caffeinate and expand your social circle.

20. Starting a YouTube Channel

If video appeals to you, starting a YouTube channel can be a great way to make friends and earn some extra money from home. Whether you want to create videos of unboxing and reviewing products, or you’d like to share your knowledge of pro sports, go for it.

21. Starting a Blog

Or, you might lean into the written word with a blog on any topic that appeals. This can be a great, no- or low-cost creative outlet that connects you to others with similar interests. You might share poetry you write, chronicle your family history, or share your adventures training your new pup. The choice is yours.

22. Hiking

Need more ideas for things to do for fun with no money? Get some fresh air and exercise by exploring different hiking trails. As an added bonus, hiking can be a free hobby. Hanging out in nature (what some call forest bathing) can also be a great way to decompress and build mindfulness into your daily life.

23. Golfing

A fun way to stay active and social is to make a plan with friends to hit the golf course. You may worry that this will be a pricey endeavor, but public courses make it more affordable. What’s more, you may be able to use a local resident’s card (the kind you get at your town office or recreation department) to make it even cheaper. Also consider shopping garage sales for used clubs.

24. Upcycling Your Clothing

Use those newfound sewing skills to upcycle old clothes that need a little love and attention or transform them into something totally new. Upcycling is part of the reuse, recycle, repurpose movement. You might crop a pair of pants into shorts, or turn a dress into a blouse and/or a skirt. Some creative types save favorite worn-out clothes, then use the fabrics to create a quilt or pillow cover.

25. Playing Board Games

Board games aren’t just for kids anymore — there are tons of unique options for adults, and they offer a great way to entertain yourself as well as guests. You may also find no-cover game nights at your local pub, which can be a fun and inexpensive way to socialize. Who knows? You might be a Trivial Pursuit champion.

26. Running

One of the cheapest hobbies out there is running, especially if you already own a pair of athletic shoes. It can be a great way to spend time outdoors and can help improve your health. There are plenty of digital ways to help tap your motivation, like the popular low-cost “Couch to 5K” program for beginners.

27. Learning Photography

After getting good at smartphone photography, consider taking an online class or local community college class on the art of photography. Bargain-priced cameras can often be found online (check eBay) and at local second-hand shops.

28. Flying a Kite

Parents may be looking for a fun activity for the whole family that doesn’t cost much. Why not master the art of flying a kite? And it’s not just for those with kids. Anyone can have a great afternoon watching a kite take flight and stay aloft in a good breeze.

Recommended: 27 Cheap Date Night Ideas

29. Teaching a Pet Tricks

Pet parents can find ways to be entertained and bond with their critter by teaching it new tricks. Of course, dogs can be trained to do a variety of “shake” and “roll over” maneuvers, but pet birds and other animals can also learn new skills.

30. Geocaching

Geocaching is a fun way to explore the outdoors. It’s a pursuit in which, using an app or GPS, you find hidden “geocaches,” or containers that hold notes and small gifts. These are typically in parks and nature preserves. You can hide your own caches, too. An inexpensive hobby that is akin to a spirited scavenger hunt, geocaching can be engrossing for both individuals and families, while also connecting you with a community of fellow adventurers.

The Financial Benefits of a Cheaper Hobby

The financial benefits of having a cheap hobby are two-fold. Not only is having a low-cost hobby an inexpensive way to have fun, but hobbies can keep us busy and distracted which can help us avoid spending temptations.

Recommended: Different Ways to Earn More Interest on Your Money

Managing Finances With SoFi

There are plenty of affordable hobbies, so take your time and try a few to discover which will keep you feeling fulfilled. If you’re looking to save up funds to invest in a new hobby, the right banking partner can help you manage and grow your money.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.

FAQ

What hobby should I pick up?

There’s no right hobby to adopt. Every individual needs to pursue a hobby that excites them. That said, many people enjoy creative endeavors (think photography or painting), athletic pursuits (running, hiking), or pastimes that channel their interests and connect with a larger audience, such as podcasting or blogging.

How can I budget for a hobby?

Budgeting for a hobby can require doing a bit of research first. Only once someone knows what their hobby will cost can they then create a budget for it. When you know the costs, work to keep them as low as possible (say, by buying second-hand equipment, if needed). You can then divide the cost by the number of months you are willing to save. Put aside that amount in a high-yield savings account to earn some interest until you have enough saved up.

Can cheap hobbies make me money?

Certain hobbies can make someone money if they turn them into a side hustle. Starting a podcast or YouTube channel, writing, and photography are all great examples of hobbies that can become lucrative.

Photo credit: iStock/South_agency

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The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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Sep
05
2024
20 Commonly Forgotten Monthly Expenses

20 Commonly Forgotten Monthly Expenses

By | Budgeting & Goals, Financial Independence, money | Comments Off on 20 Commonly Forgotten Monthly Expenses

Budgeting can take some work to get just right. One area that often trips people up is understanding exactly how much they spend each month. Figuring that out can take some trial and error as well as fine-tuning. And even if things are humming along well for a few months, you can suddenly get hit with a surprise bill or a colossal credit card statement that jeopardizes your finances.

To help avoid that scenario and make budgeting easier, it’s important to consider some of the items that are often omitted from the expenses list when people set up budgets. This can help ensure that your hard work managing your finances stays on track.

