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Imagine you have four credit cards, each with a $5,000 limit, for a total of $20,000. You have a balance of $2,000 on Credit Card A from vacation travel, $1,000 on Credit Card B from buying new car tires, $2,000 on Credit Card C from last holiday season, and $1,000 on Credit Card D from regular monthly bills. Altogether, you owe $6,000. If we calculate that as a percentage, we have your credit card utilization rate: 30%.

In this guide, we’ll focus on credit utilization, determine how much of your credit you should use, and show how credit card utilization affects your credit score and overall financial standing.

What Is a Credit Utilization Ratio?

Your credit utilization ratio is a fancy way of referring to how much of your credit you’re using. Lenders and credit reporting agencies use it as an indicator of how well someone is managing their finances.

A low credit utilization ratio says you live within your means, use credit cards responsibly, and therefore probably manage the rest of your finances well. A high credit utilization hints that your expenses are outpacing your income, a sign that you’re misusing credit cards, and possibly mismanaging the rest of your finances.

The reality of the situation may be different. Perhaps you have temporary cash flow problems due to a job loss. Or you happen to have a pileup of pricey expenses within a short time, such as medical bills, car repairs, and a destination wedding. It happens. That’s why credit utilization is just one factor that goes into calculating your credit score.

Recommended: Types of Personal Loans

How Do You Calculate Your Credit Card Utilization Rate?

In the example above, we saw that if you have $20,000 of credit available to you, and you owe $6,000, your credit utilization rate is 30%. How did we get there? To find out your credit card utilization rate, simply divide your total credit card balances by your total credit line, like this:

Total Balance / Total Credit Line = Utilization Rate

With the numbers from our example, it looks like this:

6,000 / 20,000 = .3 or 30%

Simple, right? You’ve got this.

Recommended: Getting Your Personal Loan Approved

What Counts as “Good” Credit Card Utilization?

As it turns out, just because you’ve been approved for a $10,000 credit card doesn’t mean it makes financial sense to charge $10,000 worth of rosé and seltzer — even if you know you can pay it off over a couple of months. In fact, you might be shocked to learn how little of your available credit you’re supposed to use.

The general rule is that you should not exceed a 30% credit card utilization rate. That means that in our example, you would not want to use more than $6,000 of your available $20,000 credit. Even though 30% might seem like a small percentage, keeping below that threshold can ensure that your credit score isn’t being dinged for over-utilization.

How Can You Lower Your Credit Card Utilization Ratio?

You can lower your credit utilization ratio by paying down your credit card balances. Ideally, you should pay off your credit card balances in full every billing cycle to avoid paying interest. When that’s not possible, pay off as much of the bill as you can.

Whatever you do, don’t make a habit of paying only the credit card minimum payment suggested on your bill.

When trying to pay down your credit cards, focus on the one with the highest interest rate. That way, you’ll save the most money on interest. Or you can pay off your cards with a personal loan. In fact, debt consolidation is one of those most common uses for personal loans.

Another way to lower your utilization rate is to increase your available credit. Ask your bank to raise your credit card limit. If they agree, your utilization will quickly drop. Also, keep open any cards you don’t use rather than closing the accounts. They’re serving a valuable purpose by contributing to your credit limit, even if you’ve cut up the actual cards.

As you can tell, credit utilization is a nuanced topic. Learn all the ins and outs in our Guide to Lowering Your Credit Card Utilization.

How Does Credit Card Utilization Affect Your Credit Score?

Credit card utilization plays a big role in how companies compute your credit score. In fact, about 30% of your credit score is determined by your credit card utilization rate. That means a high credit card utilization rate can adversely affect your credit score. For a deep dive into the topic, check out How Does Credit Utilization Affect Your Credit Score?

How Do You Monitor Your Credit Card Utilization?

Your credit utilization might seem difficult to keep track of. But we live in the 21st century, so it’s actually quite easy to set up account reminders to alert you when you are approaching that 30% credit card utilization mark.

In addition to watching your utilization rate, make your best effort to pay your credit card bills on-time each month. Checking your credit score regularly will also help you keep your financial health in check. Although you don’t want to check your score too often, it’s good to keep tabs to make sure the data being reported is accurate.

