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When it comes to the stock market, things can change—rapidly. Numerous factors impacting the value of individual stocks and the market as a whole can translate into being up one day, down the next. And try as they might, it can be near impossible for analysts to predict how the stock market will fare.

While the markets can be unpredictable, fluctuation is a sign that the stock market is working normally. As an investor, it’s important to get comfortable with the market’s volatility. Understanding how risk plays a role in investing can help inform the investing decisions you make for yourself.

What Is Investment Risk?

All investments come with risk. Unlike when you store your money in a savings account, investing has no guarantees that you’ll earn a return. When you invest, experiencing a financial loss is a possibility.

Different types of investments come with different levels of risk. Typically, as the risk increases, so do the potential returns. Understanding the types of risks associated with investing can be the key to informing your risk tolerance.

Types of Investment Risk

Just as there are a variety of investment vehicles, there are a number of different types of risk involved in investing. Here are a few common kinds:

Market Risk

Sometimes global economic trends, like a recession, or current events, like a natural disaster or political turmoil, can impact how the markets perform. Market risk refers to the potential for an investor to experience losses due to factors that are influencing the financial markets as a whole.

This type of risk is often referred to as systematic risk. The four most common types of market risk include interest rate, equity, commodity, and currency risk.

Interest rate risk reflects the market fluctuations that might occur after a change in interest rates is announced. Fixed-income investments, like bonds, are the investments that are most likely to be influenced by interest rate risk.

Equity risk refers specifically to the risk investors face from market volatility—the possibility that the value of shares will decrease.

Commodity risk comes from price fluctuations in commodities (raw materials) that impacts the users and producers of those same materials.

Currency risk is also known as exchange-rate risk. It stems from the price differences when comparing one currency to another. This type of risk is most relevant to investors who have assets in a foreign country or companies who have a lot of activities abroad.

Inflation Risk

Inflation measures the increase of the cost of goods over a set period of time and a rise in inflation means consumers have less purchasing power. Inflation risk is a concern for investors that have money saved in accounts with fixed interest rates, because the rate of inflation may outpace the fixed interest rate being earned.

Business Risk

When you buy a stock, you’re essentially buying a small share of the company. In order to make a possible return on your investment, the company you’ve invested in needs to remain in business. If a company goes out of business, common stockholders are likely the last to get paid, if at all.

Liquidity Risk

This type of risk reflects the concern that investors won’t find a market for their holdings when they ultimately do decide to sell their investments. This could prevent investors from buying and selling assets as desired; they may have to sell for a lower price, if they are able to sell at all.

This risk could also apply to investments with strict term limits like a certificate of deposit (CD). Account holders would typically face a penalty from withdrawing or liquidating this account before the specified time.

Horizon Risk

In investing, a time horizon is the amount of time you have until a specific financial goal.

A lengthy time horizon could potentially allow you to take on riskier investments, since if you do suffer a loss, your investments will have more time to rebound.

Horizon risk occurs when the time horizon of an investment is unexpectedly shortened—like, say, by an unexpected, expensive medical emergency.

On the other side of the spectrum, investors in or nearing retirement could face the risk of outliving their savings. This is referred to as longevity risk.

Concentration Risk

This type of risk can occur when an investor is invested in a limited number of assets or owns assets only in one category or asset class. If that one category experiences losses, so will a concentrated investment portfolio.

The Investment Risk Pyramid

Remember the food pyramid? Before MyPlate , the food pyramid was the gold standard of nutrition in the U.S. It recommended a hearty foundation of grains, followed by a smaller layer of fruits and veggies, followed by an even smaller layer of dairy, meats, beans, eggs, and nuts. At the very top, making up the smallest portion of the pyramid were fats, oils, and sweets.

The investment risk pyramid takes a similar approach, and could prove helpful if you’re looking for guidance as you’re evaluating the risks associated with different types of investments.

It may help you understand which investments pose the greatest risk, and can assist you in creating a portfolio that falls in line with your personal risk tolerance.

At the base of the pyramid are lower risk investments that have the potential to earn foreseeable returns. These investments create the foundation of a financial portfolio. Low risk investments typically include things like government bonds, CDs, money market accounts, and savings accounts.

In the middle of the pyramid are investments with moderate risk. These investments will be a little riskier than the base of the pyramid, but will hopefully lead to capital appreciation. Investments like high-income government bonds, real estate, equity mutual funds, and large and small cap stocks would fall into this category.