Read on to learn about commonly overlooked expenditures and how to work them into your budget. That way, you’ll know exactly where your money is going, which can help you avoid debt.

What Are Some Expenses That Are Commonly Budgeted For?

When thinking about a basic living expenses budget, some items are so major, recurring, and important that it would be hard to overlook them. These likely include:

•   Rent or mortgage payments

•   Homeowners association fees

•   Utilities

•   WiFi

•   Cell phone bill

•   Car and/or student loan payments

•   Groceries

•   Daycare or tuition

•   Gym memberships

•   Medical insurance and pet insurance premiums

•   Transportation

Why Is It Important to Budget for Forgotten Expenses?

It’s understandable that some expenses may slip your mind when creating a budget. The typical person probably has dozens of things they are paying for in a given month. But these sneaky forgotten expenses can wreak havoc on your budget and prevent you from reaching your financial goals.

That’s why it’s important to pay close attention to your spending so you can adjust your budget as needed. These are some of the reasons why it’s important to budget for forgotten expenses:

•   Creating a successful budget requires knowing what you spend each month.

•   If you forget to add an expense and run out of funds to pay for it, you may end up pulling funds out of your savings account and sacrificing future goals to cover it.

•   If you really overspend due to forgotten expenses, you may have to turn to high-interest credit card debt to make ends meet.

Recommended: How Much Should I Save a Month?

20 Commonly Forgotten Budget Items

If you are convinced of the importance of accounting for all of your expenses, then it’s time to move ahead. Let’s look at some commonly forgotten budget items to make sure they don’t fall through the cracks.

1. Home Maintenance

While it’s hard to forget about your mortgage payments, the other expenses of homeownership are easy to forget about and add up fast. From hiring a gardener to regular carpet cleanings to random handyman repairs, it makes sense to leave room in a budget for home maintenance as those charges tend to frequently pop up.

2. Vehicle Maintenance

Budgeting for a car payment is probably top of mind, since you likely don’t want to risk getting hit with late payment fees or losing your car. The same generally holds true for car insurance. But those aren’t the only car expenses worth planning for. Drivers also need to make room in their budget for such car-related expenses as tune-ups and repairs. You’ll also want to remember to include gas, insurance, parking and toll road fees; they also have a way of adding up.

3. Taxes

Income taxes may be withdrawn from your paychecks, but property taxes generally aren’t. Forgetting about these bills is a common budgeting mistake. Then, when the payment does come due, it’s a nasty surprise that can throw your budget out of whack.

4. Medical Expenses

It’s easy to forget about or overlook your medical expenses, including over-the-counter and Rx drugs, dental cleanings, regular checkups, or getting new glasses or contacts. These are all vital expenses worth planning for. Budgeting for medical expenses can help improve your financial health too by helping you avoid debt.

5. Donations/Giving

Perhaps you donate when you see a worthy cause on social media or sponsor a colleague who’s doing a charity walk. This kind of spending is easy to forget about, so make sure to put it into your budget so you don’t wind up short of funds when you want to help others.

Recommended: 15 Creative Ways to Save Money

6. Office/School Supplies

Items that keep your home office or study space up and running need a spot in your budget too. This means accounting for things like toner, paper, stamps, shipping supplies, and software subscription fees.

7. Renewals for Licenses (Insurance, Drivers, Etc.)

Some expenses only pop up once a year, or every few years, like driver’s license or insurance renewals, but it can be helpful to split up that expense into smaller chunks and save for it month by month.

8. Seasonal Maintenance

Some home-maintenance needs are ongoing, but others come around seasonally. Similar to license renewals, it can be helpful to save up for pricey seasonal maintenance needs, like gutter cleaning and snow removal, all year round. That way, you won’t come up short when a bill hits.

9. Items for Pets

Pets bring a lot of love into a home, but also a lot of expenses. From vet fees and pet insurance to toys, food, and doggie daycare, these expenses can be significant and deserve a place in your budget.

10. Personal Items (Hair, Nails, Etc.)

A bottle of shampoo here, a manicure there, plus regular haircuts — the myriad expenses that help us look and feel our best can add up quickly. They may only cost a few bucks a pop (hello, body wash) or only happen once in a while (that fresh set of highlights), but it’s wise to be prepared for the cost.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.20% APY on savings balances.

Up to 2-day-early paycheck.

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11. Lump Sum Bills

Some memberships and insurance plans may only renew once or twice a year. Many of them are lump sum bills, meaning you are expected to pay them in full, right away. Which is why it can be helpful to save money each month to make sure you have the funds to cover lump sum bills.

Recommended: 18 Common Misconceptions About Money

12. Ridesharing

If you rely on ridesharing apps to get around (whether it’s once a month or several times a week), it’s important to budget for that expense. The convenience can make it feel like a free ride…but it isn’t!

13. Delivery App Fees

Another app-based expense to look out for are the delivery fees that get added when you order dinner or groceries from the comfort of your home. Also, if you tip the driver, make sure to include that as well. These fees definitely add to the price of what’s being dropped off.

14. Business Expenses (Conferences, Trips, Etc.)

You may incur expenses related to work that aren’t reimbursed by your employer. These include such purchases as buying professional clothing, renewing professional licenses, or pursuing continuing education to further your career.

15. Entertainment

From travel to movies and concerts to museum memberships, there’s no shortage of entertainment costs that need to make their way into our budgets.