The Takeaway

Your credit card utilization ratio is the sum of all your credit card balances divided by the sum of your credit limits. Credit reporting agencies recommend keeping your ratio at 30% or below. Higher ratios can hurt your credit, since credit utilization accounts for 30% of your credit score. To lower your utilization rate, simply pay down your credit card balances. And think twice before closing a credit card you no longer use. You might also consider consolidating your credit card debt with a personal loan; a personal loan calculator can show you how much you could save on interest.

Have high credit card utilization across multiple cards? Consolidating credit card debt with a low interest personal loan will reduce your utilization rate, which can positively affect your credit score. With SoFi Personal Loans, you can borrow $5K to $100K, with low fixed rates and no fees required.

Compared with high-interest credit cards, a SoFi personal loan is simply better debt.

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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 .

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.

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There are many reasons people end up in debt. Medical bills, emergency home or car repairs, a job layoff. And some of us just didn’t know that it’s best to pay off credit cards in full every month. Either way, no judgment here. If you have high-interest credit card debt and are ready to put together a plan to pay it back, you might be considering one of two popular methods: Credit card refinancing vs. debt consolidation.

Both involve paying off your debt with another credit card or loan, ideally at a lower interest rate. Still, the two methods are not the same, and both options require careful consideration. Below, we’ll discuss the pros and cons of each debt payback method, so you can make an informed decision.

What Is Credit Card Refinancing?

Credit card refinancing is the process of moving your credit card balance(s) from one card or lender to another with a lower interest rate. The main purpose of refinancing is to reduce the amount of interest you’re paying with a lower rate while you pay off the balance.

Borrowers may accomplish this by paying off their existing credit cards with a brand-new balance transfer card. This type of credit card offers a low or 0% interest rate for a promotional period of up to 21 months.

For example, say a borrower has $10,000 on a credit card that charges 20% interest. By switching to a 0% interest card (and making payments on time), they can save around $2,000 in the first year alone, provided there are no fees or penalties. Alternatively, if the borrower switches to a card that charges 10% interest in the first year, they can save around $1,000.

Recommended: The Risks of Payday Loans

What Are the Pros and Cons of Credit Card Refinancing?

We’ve discussed the goal of credit card refinancing — to lower your interest rate — and how to accomplish it. Now let’s explore some of the pros and cons of refinancing.

Pros of Refinancing

The primary benefit is the chance to pay off credit card debt while paying little to no interest for the first 12 or more months. For a relatively small credit card balance — one that can comfortably be paid off within a year — this can be an effective strategy.

Cons of Refinancing

Balance transfer cards come with major catches: The low or 0% interest period is short-term (6-21 months), and there may be a balance transfer fee of 3%-5%. For a borrower with $10,000 in credit card debt, a 5% balance transfer fee comes out to $500.

For some borrowers, the amount they’re saving in interest might not be worth the transfer fee. This is especially true if the borrower ends up unable to pay off their balance within the introductory period. After the promotion ends, the interest rate can skyrocket to as high as 25%.

This brings up yet another consideration: Balance transfer cards don’t put any structure into place for the borrower to follow in order to fully pay off the credit card debt. A borrower can just as easily continue making only the minimum payments and even add to the balance of the debt. This is the risk we run with what is called revolving credit.

Finally, 0% interest balance transfer cards often require a high credit score to qualify. However, borrowers hoping to qualify in the future can build their credit by making all payments on time and reviewing their credit report for errors.

Recommended: Loans With No Credit Check

What Is Credit Card Debt Consolidation?

Credit card consolidation refers to the process of paying off multiple credit cards with a single loan, referred to as a debt consolidation loan or personal loan. Unlike refinancing, the main purpose of consolidation is to simplify bills by combining multiple credit card payments into one fixed loan payment.

A borrower may also pay less in interest, but the difference may not be as great as with refinancing. An applicant’s credit score and other financial data points will determine their personal loan interest rate.

What Are the Pros and Cons of Credit Card Debt Consolidation?

As we mentioned, credit card debt consolidation serves to pay off multiple credit cards with a single short-term loan. But as with credit card refinancing, there are advantages and disadvantages.

Pros of Debt Consolidation

Consolidation allows borrowers to pay off multiple debts and replace them with one monthly payment and a set repayment term of their choosing. Borrowers benefit from the structured nature of a personal loan: They make equal payments toward the debt at a fixed rate until it is completely eliminated.

With most personal loans, the borrower is able to opt for a fixed interest rate, which ensures payments won’t change over time. (Variable interest rate loans are available, but their lower initial rate can go up as market rates rise.) You might have a $10,000 loan, for instance, with a repayment term of five years at 8% interest — a rate that will not change for the duration of the loan.