The riskiest investments are at the peak of the pyramid. Just like sweets, fats, and oils should make up a limited portion of your diet, these investments are generally recommended to only make up a relatively small portion of your overall investment portfolio.

Since these investments are so risky, some guidelines suggest only investing money that, if lost, won’t cause serious issues in your day-to-day life.

As you continue building your investment portfolio, it’s helpful to know that although the investment risk pyramid can be a useful tool, it’s just a guideline. Just as everyone’s dietary and nutritional needs are different, so are individual investment portfolios.Take it with a grain of salt.

Managing Risk

Here’s the thing about investing—risk is an unavoidable reality. While you won’t be able to eliminate risk completely, there are strategies to help you manage the investment risks your portfolio is subject to.

Understanding Your Financial Goals and Risk Tolerance

The first step in managing risk will be determining your risk tolerance—how much risk you are willing to take on as an investor. Your financial goals could help inform your risk tolerance. Consider asking yourself what you want to use your money for and then figuring out the timeline for when you’ll need it.

The amount of time you have to invest will likely influence the type of investments you make with your money.

For example, if you are saving for retirement in 40 years, you may be able to take on more risk than someone who plans to retire, in say, 10 years.

Try as we might, we can’t plan for everything and life can change quickly. As it does, it can be helpful to re-check your financial goals and re-assess your risk tolerance to see if any changes are necessary.

For example, if you’ve recently had a child, you may want to integrate a college fund into your financial plan. Or perhaps you and your partner have decided you want to upgrade to a bigger house before growing your family.

Diversifying Your Portfolio

With a diversified portfolio, your money isn’t concentrated into one specific area. Instead, it’s spread across different asset classes—like stocks, bonds, and real estate—the money isn’t concentrated in one specific area within each asset class.

While it can be tempting to concentrate your investments into areas you are most familiar with, limiting yourself to only a few industries or types of investments can be the financial equivalent of putting all of your eggs in one basket.

A diversified portfolio can provide some insulation to risk. If your portfolio is highly concentrated in one area and that sector takes a dip, it’s likely your portfolio will be impacted.

But if your portfolio is balanced across varied assets and classes, the impact of one underperforming section won’t be felt as dramatically. While a diversified portfolio won’t eliminate risk, it could help make your portfolio a little less vulnerable.

You could choose to diversify your portfolio through a series of thoughtful investments. As an alternative, you could also choose to invest in mutual funds or ETFs—exchange-traded funds.

When you buy shares in a mutual fund, you are automatically invested in each company that is included in the fund, which provides instant diversification. ETFs, on the other hand, bundle a group of securities together in one neat package and they can be a low-cost way to diversify your portfolio.

Monitoring Your Investments

It can be tempting to set it and forget it when it comes to investments. But keeping an eye on your portfolio is another step that could potentially help you manage risk. You won’t know there is an issue unless you monitor progress.

As the market fluctuates, your portfolio likely will, too. Consider setting a recurring time to monitor your holdings. It doesn’t have to be every day, but once a week or even once a month could be a good idea.

How have the assets been performing? Is your portfolio still in line with your current risk preferences? If not, consider taking the time to make adjustments so you’re comfortable with where your investments stand.

Regularly checking in with your investments will also allow you to monitor your progress and see if you’re still on track with your goals.

Asking for Help

Investing can be confusing. Sometimes all it takes a second set of (experienced) eyes to provide a bit of clarity. Don’t feel like you have to build your investment portfolio in a vacuum.

Consider speaking with a financial advisor who can assist you in creating a personalized financial plan that is designed to help you achieve your specific goals.

Know that financial advisors often charge fees for their services, but they can often provide valuable insight and advice. SoFi members have access to one-on-one advice with certified financial professionals, at absolutely no cost.

Becoming an Investor

Now that you understand how risk impacts investments and some of the ways to manage risk, you might be ready to build your investment portfolio. Investing can be a good way to grow your wealth in the long term. And the good news is it’s never too early or too late.

If you’re ready to get started, consider an account with SoFi Invest®, which offers a variety of options so you can invest in line with your personal risk preferences and financial goals.

For those that like to be in the driver’s seat—there’s active investing. You can buy and sell stocks, creating a completely personalized portfolio without any fees.