Recommended: Are You Bad with Money? Here’s How to Get Better

16. Subscriptions or Membership Fees

Speaking of entertainment, you may be paying for one or more streaming platforms, like Netflix, HBO Max, and Hulu. And you may have other subscriptions, like meal kits, personal-care supplies, gym memberships, or even a wine- or beer-of-the-month club. These kinds of one-click sign-ups may not make it onto your budget, but they should.

17. Gifts for Others

From swanky birthday dinners to holiday gifts to wedding presents, you may spend a chunk of change every year to make others happy. It can help to save for the costs of gifts all year round. You can do this by estimating how much you expect to spend in this category for the year and then break it down into a monthly expense by adding a “presents” line to your budget. That way, when these expenses do pop up, you’ll be prepared.

18. Coffee

There’s nothing wrong with enjoying a pricey latte on the go now and then, as long as it finds a spot in your budget. These kinds of little treats can be an important part of self-care, and budgeting for them properly can be an example of financial self-care.

19. Roadside Assistance Costs

One extra that some drivers may find very worthwhile is roadside assistance service. Keep it in the budget, and stay safe.

20. Laundromat/Dry Cleaners

Whether you drop off your clothing at a laundromat once a week and have them washed and folded for you, or you DIY but occasionally drop clothing off at the dry cleaner, these are all costs that need to be considered in your monthly budget.

Why Are These Expenses Commonly Forgotten?

As you can see, the list of commonly forgotten monthly expenses is long. One key reason is that it’s relatively simple to remember to add the really big, recurring expenses — like rent or a car payment — into a monthly budget. But there are plenty of “invisible” expenses that we pay for with a simple click online (whether that means paying for a subscription service or a life insurance policy) that just don’t come to mind when setting up a budget.

There are also those very infrequent charges — say, an annual technician visit to clean your heating system — that we can overlook until they hit. It’s also easy to overlook small but relatively frequent purchases, such as laundry detergent or printer paper, that can add up over time.

Accounting for as many expenditures as possible will help you hone your budget and be as prepared as possible for the bills that come your way.

Banking With SoFi

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.

FAQ

What are common monthly expenses?

Common monthly expenses include rent or mortgage payments, utilities, food, cell phone bills, and loans or credit-card payments. Many of us also purchase clothes, meals/beverages away from home, personal care products, medical insurance, and have transportation expenses, which may or may not include car payments and insurance.

What are some hidden expenses you may have?

Some commonly forgotten budget items can include medical expenses, petcare costs, charitable donations, home- and car-maintenance charges, and subscription services, whether that’s a gym membership or streaming channels.

Will my budget be messed up if I do not add these forgotten expenses?

Yes, it’s possible to mess up a budget if you don’t include all of your expenses. You may wind up with bills to pay and not enough income to cover them. To resolve this, you might have to dip into your savings or start putting things on your credit card, neither of which is ideal. The good news is, each month offers a fresh start to make your budget work better.

Photo credit: iStock/staticnak1983

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

SOBNK-Q324-037

Read more
Sep
05
2024

11 Tips to Prevent Shopping out of Boredom

By | Budgeting & Goals, Family Finances, money | Comments Off on 11 Tips to Prevent Shopping out of Boredom

If you’ve ever spent a lazy Sunday wandering through the mall, not in need of anything in particular, only to emerge with a couple of bags of purchases, you are not alone. Many of us shop as entertainment and wind up having less cash or more credit card debt as a result.

Shopping in-person can be a fun distraction thanks to the music pumping and the eye-catching displays. It’s easy to be transported and suddenly feel that you need that new jacket, cell phone, or even sofa. And today, shopping online or on your phone can be equally appealing, as a parade of products and coupons pass before your eyes.

But overspending isn’t good for anyone’s budget or debt ratio. Here, you’ll learn 11 tips to stop shopping out of boredom and protect your hard-earned cash.

What Is Boredom Spending?

Boredom spending, or shopping to fill free time, happens for many reasons. It often occurs when you’re feeling unstimulated or there’s a lack of anything demanding your attention. You might find you’re prone to boredom shopping when you’re procrastinating about work. Going out and buying something can make you feel as if you’ve accomplished something with your time. Or perhaps you do it when you want to escape certain negative emotions such as anxiety, depression, or loneliness.

Some people turn to boredom shopping because it’s easy to do. Technology has allowed us to mindlessly scroll social media, install apps, and instantly link to retailer websites without having to leave the couch. And if you’ve already stored your payment information online, it’s even more convenient to buy on a whim.

Shopping while bored can be harmless if it’s small-scale and infrequent. But if it’s a habit or your go-to activity the minute you’re freed up, shelling out money on unnecessary purchases can bring on extra debt and bust your budget.

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Examples of Boredom Spending

The habit of buying when you’re bored can happen anywhere and anytime. For instance, it can occur when you need to kill time before an appointment and wander into a store to browse and then you wind up purchasing a couple of things because a “buy one, get one” sale was advertised. Or you might suddenly have a free afternoon because a friend canceled plans, so you check Instagram where you see engaging ads for exercise equipment you never knew you needed.

Life offers up many opportunities for boredom shopping. As long as you find yourself with gaps in your schedule, there’s time to potentially give in to impulse buys. And this impulsive buying can lead to overspending and more credit card debt which, thanks to its high interest rates, can be a challenge to pay off.