Secured personal loans that require collateral sometimes offer lower interest rates. However, the savings is usually not worth the risk of losing your car or home. For that reason, unsecured personal loans are preferable.

Cons of Debt Consolidation

The terms of a personal loan will almost always be based on the borrower’s credit history and their holistic financial picture. That means that not every borrower will qualify for a low interest rate, or get approved for a personal loan at all.

Another hazard is the potential for a borrower to run up their credit card debt again, once their cards are paid off. Canceling all but one card can help prevent that. However, borrowers should research how canceling their credit cards might affect their credit scores.

Credit Card Refinancing vs Debt Consolidation

To recap, the difference between debt consolidation and credit card refinance is first a matter of goals. With credit card refinancing — as with other forms of debt refinancing — the borrower’s aim is to save money by lowering their interest rate. Debt consolidation may or may not save the borrower money on interest, but will certainly simplify bills by replacing multiple credit card obligations with a single monthly payment and a structured payback schedule.

The other difference is that credit card refinancing typically utilizes a balance transfer credit card that has a 0% or low-interest rate for a short time. This limits the amount a borrower can transfer to what they can comfortably pay off in a year or so. Debt consolidation utilizes a personal loan, which allows for higher balances to be paid off over a longer payback period.

Credit Card Refinancing vs Balance Transfer Cards

These two terms are not mutually exclusive. Instead, a balance transfer credit card is one way to refinance credit card debt.

The Takeaway

Credit card refinancing is when a borrower pays off their credit card(s) by moving the balance to another card with a lower interest rate. A popular way to do this is with 0% interest balance transfer credit cards. However, borrowers typically need a high credit score to qualify for these cards. Debt consolidation, on the other hand, is when a borrower simplifies multiple debts by paying them off with a personal loan. Personal loans with a fixed low interest rate and a structured payback schedule are a smart option for consolidating debts.

If you have a relatively small balance that can be paid off in a year or so, refinancing with a balance transfer credit card may be right for you. If you have a larger balance or need more time to fully pay it off, personal loans are available for terms of up to 7 years.

Tired of juggling logins and payment schedules with a bunch of other lenders? SoFi Personal Loans can help you save money, take control of your finances, and simplify your life by consolidating everything at a single, low rate. It only takes minutes to apply.

Don’t let high interest interfere with your interests.

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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 .

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.

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Truth be told, there’s no such thing as a good time to lose your job. Unfortunately, a layoff typically does not stop the influx of bills. Generally speaking, people need to cover their monthly burn rates no matter what.

Luckily, individuals who find themselves in such a tough position have options. Before resorting to pulling out the big guns, like forbearance — a pause in monthly payments toward a loan — or other options that can potentially hurt your credit, it’s worth taking a look at all of the choices on the table. That way, you’ll fully understand your options and their implications before making a move when you’ve lost your job and can’t pay your bills.

First Thing’s First: Tracking Expenses

Even the richest people on Earth might benefit from re-examining their expenses and looking for ways to cut monthly costs. Although debt and a precarious employment situation can make the path back to stability feel out of grasp, getting one’s expenses in order is an important first step toward regaining control.

A clear-cut way to save money on food is to minimize or eliminate getting takeout from restaurants. That drive-through latte might feel like a part of the daily routine to preserve sanity and get a much-needed caffeine boost. But in the long run, these small expenses can add up to hundreds or even thousands of dollars in savings when curbed.

When it comes to groceries, it helps to make a list before shopping. Start a Google Doc for the household and add to it as needs arise. Shift away from living to eat and try to adapt to eating to live. It’s easier that way to eat healthier, and, like coffee, snacks can wallop the bottom line.

In addition to making a grocery list, another great rule to adopt is setting a shopping limit. Stop buying things, from anywhere, on impulse. For groceries, maybe set a maximum total per trip.

Also try to get in the habit of keeping eyes peeled for coupons and promo codes, or installing coupon apps like Honey or Rakuten. Many of those types of apps have browser-extension versions, meaning that while you’re surfing the internet, coupons will automatically be displayed when looking at potential purchases.

Also keep in mind that while grocery pickup and delivery services like Instacart are convenient, the fees can add up, including local sales tax. Even if it feels like a hassle, DIY-ing your grocery shopping is another way you can save.