Investors who prefer to take a less intensive approach can opt for an automated account. You won’t have to worry about tracking individual stock prices and making timely trades. The account will do most of the work for you, automatically rebalancing to stay in line with your specified risk preference.

And SoFi offers a range of exchange-traded funds. SoFi offers four different types of ETFs that are intelligently weighted and are automatically rebalanced, so they’re always at the forefront of growing industry.

Ready to start managing your investment risks? Learn more about ETF investing and how they can help you make the most of your investments.

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Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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 Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, LLC and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“SoFi Securities”).
Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
Advisory services are offered through SoFi Wealth LLC, an SEC-registered investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .

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The big ol’ world of investing can feel overwhelming to navigate. There are stocks, bonds, commodities, mutual funds, and exchange-traded funds, to name a few.

With so many choices, it can be hard to nail down just where to start.

The confusion is especially real for investors who are just getting into the game, whether it’s because they are young, earning more for the first time, or are finally ready to invest after paying down student loans.

One investment type that has gained in popularity with all types of investors, both new and seasoned, is the exchange-traded fund. This investment type is more commonly referred to by its acronym, “ETF.”

How do ETFs work? An ETF is an investment fund that you can buy and sell like a stock, but that potentially bundles together some other investment types, such as bonds.

In this way, they are similar to mutual funds, though ETFs are structured to give them some tactical advantages over mutual funds.

To understand the benefits of the ETF, it helps to first know what an ETF is and how ETFs work. With some ETF basics down, you can decide whether it’s the right choice for your investment portfolio.

What is an ETF?

An ETF is an investment fund that pools together different assets, such as stocks, bonds, commodities, or currencies, and then divides its ownership up into shares.

This means that with just a few clicks, it is possible to buy one fund that provides exposure to hundreds or thousands of investment securities. ETFs are often heralded for helping investors gain diversified exposure to the market for a relatively low cost.

This is important to understand—the ETF is simply the suitcase that packs investments together. When you invest in an ETF, you are exposed to the underlying investment. For example, if you are invested in a stock ETF, you are invested in stocks. If you are invested in a bond ETF, you are invested in bonds.

ETFs were created to try and improve upon the mutual fund. Unlike a mutual fund, which only trades once a day, an ETF is structured so that it trades like a stock, on an exchange (such as the New York Stock Exchange), during normal market hours.

While the market is open, it is possible to buy or sell an ETF nearly instantaneously—and see an ETF’s value in real-time. A mutual fund only provides its value at the end of the trading day.

Most ETFs track a particular index that measures some segment of the market. For example, there are multiple ETFs that track the S&P 500 index. The S&P 500 index is a measure of the stock performance of 500 leading companies in the United States.

Therefore, if you were to purchase one share of an S&P 500 index fund, you would be invested in all 500 companies in that index, in their proportional weights.

This means that most ETFs are passive, which means to track an index. Again, their aim is to provide an investor exposure to some particular segment of the market in an attempt to return the average for that market. If there’s a type of investment that you want broad, diversified exposure to, there’s probably an ETF for it.

Though less popular, there are also actively-managed ETFs, where there’s a person or group that is making decisions about what securities to buy and sell within the fund. Generally, these will charge a higher fee than index ETFs, which are simply designed to track an index or segment of the market.

How Do ETFs Work?

To answer the question, “How do ETFs work?” it helps to start by thinking about how a mutual fund works, because mutual funds are slightly more intuitive.

Investors in mutual funds buy their shares from, and sell their shares to, the mutual funds themselves. Mutual funds price their shares each business day, usually after the trading day is closed.

To calculate the value of one share, the fund first calculates its total assets (minus its liabilities) to obtain the Net Asset Value (NAV) of its holdings. Then, the NAV is divided by the total number of shareholders.

Because ETFs trade on a continual basis, this pricing methodology wouldn’t be fast enough. ETF sponsors need to create and redeem shares throughout the day. Therefore, ETFs require market arbitrage to keep their prices accurate. How exactly does that work? Let’s take a look.

First, remember that an ETF trades like a stock. For this to happen, ETF sponsors generally have a relationships with one or more “authorized participants”—typically large broker-dealers. Generally, ETFs only work with authorized participants to purchase and redeem shares.