11 Tips to Avoid Boredom Spending

If you need some strategies on how to quit spending money when bored, here are tactics to try. They take a variety of angles to keep you from overspending during your downtime.

1. Reducing Time Spent on Social Media

Changing your spending habits to combat boredom buying likely requires stepping away from your laptop, tablet, or smartphone. Social media can contribute to “fear of missing out” (or FOMO) spending. Trying to keep up with others’ buying habits so you’re not left out can affect mental health, causing stress, unhappiness, and feelings of low self-esteem. People dealing with FOMO may go into debt because of overspending.

To resist temptation and cut down on social media use, consider deleting specific apps or turning off the app’s notifications. There are also apps designed to increase focus and productivity that might be helpful. Freedom and StayFree are two examples; they can block social media and other websites for specific periods of time.

2. Starting a Side Hustle or a Second Job

There are several benefits of having a side hustle, freelance gig, or part-time job. For one, it can fill any additional time you might have for boredom spending. Actively pursuing another stream of income can also ignite a passion for something new, increase your professional skills and introduce you to new people.

In addition, having a side gig provides more money to put towards paying bills, decreasing debt, and increasing your savings account.

3. Allowing Splurges in Your Monthly Budget

Expecting yourself to never make boredom purchases may be unrealistic for many people. In that case, you might come up with a specific dollar amount to automatically slot into your weekly or monthly budget rather than quit cold turkey. Making an allowance for this type of shopping spree can help keep you from going completely overboard and having to skimp elsewhere.

Recommended: Developing Good Financial Habits

4. Taking a Break

Unpacking what’s going on when you are feeling as if life is tedious can help stop shopping when bored.

Feeling bored may signal it’s time to relax, switch gears, or engage in some physical activity. That “high” you tend to feel after buying something? You can thank the release of dopamine, a feel-good brain chemical that is part of the brain’s reward system. Dopamine is also released when you’re exercising or doing something you enjoy.

You can experience a dopamine rush by partaking in non-shopping activities, such as going for a hike or brisk walk, gardening, listening to music, and meditating. Relaxing with a book, tackling a jigsaw puzzle, cleaning, or baking your favorite sweet are also ways to reap similar emotional rewards while breaking monotony.

5. Setting Financial Goals

Dig into how boredom buying is impacting your financial health. When you see how it’s making it hard to achieve your aspirations, you’ll have added incentive to stop this behavior.

Creating money goals for yourself is an important step towards gaining control over your finances. It’s also an ideal way to start developing good financial habits. Start by writing down your short-term and long-term goals which could include tracking weekly spending, starting an emergency fund, or saving up for a down payment on a house. Once you’ve got it down on paper or in a spreadsheet, prioritize your objectives, give yourself a reasonable time span to meet those goals, and make a commitment to stick to them. Take note of how unplanned splurges will interfere with your budget.

6. Rewarding Yourself When You Achieve Your Financial Goals

If you’ve avoided boredom shopping for a couple of months, paid off a credit card bill, or managed to stow money in your savings account, it’s okay to treat yourself to a low-cost item such as a favorite meal or a movie. These little rewards can keep you from feeling deprived and inspire you to stay on course.

There are lots of rewards that don’t cost anything, such as a nature walk or a hot bath. But if you do want to spend, be sure to set a price limit based on what you can actually afford. The goal here is to reward good behavior and encourage you to stay on target and not let boredom purchases rock the boat.

7. Utilizing the 30-Day Spending Rule

The 30-day spending rule is a strategy to help reign in impulsive spending. Basically, the rule is simple — if you see a nonessential item either online or in a store, do not buy it. Instead, make a note in your calendar for 30 days later with details about where you saw the item and its price. When you reach that date, if you still want to purchase the item, and can afford it, you can do so, knowing it’s no longer an impulse buy. Instead, the purchase constitutes a well-considered financial choice.

There’s a good chance, however, the urge to make that purchase will have faded and you simply move on.

8. Unsubscribing from Email Lists

Retailer emails or newsletters touting sales, discounts, and deals can clutter your inbox and awaken the boredom spending monster. You can remove these temptations by unsubscribing from the company mailing lists.

Usually when you open their email, there’s an “unsubscribe” button at the bottom of the correspondence. It may be in small print but if you click or tap it, you should be able to opt out of emails. Take note it will probably take a few weeks for communications to stop.

You can also opt out of text messages that broadcast sales and special deals to your mobile phone. This can help minimize the temptation to shop when bored.

9. Learning New Skills That Interest You

What sparks your interest? Maybe you want to learn web design, become a real estate professional, or hone your cooking skills. Expanding your abilities in an area of interest can keep boredom at bay, whether you choose to study in person or online. Acquiring new skills could also make you more marketable and increase your income.

But even if learning something new doesn’t impact your earning power, it can still enrich your life. Getting involved in anything that stimulates your brain — whether it’s learning a new language, taking up knitting, or signing up for that novel writing class — can help you feel more fulfilled and increase your self-esteem.

10. Making Shopping Harder

As mentioned above, shopping can be super easy, increasing the odds that you might do some boredom buying. Why not fight back with tricks and tools that help you cut back on spending? The first thing you can do to reduce online and in-app shopping is delete your credit card or payment information from your favorite sites and your phone. This will add a few steps to the checkout process which may reduce the likelihood of spontaneous buying. It will give you time to be mindful about your spending and reconsider.