Saving More, Spending Less

Losing a job is obviously never a good thing, but it might be a catalyst for reducing non-essential credit card spending and becoming more goal-oriented in general. Many would argue that credit cards can be dangerous because they help people buy things they might not be able to afford.

Articles about budgeting (including emergency funds, which would apply to the situation explored in this piece) are worth a read and can inform a broader strategy of saving over spending. But understand that saving with many outstanding debts is less about amassing wealth and more about getting tactical with repayment. A checking and savings account can help you to track daily, weekly, or monthly spending to identify where cutbacks might be possible.

Reaching for Lifelines

Even with modified spending habits and a new budget, a loan due is a loan due — or at least a situation that won’t go away without dealing with it. The reason you lost your job will form a fork in the road of sorts about how to proceed.

If you voluntarily quit without good cause, then unemployment benefits probably will not be available. But usually the first part of a survival plan for unemployment — loans or not — is to get into the system for unemployment, if possible. To get started, this unemployment benefits finder can help, as can exploring unemployment resources by state.

With that in the pipeline, it’s time to grit down, pick up the phone, and call your lender. Many lenders have forbearance and deferment programs in place for their customers, but it’s generally up to the customer to reach out and ask for help.

Forbearance is an option offered in many lending agreements. The terms vary, but it can open the door to a revised agreement that may allow for decreased or delayed payments for a specific period of time, often up to 12 months. Some lenders may offer to reduce the interest rate charged on the debt, but there are no federal guidelines requiring specific terms for forbearance agreements across all industries (with the exception of federal student loans).

On the surface, this sounds wholly positive, but be forewarned that these options can significantly affect credit history and credit scores. The effects on credit depend on the type of loan and the lender. Also realize that interest will usually accrue and be added to your principal balance at the end of a forbearance period.

Looking Out for Debt Traps

Debt can lead to an even more desperate situation after a hasty decision. It’s worth highlighting a couple potential debt traps to consider eliminating altogether as you navigate dealing with your loans after a job loss:

•   Turning to payday loans: Payday loans are a popular “break in case of emergency” option because they’re small, short-term, unsecured loans. People often turn to them when they struggle to get through to the next payday, which is also when the loan balance and interest will become due.

   But even at a glance, it’s clear to see the trouble ahead: The large fees and hefty interest rates common to payday loans can leave borrowers with less to spend each month, even though payday loans can help with getting out of an immediate bind. But it’s a bit like wriggling loose from one bind and taking shelter in another.

•   Leaning on credit cards: While it might be tempting to use credit cards to cover what’s owed on an existing loan, it can be a slippery slope. Compounding interest can mean replacing one trap with another. It’s a well-intentioned approach that seems sound, but a better alternative might be a personal loan with a fixed interest rate and no fees.

Moving Forward

The main thing to remember for anyone who is out of work and still responsible for loans is: You are not alone. It might seem difficult, even impossible, but it is doable — and even the longest journeys begin with taking the first steps. After you’ve started tracking your expenses, cutting back on costs, and reaching for lifelines through unemployment benefits and your lender, the next step in dealing with loan payments after a job loss is to explore your options.

Rather than turning to potential debt traps like payday loans and credit cards, you might consider a personal loan. SoFi, for instance, offers unsecured personal loans fixed interest rates and no fee options. Learn more and consider applying for a personal loan today.

Find your rate on a SoFi unsecured personal loan.

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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.

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

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Figuring out how to manage money during a recession — or any crisis — can be difficult. When facing a potential recession, financial decisions take on a new weight. After all, financial policy may change during a recession, which can leave consumers with questions. For example, if the Federal Reserve lowers interest rates, should you borrow money during a recession?

While lower recession interest rates might sound appealing, there are lots of things to consider before borrowing money during a recession.

Understanding Recessions

A recession is a period of time when economic activity significantly declines. In the U.S., the National Bureau of Economic Research defines a recession as more than a few months of significant decline across different sectors of the economy. We see this decline in changes to the gross domestic product, unemployment rates, and incomes.

In essence, a recession is a period of time when spending drops. As a result, businesses ramp down production, lay off staff, and/or close altogether, which in turn causes a continued decrease in spending.

There are many possible causes of the recession. Usually, recessions are caused by a wide variety of factors — including economic, geopolitical, and even psychological — all coinciding to create the conditions for a recession.