They are able to make fast exchanges with ETF sponsors when they need either large blocks of the underlying securities, called “creation blocks,” or when they are attempting to trade out the ETF fund shares themselves.

But this is only part of the story. ETF prices are constantly fluctuating with the buying and selling of that ETF. That’s the power of supply and demand at work.

Meanwhile, the same thing is happening with the underlying stocks held within the fund. Because of this, the price (also known as the market value) of the ETF can deviate from the price of its underlying assets (the Net Asset Value, or NAV).

This creates an opportunity for arbitrage, where a trader could potentially take advantage of the discrepancy between the NAV and the market value.

When these traders act in a way to take advantage of the discrepancy, it helps to close the gap, and push the two values closer. By publishing the NAV and allowing traders to act on the information, the market price of an ETF often stays near that of the NAV.

Benefits of Using ETFs

ETFs are gaining popularity as a tool for short and long-term investors alike—they make it easy to get started. Some investors may opt to take the DIY approach, and others will prefer to have someone help manage their ETF strategy. Either way, ETFs offer some benefits to the investors that choose to use them.

Tax Benefits

ETFs are often considered more tax efficient than a mutual fund. When shares of a mutual fund are redeemed, it is possible that capital gains taxes are passed through to investors.

Because ETFs generally “redeem” shares through an in-kind trade with an active participant, minimal capital gains taxes are triggered. ETFs typically pass through less capital gains costs than comparable mutual funds.

Talk to a tax professional to learn more about the potential tax benefits of an ETF.

Low-Cost

ETFs and mutual funds charge what is called an “expense ratio,” which is an annual fee charged for upkeep in the fund. While both index mutual funds and ETFs are considered cost-effective ways to invest in the market, ETFs usually eke out some costs savings over index mutual funds.

Expense ratios aren’t the only fees charged by both ETFs and mutual funds, though. Because an ETF trades like a stock, there is often a transaction/trading fee to buy in and out of the fund.

Some mutual funds may have front-end load fees or back-end load fees that work in a similar manner, though you’d generally only see these fees on actively-managed mutual funds. Either way, make sure that you are looking at all of the fees involved in buying or selling any investment, not just the expense ratio.

Easy Diversification

Ever heard of the investing adage, “don’t put all your eggs in one basket?” That’s the idea behind diversifying your investments. Owning just one bond or one stock, or even a handful of bonds or stocks, can be considered risky.

By owning hundreds of investments all within one single investment, you minimize the risk of any one investment (such as a stock) doing poorly and tanking your portfolio along with it.

For example, if you were to buy an S&P 500 index ETF, you’re not just investing in one fund, but you’re investing in the 500 leading companies in the United States, achieving near-instant diversification. And by using an ETF, you get access to this diversification at a fairly low cost.

Investing in ETFs

There is no one way to use ETFs to invest. Some investors may be interested in the short-term moves of the market and use ETFs to place bets for or against those moves. Other investors may use ETFs to achieve broad, cheap exposure to the market in a long-term, buy-and-hold strategy.

For those interested in the latter, long-term strategy—which is likely most people—it is possible to buy a portfolio of ETFs through your brokerage firm of choice. This strategy will require you to choose investments that match up with your long-term goals and risk tolerance.

Investors who are interested in utilizing an ETF strategy but aren’t interested in the DIY approach may prefer to have the help of a professional.

Not only can the right professional help guide you into the right portfolio strategy for you, but they are there to help you manage your ETF strategy over the long-term. A professional can help you rebalance your portfolio and manage your investments from a tax standpoint.

If you want to invest in low-cost, diversified ETFs and have the support of investment professionals, check out SoFi Invest®.

SoFi utilizes the modern technology of ETF investing while providing a real live human advisor to answer questions, at no extra cost. For many investors, it will truly be the best of both worlds.

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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.

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.


Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, LLC and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
Advisory services are offered through SoFi Wealth LLC, an SEC-registered investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .

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Trying to figure out ways to lower your student loan interest rates?

The process may seem impossible to understand. Consolidation, refinancing, federal vs. private student loans, variable vs. fixed rates—what do these terms even mean?

The lingo isn’t as scary as it sounds. And snagging a lower student loan rate may not be as difficult as you think.

Granted, there are a lot of moving parts, between understanding average student loans rates and learning the difference between federal and private loans.

Don’t worry, though — we’ve done some homework for you. Once you get the hang of how rates work, you may be able to better determine whether you’re getting a good deal.