If you’re out and about, try leaving your credit cards at home to avoid boredom-driven buying.

11. Connecting With Others

Shopping can be a way of coping with being alone, and studies have shown loneliness leads to higher levels of boredom. Interacting with other people is key to cutting down on social isolation. Make plans to see friends and loved ones you enjoy. Volunteering for a local organization, political campaign, or charity is another great way to network. You’ll meet like-minded people and hopefully stay away from stores.

Saving Money With SoFi

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.

FAQ

How do I train myself to stop spending money?

The first thing you’ll want to do is stop and ask, “Do I need this or just want it?” If the answer is want, try waiting 30 days and then deciding whether to make the purchase. Also helpful: Find other, non-shopping ways to use those times you feel bored, such as meeting friends, starting a side hustle, or pursuing a hobby. Put the money you save towards a goal like paying down credit card debt, and congratulate yourself for your hard work.

What can I do instead of spending money?

Life presents many other options and healthier ways you can deal with ennui besides spending money. When you’re bored, engaging in another activity such as reading, cleaning, or decluttering can take your attention away, allowing you to feel productive and have a sense of purpose. Spending time with loved ones is another good use of time. Most likely, when you become engrossed in something else besides shopping, the impulse to buy will subside.

What are some spending triggers?

Shopping can stem from both psychological reasons and outside factors. Some people may be triggered to shop because of fear of missing out on what others have; others may need a mood lift when feeling sad, anxious, or lonely. Retailers are also known to use specific sensory stimuli both online and in stores to inspire spending.

Photo credit: iStock/Vadym Pastukh

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

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Sep
04
2024
Can Personal Loan Be Used to Start a Business?

Personal Business Loans: Risks, Appeals, and Alternatives

By | Building Your Career, Life & Career, personal_loan, SMB | Comments Off on Personal Business Loans: Risks, Appeals, and Alternatives

Starting a new business requires a good idea, customers who want your product or service, and money to get you off the ground. A personal loan to start a business can be one option for funding your business, especially if you don’t yet qualify for a small business loan.

Let’s walk through the difference between personal loans and business loans, the advantages and disadvantages of using a personal loan for business, and some alternative options to explore.

Key Points

•  Personal business loans offer flexibility in spending, but it’s crucial to confirm with lenders whether they will allow you to use the loan for business purposes.

•  Your personal loan interest rate is influenced by your financial history, income, and credit score, with higher credit scores leading to better rates.

•  Benefits of personal loans for business include ease of qualification, faster funding than business loans, and lower interest rates than credit cards.

•  Personal loans can be versatile with few spending restrictions, but they may have lower borrowing limits and shorter repayment terms and can affect your personal credit score.

•  Alternatives to personal business loans include small business loans, business lines of credit, business credit cards, and merchant cash advances.

What Is a Personal Business Loan?

Personal loans for business are offered by some banks, credit unions, and online lenders. While many loans will specify what you can spend the money on — a mortgage must be used to buy a house, for example — the sum you receive from a personal loan can be used in several ways. That said, it’s important to confirm with your lender whether its personal loans can be used for business expenses, as some lenders do not allow this.

Your personal loan interest rate is based on various financial factors, including your financial history, income, and credit score. Generally, the higher a person’s credit score, the more likely they are to receive a personal loan with favorable terms and interest rates. Applicants with lower credit scores may have more difficulty qualifying for low interest rates. Lenders tend to see them as at greater risk of defaulting on their payments. To offset that risk, they might charge a higher interest rate.

Personal Business Loans vs. Small Business Loans

Borrowing money to pay for business expenses is a decision that takes some consideration. There are different reasons you might want or need a business loan, many lenders to choose from, and different lending options to compare. Some things to think about if choosing between a personal loan for business or a small business loan include:

Factor to Consider Personal Loan for Business Small Business Loan
Use of funds Some lenders may not allow personal loan funds to be used for business purposes Specifically for business purposes — cannot be used for personal use
Qualification Personal creditworthiness determines approval, interest rate, and loan terms Lenders will require business financials, proof of time in business, and other details, in addition to possibly taking personal credit into account
Interest rate Depending on your creditworthiness, interest rate may be lower than other forms of credit, such as credit cards Depending on the type of loan, interest rates on SBA loans may be lower than some personal loans
Loan amount Up to $100,000 depending on the lender. SBA maximum loan amount is $5 million.

Some lenders may approve working capital loans for up to several million dollars
Funding time Depending on the lender, loan funds may be disbursed as soon as the day of approval or in up to seven days The SBA loan timeline is between 60 and 90 days from application to disbursement.

A working capital loan from a traditional lender may be approved quickly and funded shortly after approval

Tax deductibility Interest is not generally tax deductible Interest may be tax deductible in some cases

Recommended: Business Loan vs. Personal Loan: Which Is Right for You?

Benefits of a Personal Loan for Business

Benefits of a Personal Loan for Business

Taking out personal loans for business purposes can offer several advantages over other financing options.

Ease of Qualification

If your business is brand new, it can be tricky to get a business loan and may be easier to qualify for a personal loan. Banks offer personal business loans based on your personal income and credit score. On the other hand, you’ll be asked for a lot of information during the business loan application process, including your personal and business credit score, annual business revenue and monthly profits, and your length of time in business. The longer your business has existed, the more likely you are to have a record of revenue and profit — and the more likely you are to qualify.