For example, a recession could be caused by a major disruption in oil access due to global conflict, or by the bursting of a financial bubble created by artificially depressed interest rates on home loans during a financial boom (as was partially the case with the 2008 financial crisis in the U.S.). A recession also could be caused in part by something like a pandemic, which could create supply chain disruptions, force businesses into failure, and change spending habits.

As for how psychology plays a role in recessions, financial actors might be more likely to invest in a new business or home renovation during boom years when the market seems infallible. But when an economic downturn or recession starts, gloomy economic forecasts could make people more likely to put off big purchases or financial plans out of fear. In aggregate, these psychological decisions may help control the market.

In the case of a recession, for example, many people choosing not to spend out of fear could cause a further contraction of the market, and consequently further a recession.

💡 Recommended: Find more recession resources in our Recession Survival Guide and Help Center.

How Does Financial Policy Change During a Recession?

Economic policy might temporarily change in an effort to keep the market relatively stable amid the destabilization a recession can bring. The Federal Reserve, which controls monetary policy in the U.S., often takes steps to attempt to curb unemployment and stabilize prices during a recession.

The Federal Reserve’s first line of defense when it comes to managing a recession is often to lower interest rates. The Fed accomplishes this by lowering the interest rates for banks lending to other banks. That lowered rate then ripples throughout the rest of the financial system, culminating in reduced interest rates for businesses and individuals.

Lowering the interest rate could help to stem a recession by decreasing costs for businesses and allowing consumers to take advantage of low-interest rates to buy things using credit. The increase in business and purchasing might in turn help to offset a recession.

The Federal Reserve also may take other monetary policy actions to attempt to curb a recession, like quantitative easing. Quantitative easing, also known as QE, is when the Federal Reserve creates new money and then uses that money to purchase assets like government bonds in order to stimulate the economy.

The manufacturing of new money under QE may help to fight deflation because the increase in available money lowers the value of the dollar. Additionally, QE can push interest rates down because federal purchasing of securities lowers the risks to lending institutions. Lower risks can translate to lower rates.

Recommended: Federal Reserve Interest Rates, Explained

Downsides to Borrowing Money During a Recession

While it might seem smart to borrow during a recession thanks to those sweet recession interest rates, there are other considerations that are important when deciding whether borrowing during a recession is the right move. Keep in mind the following potential downsides of borrowing in a recession:

•   There’s a heightened risk of borrowing during a recession thanks to other difficult financial conditions. Difficult financial conditions like furloughs or layoffs could make it more difficult to make monthly payments on loans. After all, regular monthly expenses don’t go away during a recession, so borrowers could be in a tough position if they take on a new loan and then are unable to make payments after losing a job.

•   It may be harder to find a bank willing to lend during a recession. Lower interest rates may mean that a bank or lending institution isn’t able to make as much money from loans. This may make lending institutions more hesitant.

•   Lenders could be reluctant to lend to borrowers who may be unable to pay due to changes in the economy. Most forms of borrowing require borrowers to meet certain personal loan requirements in order to take out a loan. If a borrower’s financial situation is more unstable due to a recession, lenders may be less willing to lend.

When to Consider Borrowing During a Recession

Of course, there are still situations where borrowing during a recession might make sense. One scenario where borrowing during a recession might be a good idea is if you’re consolidating other debts with a consolidation loan.

If you already have debt, perhaps from credit cards or personal loans, you may be able to consolidate your debt into a new loan with a lower interest rate, thanks to the changes in the Fed’s interest rates. Consolidation is a type of borrowing that doesn’t necessarily increase the amount of total money you owe. Rather, it’s the process by which a borrower takes out a new loan — with hopefully better interest rates and repayment terms — in order to pay off the prior underlying debts.

Why trade out one type of debt for another? Credit cards, for example, often have high-interest rates. So if a borrower has multiple credit card debts with high-interest rates, they may be able to refinance credit card debt with a consolidation loan with a lower interest rate. Trading in higher interest rates loans for a consolidation loan with potentially better terms could save borrowers money over the life of the loan.

Having one loan to pay off instead of many loans may be easier than managing multiple payments each month. When a borrower is paying off a variety of credit cards, they usually have to consider a number of different payment due dates, interest rates, and outstanding balances. Additionally, if the entire credit card balance isn’t paid in full by the end of the billing period, compounding interest accrues, increasing the amount owed.