Who Sets Student Loan Rates for Federal and Private Loans

Federal student loan rates are set by Congress (through legislation). Your student loan servicer, or the company in charge of your loan repayment plan, doesn’t have any power to change your federal student loan interest rates.

Private lenders set their own interest rates, and each of those lenders may have multiple loan packages offering different rate and term options. The rate can depend on several factors, such as the lender’s underwriting criteria, and the borrower’s credit history, employment history, and income.

Average Student Loan Rates for Federal Loans

For the 2019–2020 school year, the interest rate on undergraduate Direct Loans taken out after July 1, 2019, is 4.53%. And for graduate Direct Loans, it’s 6.08%.

Direct PLUS loans, which are federal loans available to graduate students or to parents of undergrads, have an interest rate of 7.08% as of July 2019.

To break this down a little further, let’s say your debt is $31,172 , which is the average amount of student debt per person in the U.S. as of 2019.

Using SoFi’s Student Loan Calculator for an estimate, if you are paying an interest rate of approximately 4.53% over a 10-year term, your monthly payment would come to around $323.51 and the interest charge would be approximately $7,650, for a total debt of $38.822.

While these numbers may seem high, federal rates are actually down. Rates on federal student loans had been steadily rising for the past two years, but they dropped from 5.05% for the 2018–2019 school year to 4.53% for the 2019-2020 school year.

Federal student loan rates have been reset annually (in July) since a 2013 law that tied loan rates to market conditions and placed a cap on rates. Because of this law, federal student loan rates are based on the yield, or return on investment, of 10-year Treasury notes. These notes are sold at Treasury auctions held annually in May. A lower yield at the Treasury auctions prompts lower student loan rates.

If you’re a parent expecting more than one child to attend college in the coming years, remember that federal rates currently change annually. This means that your second or third child’s rate could be different from the rate of your student starting school in 2020. .

However, if rates rise, you can take comfort in knowing that a higher yield at the Treasury is also seen as a signal of investor confidence in U.S. economic growth—and though there’s obviously no guarantee of where the economy is headed, a strong economy is just the kind of thing you want when your child enters the job market after college.

Average Rates for Private Student Loans

Private lenders each set their own fees, interest rates, terms, and APRs. An APR (or annual percentage rate) combines the interest rate over a year with the fees to reflect the total cost of the loan and make it easier to compare lenders.

As of this writing, APRs on private student loans range from around just under 3% (for variable rate loans) to just under 14% . This range is similar to 2019, but can (and does frequently) fluctuate. Many lenders offer repayment terms of five, 10, or 15 years, and some will offer even more repayment options, like eight-year terms.

Even for a single lender, rates offered can differ depending on factors like the borrower’s credit history, employment, whether they have a cosigner, and the specific loan package chosen.

Lenders typically offer fixed rate loans, meaning the rate doesn’t change over time, or a variable rate loan, meaning the rate could go up or down during the debt repayment term depending on market factors.

Lowering Student Loan Payments by Consolidating or Refinancing

Whether you have one student loan or several, you might be able to get better rates or terms by either refinancing or consolidating your loans.

When you initially took out your student loan(s), you agreed to certain conditions, like fees, length of loan repayment, and, of course, interest rate. But better loan conditions might become available after you’ve agreed to your loan terms.

Maybe there’s a student loan option that better fits your needs but didn’t exist before, or there’s a new financial institution that’s arrived on the scene.

Or maybe your own financial situation has changed and you have a better-paying job or an improved credit score. Or perhaps you’ve chosen to work for a non-profit or for a government agency to give back to underserved communities.

In these cases, among others, consolidating or refinancing could be a game-changer. These two options are similar but have some important differences.

Lowering Monthly Payments by Consolidating Student Loans

If you have multiple federal loans, you could consider consolidating them with a Direct Consolidation Loan. When you consolidate federal student loans, you lump the loans you have chosen to consolidate into just one loan.

Consolidating your loans won’t necessarily land you a lower rate, first because the outstanding interest on the loans you’re consolidating is added to the principal balance on your new Direct Consolidation Loan..

In addition, to determine your new interest rate with a Direct Consolidation Loan, figure out the weighted average of all your original loans’ rates, then round up to the nearest eighth of a percent. You may want to play with the mix of loans you are thinking about consolidating to view different weighted averages.