Faster Funding

The length of time it takes to get approved for a personal loan and receive funding will vary by lender. Online lenders are typically faster than traditional banks and credit unions. You are likely to receive funding within seven business days.

By contrast, the process for a business loan can be much slower. For example, it can take 30 to 90 days to receive funding from a Small Business Administration (SBA) loan.

Potential for Low Interest Rates

If you have strong credit, personal loans can have lower annual percentage rates (APRs) than other financing products — such as credit cards. While it can be useful to have a business credit card, you’ll pay a relatively high rate If you carry a balance from month to month. Credit cards may also have penalties and fees that personal loans may not have, such as penalty APRs that go into effect if you make a late payment, over-limit fees if you spend more than your credit limit, annual fees, and more.

Flexibility and Versatility

Personal loans have few restrictions on how you’re allowed to use the money you borrow. You can use them for anything from debt consolidation to home repairs to a veterinary bill.

Recommended: 11 Types of Personal Loans & Their Differences

Disadvantages of a Personal Loan for Business

Disadvantages of a Personal Loan for Business

Despite the potential advantages of using a personal loan to help you start your business, there are drawbacks.

Some Lenders Don’t Allow Personal Loans for Business

Some lenders place restrictions on how personal loans can be used. It’s wise to be transparent about your intention to use the personal loan for business expenses and confirm if the lender permits it.

In some cases, it may not be. However, it’s far better to be honest about how you plan to use a loan than risk breaching the loan agreement. If you end up using a loan in a prohibited way, your lender could force you to immediately repay the full amount of the loan with interest.

Lower Loan Amount Limits

Personal loans generally offer borrowing limits as low as $1,000. They can go as high as $100,000 for larger personal loans. For small businesses, this might be plenty. But if you own a larger business that needs more money, you might benefit more from a loan specifically designed to meet business financial needs. Small business loans generally have lower interest than personal loans.

Shorter Repayment Terms

Lending periods for personal loans vary. Typically, you can find loans with term lengths of 12 months to five years. Compared to some small business loans, this is a relatively short period. Consider that for SBA loans, maximum terms can be as much as 25 years for real estate, 10 years for equipment, and 10 years for working capital or inventory.

Potential to Affect Personal Credit Score and Assets

If you take out a personal loan and can’t make monthly payments, you are putting your personal credit at risk. Missed payments may harm your credit score, which can make it more difficult for you to access funding in the future.

Recommended: What Is Considered a Bad Credit Score?

Fewer Tax Deduction Opportunities

Generally, the interest you pay on a personal loan is not tax deductible, unlike the interest paid on business loans. However, there’s an exception if you use the proceeds of a personal loan for business purposes.

However, this can get a bit tricky, as you may only deduct interest on the portion of the loan used for business expenses. So if you use any of that money to remodel the primary bathroom in your home, for example, interest on that portion can’t be deducted.

How to Get a Personal Loan for Business

Securing a personal loan for business purposes involves several key steps. The process looks like this:

1.   Assess your finances: Begin by looking at your personal credit score, income, and overall financial health. This will give you insight into the likelihood of qualifying for a personal loan and the interest rates you might get.

2.   Choose a lender: Look for banks, credit unions, and online lenders that offer personal loans suitable for business purposes. Make sure they allow you to use personal loan funds for business expenses. Compare interest rates, loan terms, and fees to find the best lender for your needs.

3.   Prepare your documents: Gather documents like proof of income, tax returns, identification, and any business-related information required for your application.

4.   Submit your application: Complete the loan application process with your chosen lender. Be honest about your intention to use the loan for business expenses. This transparency helps avoid potential issues in the future.

5.    Review loan terms: Once your application is approved, carefully review the loan terms, including the interest rate, repayment schedule, and any associated fees. If everything looks good to you, accept the loan terms to move forward with the funding process.

Alternatives to Personal Business Loans

Personal loans might not be ideal for everyone and aren’t the only funding option for your small business. It may be worth considering small business loans or other types of business loans as alternatives.

Small Business Loans

Small business loans are offered through online lenders, banks, and credit unions. There are various options available, each designed for specific purposes. For example, a working capital loan is designed to help you finance the day-to-day operations of your business. An equipment loan can help you replace aging technology and buy new equipment.

SBA loans are guaranteed by the Small Business Administration, whose aim is to help small businesses start and grow. If you aren’t able to make your payments, the SBA will step in and cover up to 85% of the default loss. By reducing risk in this way, the organization helps businesses get easier access to capital.

Shopping around for the best small business loans rates is a good way to compare lenders and find the one that works best for your unique financial needs.

Business Lines of Credit

A business line of credit is revolving credit, similar to a credit card. You have a set credit limit and only pay interest on the amount you’re currently borrowing, making it a more economical option than a term loan for some business owners. As you repay the funds, they are available to borrow again.

Another advantage to a line of credit over a term loan is the ability to use a check to pay vendors who do not accept credit cards.

Business Credit Cards

Business credit cards can be useful for separating personal and business expenses. They also usually have higher credit limits than personal credit cards, which gives you more flexibility to make larger business purchases. Plus, they may offer rewards, perks, and bonuses. It’s important to keep in mind, however, that credit cards tend to have higher interest rates than other types of business financing.

Recommended: Can You Get a Business Credit Card Before You Open Your Business?