When considering consolidation, borrowers may want to focus on consolidating only high-interest loans or otherwise comparing the interest rates between their current debts and a potential consolidation loan. Also note that interest rates on consolidation loans can be either fixed or variable. A fixed rate means a borrower may be able to lock in a lower interest rate during a recession. With a variable interest rate, the loan’s interest rate could go up as rates rise following a recession.

Additionally, just like many other types of loans, consolidation loans require that borrowers meet certain requirements. Available interest rates may depend on factors like credit score, income, and creditworthiness.

Recommended: Fixed vs. Variable Rate Loans

The Takeaway

Deciding whether or not to borrow during a recession, including taking out a personal loan, is a decision that depends on your specific circumstances. There are downsides to consider, such as the general economic uncertainty that can increase risk and heightened uncertainty from lenders. But if you have high-interest debt, or could secure a lower rate by consolidating, then taking out a consolidation loan during a recession could make sense.

If you think a consolidation loan might be right for you, SoFi offers personal consolidation loans with fixed interest rates. SoFi consolidation loans have no fees required, which means you can be sure of exactly what you’re getting. Plus, applying for a personal loan with SoFi is quick and easy.

Thinking about a consolidation loan? Learn more about how SoFi can help.

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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.

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

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For many people, clothing is a favorite purchase, and shopping for new looks is practically a hobby. Fashion is a way to express your personal style; a new pair of jeans or boots can be a major mood-lifter.

But let’s face it, clothes can be expensive. If fashion is your weakness, it can take a big bite out of your budget. According to the Bureau of Labor Statistics, the average American household spends $1,754 a year on apparel and related services. A survey by Credit Donkey found women spend an average of $571 per year on clothing, compared to men who spend an average of $323 per year.

But some people spend considerably more, ringing up bigger bills by buying the latest handbag or designer clothes that can add the equivalent of a student loan payment to your monthly bills.

These purchases can add up over time and feel like a waste of money of your hard-earned cash. So here, learn some ways to reduce the amount you spend on garments, including:

•   How to save money on clothes

•   How to know when to shop to get the best deals

•   How to trade what you own (but are tired of) for new gear

•   How to care for your clothing so it lasts longer.

Money-Saving Tips for Buying Clothes

There are ways you can cut down on your clothing expenses but still score some pieces you can’t wait to wear. Here’s 15 suggestions on how you can save money on clothes without feeling deprived or out of sync with the latest styles.

1. Shop the End-of-Season Sales

Ever notice how spring and summer clothing seems to go on sale in June or July? Or fall and winter clothes in January? The reason is because stores need to sell that merchandise so they can make room for next season’s items. Time it right, and you can scoop up current seasonal clothing at steep discounts. Just don’t go shopping the second that next season’s looks hit the racks.

2. Host a Clothing Swap

You know the saying, someone else’s trash might be your treasure. A cost-free way to get some new pieces is by arranging a clothing swap. The ground rules: Everyone brings clean, gently used clothes they’re looking to unload, and attendees get to sift through other’s clothing and add to their wardrobe for free.

A clothing swap is a great way to combine socializing and “shopping.” If you want to host one, heed this advice:
Make sure you’ve got a big enough space where everyone can comfortably peruse and try on items.

•   Invite people who are roughly the same clothing size.

•   Set a minimum number of pieces they need to bring.

•   Don’t feel like being the coordinator? Check out Meetup.com and Eventbrite.com to find swaps near you.

3. Ask for a Discount on Damaged Clothing

Here’s how to save money when shopping for clothes: If you find something you love but notice slight imperfections such as a small tear, loose thread, or a flaw in the fabric, bring it to the attention of a store employee. You might be able to get some dollars knocked off the retail price. If the salesperson doesn’t offer this, you can politely ask if the price can be lowered to reflect the garment’s condition.

Think it’s not worth the trouble? Remember why saving money is important. Every little bit of extra cash you sock away can be used to pay down debts or go towards a goal like funding a summer vacation.

4. Look for Coupon or Promo Codes

Before making a purchase, search the internet to see if the retailer offers a store coupon or promo code you can use when shopping online. You can find available coupon or discount codes at sites such as Retailmenot.com, Rakuten.com and BeFrugal.com, which all offer cash back for purchases made. Many times, if you are a first-time customer, you can snag a discount and/or free shipping by signing up for email announcements.

Quick Money Tip:Typically, checking accounts don’t earn interest. However, some accounts will pay you a bit and help your money grow. An online bank account is more likely than brick-and-mortar to offer you the best rates.