In some cases, your monthly payments may decrease when you consolidate your loans, but it’s usually because you end up paying back your loans over a longer period of time—which means paying more for your loans overall.

Consolidation could be an ideal solution, especially if you’re seeking to take advantage of income-driven repayment or Public Service Loan Forgiveness (PSLF), but you might not save much on interest in the long run. However, some borrowers still prefer to consolidate. One reason may be because making one monthly payment is simpler than making several, so it can be easier to keep up.

Lowering Rates by Refinancing Student Loans

If you have private student loans (or a combination of federal and private student loans), you may benefit from refinancing. Essentially, refinancing is taking out a new loan with new terms to pay off an older debt.

How can refinancing lower your interest rate? When you refinance, the lender looks at your financial situation now as opposed to your finances from when you originally took out your loans.

Depending upon market conditions and if your credit has improved or you earn more money now, you could possibly qualify for a lower rate or more favorable terms on a new loan. If you qualify for a better interest rate, refinancing could mean saving thousands of dollars over the life of the loan. And the earlier you refinance into a lower student loan interest rate, the more you could possibly save.

Student loan refinancing into a longer term also could be a great way for working graduates with high-interest loans to save money without having to cut other expenses. Although, just as it is with the Direct Consolidation Loan, lower monthly payments are usually achieved by having a longer repayment term, which likely means paying more interest over the life of the refinance loan.

When refinancing, you can typically choose between fixed or variable interest rates. If a rate is fixed, your monthly payments will stay the same until you pay off the entire loan. When the rate is variable, it can change as economic conditions change.

As of this writing, fixed rates for private refinance loans range anywhere from around 4% to around 13%, and variable rates range between just under 3% to around 13% (but these rates can, and do, change frequently ).

Before you choose between a fixed or variable rate, you might want to talk with your chosen lender and if you are considering a variable rate, check out the London Interbank Offered Rate (LIBOR) movement to view how the LIBOR index is directly tied and can move in tandem with economic conditions and the fed funds rate. Refinancing is always done through a private lender. Many private lenders handle only private loans, but SoFi refinances both private and federal loans. This makes it possible to have only one monthly payment, even if you have both federal and private loans.

This way, you’ll no longer have to deal with the hassle of keeping track of multiple student loan payments that may have different lenders, terms, or interest rates.

SoFi doesn’t charge application fees, origination fees, or prepayment penalties. As a SoFi member, you are also eligible to gain complimentary access to features like career services, exclusive member events, , and live online customer support.

Before refinancing, keep one thing in mind: Refinancing government loans could mean losing out on federal benefits such as student loan forgiveness programs and income-driven repayment options, so it is worth considering this tradeoff before making any decisions.

Ready to refinance your student loans? Find your rate online with SoFi!

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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.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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.

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You remember how psyched you were when you got to sign the lease for your current apartment. Especially in a huge city where finding a place that meets your specifications can be like searching for the holy grail, once you find that perfect spot, you hold on tight.

That makes sense. But even if you’re happy paying rent for your place now and have been for the last several years, you might have moved up in your career since then, or you’re thinking about having a kid and need a place that’s nearer to school districts than bars. Plus, depending on marketing conditions, putting that rent money toward owning a place would likely become a great investment.

In that goal, you’re not alone, According to a 2018 Homebuyer Insights Report , 72% of millennials say that owning a home is a top priority.

It’s an exciting time, for sure, but a major financial decision like buying a home can be daunting—or even terrifying, especially if you have student loans to worry about.

Since you don’t want to be hasty or over-buy and hinder your efforts to reach financial wellness, here a few ways to help you know if you’re ready to take the leap to homeownership.

You’ve Saved for a Down Payment & Homeownership Costs

This is one of the most important steps in the home buying process. According to a 2018 report report from the National Association of Realtors (NAR), of the buyers who took out a mortgage, 5% of them made a downpayment worth 6% or less of their home value. So, the traditional 20% down isn’t as common as believed. But, 6% down is still a chunk of change. And, the down payment is just one of the costs associated with buying a home.

It is important to consider other costs such as mortgage payment, closing costs, insurance, taxes, and more. So, when you are thinking about buying a home you should factor in all of these potential costs and make sure you have that saved or a plan of action to pay for these costs.