Merchant Cash Advance

A merchant cash advance (MCA) is an alternative form of financing for businesses that get revenue through credit card sales. With an MCA, a business can borrow a lump sum of money and repay the lender with a percentage of future credit card transactions. The repayment amount is larger than the advance, since the lender charges a fee. In some cases, MCA fees can significantly exceed interest rates on other types of business loans.

The Takeaway

Can you use a personal loan to start a business? Perhaps. Taking out a personal loan may be one way to fund your small business needs. However, some lenders do not allow a personal loan to be used for business purposes. It’s a good idea to explore alternatives, such as a small business loan or line of credit.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.


With SoFi’s marketplace, it’s fast and easy to search for your small business financing options.

FAQ

Can a personal loan be used for business?

Yes, you can use personal loans for business if the lender allows it. It’s important to check with the lender to ensure there are no restrictions on using the loan for business expenses.

Can I write off a personal loan if used for my business?

You can typically write off the interest on a personal loan used for business purposes, but only the portion directly related to business expenses. Personal loan principal repayments are not tax-deductible.

Does the SBA offer personal loans?

No, the Small Business Administration (SBA) does not offer personal loans. The SBA provides various loan programs designed specifically to support small businesses, such as SBA 7(a) loans and SBA 504 loans.

Photo credit: iStock/fizkes

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

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.

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.

SOSMB-Q324-027

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Sep
04
2024

Why Did My Credit Score Drop 80 Points for No Reason?

By | Credit, Financial Independence, relay | Comments Off on Why Did My Credit Score Drop 80 Points for No Reason?

Your credit score is unlikely to drop for no reason, but it might drop for reasons you do not expect. Simply applying for a new credit card, closing out an old one, or being late with a payment can affect your score. A drop in your credit score of 80 points may be enough to reduce your credit score from “good” to “fair,” which can mean you will pay significantly more to borrow money.

Here’s a look at the reasons your credit score might drop, how to monitor your score, and what to do if your credit score drops suddenly.

Track your credit score with SoFi

Check your credit score for free. Sign up and get $10.*

Why Did My Credit Score Drop 80 Points?

Your credit score is based on factors related to how you manage your debt. Specifically, whether you pay your bills on time, how much you owe creditors versus how much credit you have available, the length of your credit history, the types of debt you have, and how often you apply for a new loan or credit card. Bankruptcy and foreclosures are additional threats to your credit score.

Any one or a combination of these factors could cause your credit score to drop.

Should You Be Worried About Your Credit Score Dropping?

Credit score changes are fairly common and not always a cause for concern. However, an 80-point drop is worth looking into, as it could impact whether you get approved and receive favorable terms for a loan or line of credit.

For instance, if your score drops from 700 to 620, it’s no longer considered “good.” That means that you will not qualify for the best mortgage or credit card rates because a lender will consider you a riskier borrower and could charge you more for financing.

It’s important to first understand why the drop happened so you can correct any issues and begin getting your credit back on track. Monitoring your credit score can be a good place to start, as it allows you to track changes to your score and get insights into your financial health.

Reasons Your Credit Score Went Down

There are a few reasons why your credit score might go down. But bear in mind that it can take over a month for your credit score to update and reflect any changes in your credit situation.

You Applied for a New Loan or Credit Card

If you apply for a new loan or a credit card, your credit score may go down because card issuers will perform a “hard pull,” or hard credit inquiry, when they look at your credit information. According to FICO™, a hard pull typically takes five points or less off your FICO Score. However, if you apply for several credit cards within a short period of time, it could have a greater impact on your score.

Your Credit Card Balance Went Up

If you carry a balance on your credit card, you won’t just rack up interest charges — your credit score might drop, too. Thirty percent of your FICO Score is based on the amount of money you owe. A significant balance on a credit card could cause your score to fall and your credit utilization rate — or how much of your credit limit you’re using on your revolving credit accounts — to rise.

You Missed Payments

Around 35% of your FICO credit score is based on your payment history. Therefore, if you fail to make your monthly payments — or are late making a payment — your score could fall.2 Tools like a money tracker app can help you identify upcoming bills, create a budget, and more.

You Closed a Credit Card Account

When you close a credit card account, especially one you’ve had for a long time, the average age of your accounts falls. That, in turn, could cause your credit score to dip, as the length of your credit history accounts for 15% of your FICO Score.

What Can You Do If Your Credit Score Dropped by 80 Points?

If your credit score drops by 80 points, there are some steps you can take to find out why and to rebuild your credit score.

Ensure Your Payment History Is Correct

Creditors can make mistakes and report inaccurate information to the credit bureaus. Fraudsters can steal your identity and use your accounts. So it’s worthwhile to check your credit report, including your payment history, and dispute any inaccurate information.

You can check your credit report for free from each credit bureau on AnnualCreditReport.com. You can also check your credit report for free with Experian and sign up for monthly updates.

Don’t Miss Payments

A payment that’s over 30 days past due may be reported to the three major credit bureaus. If you fail to make a payment for 90 days, your creditor may refer your account to a collection agency. These records will remain on your account for seven years.

Keep Your Credit Utilization Rate Low

As you use more of your available credit, your credit utilization rate will increase. The higher your credit utilization rate, the more of a risk you are to a lender, and the more your credit score may decrease. Aim for a rate below 30%. For example, if your credit card has a credit limit of $12,000, don’t use more than $3,600, and ideally use $1,200 or less.