5. Mend Your Clothes

Are there things hanging in your closet you’re not wearing simply because a button is missing or the garment has a small hole? Instead of taking it to a tailor, buying something new, or avoiding it altogether because it needs repair, try fixing it on your own. Basic mending doesn’t require a lot of tools and is pretty easy.

As long as you’ve got the basics such as a needle, thread, scissors, or buttons if needed, you’re good to go. If you’re not sure about your hand sewing skills, you can find a slew of how-to videos on YouTube.com. Also check out Japanese mending, which elevates visible mending into an art form.

5. Buy Generic Brands for the Basics

When it comes to certain articles of clothing, purchasing a generic brand over a name or designer one can save you money without jeopardizing your style. Any item you wear under something, like a tank top or a tee shirt, doesn’t need a fancy label to serve the purpose. Why buy a white tee at a high-priced store for $50 or $90 when a similar one at a national chain retailer costs only $5?

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6. Create a Capsule Wardrobe

Having a capsule wardrobe means you’ve created a streamlined clothing collection that features well-made, non-trendy pieces that can all be mixed and matched. The idea is to spend a little more on the items initially. In the long run, however, you save money because these higher quality garments will last longer and not have to be replaced every few months.

A capsule wardrobe also offers timeless, versatile clothing choices instead of a closet full of flash-in-the-pan styles. Not having a large wardrobe may also benefit your overall wellness. One study found 37% of people said minimizing their wardrobe would reduce the stress of getting ready every day.

7. Wash Your Clothes Properly

Laundry mistakes can damage your clothes. For instance, washing certain fabrics in hot water can cause shrinkage, fading, and wrinkling, as well as can trigger dye to run. However, using cold water is much more clothing-friendly so you won’t be in danger of destroying a garment. You can also save on your gas or electric bill since an estimated 75% to 90% of all of the energy used in your washer goes to heating up the water.

Another way to extend the life of your clothes is by not washing every single item after one wear, with the exception of course, of underwear and socks. Why? Each time you wash your clothes, you’re putting stress on the fabric. By wearing your clothes a few times before washing, you can minimize any damage. Doing so will not only save your clothes, but you’ll also spend less on laundry detergent.

8. Borrow from a Friend

Going to a gala event or attending a wedding but can’t afford to buy anything? Consider asking that generous, stylish friend if you might be able to borrow from their closet. This can spare your bank account and allow you to get dressed up in something new and fresh to you. The only cost you might incur is taking the garment to the dry cleaners after.

Don’t have a friend with a fab wardrobe? Consider renting an outfit for your big night out.

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9. Figure Out Cost Per Wear

Looking for more ideas for how to save money on clothes? Maybe it’s time for a bit of easy math. Since you likely want to feel as if you’re getting your money’s worth when you buy an article of clothing, pay attention to how often things get worn. If a piece is costly and you’ve only worn it once, you’re not reaping its full value.

You can figure out if your money was well spent by calculating the cost-per-wear ratio. Just divide the item’s cost by how many times you wear it. For example, if you buy a coat for $100 and wear it 100 times, your cost per wear is $1. On the flip side, if you’ve only worn it five times, each wear is equivalent to $20 which probably hasn’t given you the most bang for your buck. Before you buy the clothing, take time to do the math to assess how many times you realistically expect to wear it.

10. Upcycle Your Clothes

Upcycling clothing is taking something old, recycling it, and making it into something new to wear. Repurposing clothing is one of the many interesting ways you can save money.

Upcycling clothes can include sewing, cutting, dyeing, or even updating a cardigan with new buttons. Fun examples of upcycling include hand-painting a jean jacket, cutting a pair of jeans into shorts, creating a tote bag from a sweatshirt, or transforming a wool blanket into an autumn coat or cape.

Upcycling is also eco-friendly. According to the Council for Textile Recycling, the average American throws away 70 pounds of clothing and other textiles every year. Not only does upcycling help you buy less and keep excess fabric out of landfills, it’s a way to save money and live sustainably.

11. Retool Your Clothing Budget

One way to stop overspending on clothing is to figure out how much you’re actually shelling out each month and then set a limit. There are several different budgeting techniques, such as the 50-30-20 rule. This divides your take home money into three categories: needs (50%), wants (30%) and savings and debt repayment (20%). ****

The needs category encompasses expenses you can’t avoid like groceries, housing, and utilities. Generally clothes fall into the discretionary wants group along with entertainment, dining out, monthly subscription expenses. Some financial experts suggest limiting clothing spending to 2 to 2.5% of your take-home pay which equals between 6 to 8% of the 30% of non-essential purchases. If you make $4,000 a month, 30% of that amount equals $1,200. 6 to 8% of that figure equals an allotment of $72 to $96 a month for apparel. If that doesn’t sound like enough, you’ll want to see what other non-essentials in the wants category you can scale back.