Double-Check How Much Home You Can Afford

As mentioned above, it’s a good idea to check if you can afford the additional costs that are associated with the home buying process. Use the home affordability calculator below to estimate the cost of purchasing a home and your monthly payment – including additional costs such as property tax, insurance, and closing costs.

You’re a Good Candidate for a Mortgage Loan

Not surprisingly, mortgage lenders pay close attention to job continuity and consistent income.

Another biggie is your debt-to-income ratio, which will give lenders insight into whether you can truly afford mortgage payments (seeing whether or not you have too much debt to buy a house). To determine your ratio, it is a good idea to get prequalified for a mortgage loan to see what you would qualify for.

Then, you would take that estimated housing payment which would include principal, interest, taxes, insurance, and HOA (if applicable, along with ongoing monthly debt payments to help you understand what your DTI is.

If you’re at that threshold, but haven’t saved enough for a huge down payment, don’t worry. Some lenders are prepared to help—SoFi, for example, offers flexible down payment options starting at as little as 10% on loans up to $3 million, with competitive rates.

Remember, there’s a lot of competition among lenders, so shop around to choose the one that offers terms to suit your needs.

You’re Ready to be Your Own Landlord

Are you ready to handle home repairs? If something breaks it is all on you.

A condo can be a good choice if you travel a lot or if you don’t want the responsibility of maintaining a yard. Condos can be a good stepping stone to owning a house as the property is less time consuming because you don’t have any exterior or lawn maintenance to handle.

But you’ll still need to be prepared to make small repairs yourself, hire a pro, and replace big-ticket items, such as major appliances, now and then. So make sure there’s enough money in your reserve fund to cover the routine stuff and the surprises.

A good rule of thumb is to set aside about 1-3% of the home’s value each year. Some years, you might not need to pay that much. But, if you live in your home long enough, you’ll likely shell out for hefty repairs in other years. Once you buy your home you can use SoFi’s Home Improvement Cost Calculator to get an idea of how much your renovation projects will cost.

You’re Ready to Settle Down

It is harder to move cities once you buy a home. You can’t just pick up and leave as you can if you are renting. Buying a home is a big decision, so it is important to make sure you are ready to settle down in that location for a while.

You Know Location is Everything

Ernst and Young’s The Millennial Economy 2018 study reported that 62% of Millennials live outside of the city either in the suburbs, small towns, or in rural areas. The location of your home—whether it’s a big city or on the outskirts—could impact your budget and overall enjoyment as a homeowner.

If you’re serious about buying your first home, you’ve already taken the time to scope out neighborhoods and to understand how to choose a location best fits your lifestyle. You know that the overall feel of a neighborhood, the quality of life it offers, and its proximity to your job matters—a lot.

Preparing to Take the Next Big Step

If you’re definitely ready for homeownership, you’ll need to get your financial ducks in a row. Here are a few tips to get you started:

Getting Out of the Student Loan Debt Shadow

Don’t fret if your student loans aren’t paid off yet. You can Look into refinancing your student loans, which may lower your monthly payments, and/or decrease the loan term, and allow you to save faster for a home down payment.

Hitting the Homebuyer Books

Download The SoFi Guide to First Time Home Buying to learn some essential steps to take, the types of mortgages available, and common real estate terms.

Keeping Track of Your Credit Blemishes

Your credit score is one factor that will help a lender determine if you qualify for the loan; if it’s high enough, you could possibly snag better terms on your mortgage loan.

Follow a step-by-step plan for paying down debt so you can work toward boosting your credit rating. Buying a home with a significant other or a spouse is a huge personal accomplishment and major financial milestone.

Talk to a SoFi Home Loans member specialists to discover convenient loan options to help you continue on the path to homeownership.

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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.

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.

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

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

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

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

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

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

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

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

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

The Problem with Carrying Credit Card Debt

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

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

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

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

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

Getting Out of High Interest Credit Card Debt

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

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

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

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

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

1. Using the Snowball Method

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

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

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

Say, for example, you have the following loans:

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

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

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

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

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

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

2. Tackling the Highest Interest Debt First

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

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

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

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

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

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

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

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

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

3. Consolidating Your Credit Card Debt into a Personal Loan

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

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

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

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

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

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

Consolidating credit cards with a personal loan can help improve your financial position. Check out SoFi personal loans.

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

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

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

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

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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