Hold Off on Applying for a Credit Card, Loan, or Mortgage

If you apply for a new loan or credit card, the lender will conduct a hard inquiry to check your credit score. As we mentioned, this type of check will only temporarily lower your score by a few points. But many hard inquiries over a short period can have a compounding effect on your credit score. This might occur if you apply for several credit cards at once. The impact of a hard inquiry will typically last a few months to a year.

Avoid Bankruptcy or Foreclosure

Declaring bankruptcy and experiencing foreclosure on a property both cause a significant drop in your credit score. And both stay on your credit report for a long time: seven years for Chapter 13 bankruptcy, 10 years for Chapter 7 bankruptcy, and seven years for a foreclosure.

How to Build Your Credit Score

Building your credit score comes down to sensible fiscal management over time.

Whether your credit score dropped or not, there are steps you can take to help boost your numbers. Examples include:

•   Paying bills on time

•   Checking your credit report regularly for errors

•   Lowering your credit utilization rate

•   Keep spending in check — a spending app can help

Scenarios Where Your Credit Score Might Drop

Here are some scenarios where you might be surprised to find that your credit score has dropped.

You Pay Off Credit Cards

Let’s say you have three credit cards: one with $5,000 in available credit, one with $8,000 in available credit, and one with $500 in available credit. That’s $13,250 of total available credit.

You have a total balance of $3,975 over all three cards, which gives you a credit utilization ratio of 30%.

Let’s also say you take out a debt consolidation loan to pay off all debt except for $250 on the card with a $500 limit. You then close out the two cards with no debt — taking with it $13,000 in available credit. You’ve kept open the card that has a $500 credit limit and a $250 balance.

This might seem like a good move because you’ve paid off over $3,000 in debt and eliminated two credit cards. However, you now have a 50% credit utilization rate, significantly higher than the recommended 30%. This may increase your credit score.

You Close an Old Credit Card Account That You Don’t Use

Another reason to think twice before closing credit card accounts? It could impact the length of your credit history, which accounts for 15% of your credit score. If you close old accounts, it could lower the average age of your credit history, and your score could take a dip as a result.

You Took Out New Loans to Pay Off Debt

Every time you apply for a loan or a credit card, the lender performs a hard pull. If you apply for multiple new loans or credit cards within a short stretch of time, it could temporarily lower your credit score.

Allow Some Time Before Checking Your Score

Credit scores continually fluctuate as information on your credit report gets updated. According to Equifax, your credit score can take 30 days or more to reflect payments you’ve made.

What Factors Impact Credit Scores?

As we discussed, your credit score is calculated based on the following, according to the FICO scoring model:

•   35% of your score is based on your payment history.

•   30% is based on the amount you owe creditors and your credit utilization rate. Ideally, your rate should be around 10% and not higher than 30%.

•   15% is based on the length of your credit history.

•   10% is based on the types of debt you have. A mix of installment debt (such as student loans, mortgage, car loan, personal loan) and credit card debt (or lines of credit) is preferable.

•   10% is based on new credit.

Pros and Cons of Tracking Your Credit Score

There are no drawbacks to tracking your credit score, except for the time it takes to obtain your report.

On the other hand, there are plenty of pros to monitoring your credit score. You’ll know where you stand regarding future loans and what potential lenders will see on your credit report. You’ll also be able to spot inaccurate or incomplete information that you can have removed, which can help boost your credit score.

How to Monitor Your Credit Score

Federal law allows you to view a free copy of your credit report from each of the three national credit bureaus (Experian, TransUnion, and Equifax) at AnnualCreditReport.com. Check the reports carefully, and if you find something you don’t agree with, file a dispute to try to have the information removed.

You can also enroll in a credit score monitoring service. These automated services notify you of changes to your credit report that might occur if you qualify for a new credit card or loan, or fall behind on loan payments.

The Takeaway

Your credit score might fluctuate without you realizing it. But a drop of 80 points may be worth investigating, as it could mean you pay significantly more to borrow money. You might be surprised to learn that if you apply for a new credit card, pay off the balance on a card, or close an old account, your credit score could be adversely affected.

It’s a good idea to obtain a copy of your credit report — it’s free — and check that the information given to the credit agencies is accurate. You can also help maintain a good credit score by not missing credit card and loan payments and by keeping your credit utilization ratio below 30%.

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

See exactly how your money comes and goes at a glance.

FAQ

Why did my credit score go down 80 points?

Your credit score is based on factors related to how you manage your debt. Bankruptcy or foreclosure will have an obvious effect on your score, but if you have not paid your bills on time, your credit utilization rate is higher than 30%, or you close old credit card accounts and reduce your credit history, you may see a dip. Also, your credit score may be affected if you apply for a number of credit cards or loans in a short space of time.

Why is my credit score going down if I pay everything on time?

Your payment history accounts for only 35% of your credit score. Other factors include your credit utilization rate, the length of your credit history, and the types of debt you have.

Why has my credit score gone down when nothing has changed?

Even if nothing has changed for you fiscally, you may still see fluctuations in your credit score. There are various reasons why, such as a higher-than-normal credit utilization ratio, inaccurate information in your credit report, or identity theft.

Photo credit: iStock/katleho Seisa

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

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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 .

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.

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.

SORL-Q324-014

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