Recommended: Guide to Practicing Financial Self-Care

12. Go Shopping in Your Own Closet

Do you really know what’s in your closet or tucked into all your dresser drawers? Go through your entire wardrobe, and you might find things you forgot you had or thought you got rid of years ago. Unearthing items you haven’t seen or worn in awhile can spark creativity with clothing combinations and stretch your wardrobe.

On the other hand, you may realize some pieces lingering in the corners of your closet hold no interest. If that’s the case, keep reading for details on how you might get some money for it.

13. Buy and Sell Used Clothing

There’s no question you can save money by shopping for second-hand clothing. You can find bargains at a variety of places including thrift stores, consignment shops, garage, yard, or stoop sales, and even for free through community groups such as Buy Nothing. Two sites, among others, where you can sell your old stuff are Poshmark.com and Depop.com. Both are great for finding brand-name and designer garb for cheap.

And, the pickings are plentiful since secondhand shopping is at an all time-high with 82% of Americans buying or selling used goods, according to OfferUp’s Recommerce Report.

What’s more, some vintage and used clothing shops also buy from people like you. Check out Buffalo Exchange and Crossroads Trading; you might get cash for your gear or be able to swap it for pieces you love.

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14. Don’t Give into Temptation

One way to curb clothes spending is to put a temporary kibosh on shopping for these items. Try not to put yourself in situations where you may feel the urge to buy clothing. For instance, many people spend money when bored. Instead of going shopping when you have an unplanned afternoon, perhaps you could explore new hobbies.

Also, when you find yourself with the urge to shop, stop and ask yourself, “Do I truly need this or do I simply want it?”

You can also commit to a 30-day no-spending challenge on shopping for anything to wear. You may notice you have more money, less credit card debt, and don’t feel the need to buy unnecessary clothing items after you see the rewards of this month of not buying.

Recommended: Questions You Should Ask Before Making an Impulse Buy

15. Learn When Retailers Have Their Biggest Sales

Start paying attention and you’ll see a pattern as to when major retailers host their big sales. Holiday weekends such as Martin Luther King Jr.’ Day, Memorial Day, Labor Day, and the Fourth of July are popular times for stores to feature great buys along with Black Friday. For online shopping, check out deals on Cyber Monday (the Monday right after Thanksgiving) and Amazon Prime Day.

You can also ask a salesperson at your favorite stores to give you the inside scoop on when certain items might be going on sale.

The Takeaway

Clothes shopping can be fun and an ego boost, but if you’re not mindful, it’s easy to rack up the bills and possibly find yourself mired in unnecessary debt. Many times, there are ways to cut back on buying clothes, make the pieces you have last longer, and breathe new life into your wardrobe without going broke. With creativity, knowledge, and some smart moves, you can still feel good about what you wear without spending as much.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.30% APY on SoFi Checking and Savings.

FAQ

How can I stop spending money on clothes?

One of the best ways is to simply remove the temptation, especially if you’re prone to impulse spending. If you like to shop online, unsubscribe from retailer emails so you won’t be alerted to new items and sales. Feel the itch while scrolling your phone? Put it down; pick up a book, or watch a movie instead. When you’re out and about, resist going into your favorite stores. Vow to commit to a 30-day shopping sabbatical and see how much money you’re able to save as a result.

Are there ways I can take better care of my clothing so they’ll last longer?

Yes. Follow the washing instructions carefully, let items air-dry when possible (instead of exposing them to a hot dryer), and store them in a cool, clean, and dry environment out of the sunlight, which can cause fading. Also fold heavy sweaters instead of hanging them to prevent the fabric from stretching.

Should I only buy cheaper clothes?

No. Sometimes spending more means you’ll get a well-made, high-quality garment that will last for years. Look for these pieces on sale at major department stores and at discount retailers such as T.J. Maxx and Marshalls.

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Photo credit: iStock/Phiwath Jittamas

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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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.30% 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 4.30% 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.

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Interest rates are variable and subject to change at any time. These rates are current as of 10/8/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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