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You’ve (more or less) survived having baby #1, which is already an accomplishment. Way to go mom or dad; what an incredible journey it is to be a parent and to raise a child.

Now, you’re toying with the idea of baby #2. But, you’re curious about how much it will cost you. And to make matters more confusing, you’ve got student loans that you’re paying off.

One study showed that 26% of people put off having children because of their student loan debt. This doesn’t have to be you. Having a second baby with student loans can be done, but it requires some planning.

To help you with that planning, we’re going to break it down. First, we’ll cover what to expect financially with a second child. Will it be as expensive as baby #1? What expenses can you prepare for?

Second, we’ll discuss tips on how to prepare for having a second baby, and give specific tips for parents who are having a baby with student loan debt. This will include tips on whether to pay them off, put them on hold, or to keep doing what you’re doing—for all of you parents who are thinking, “want a baby, but in debt!”

What You Can Expect Financially

The good thing about having a second child is that you’ve been through this before—you know what you’re doing. Just think of all that you’ve learned since you had your first baby.

That said, it can be hard to mentally prepare for adding a second baby into the mix. There will undoubtedly be moments where you will have to take it one day at a time, and you should give yourself that freedom and compassion to make mistakes and learn how to keep a kid alive all over again.

Still, there are plenty of ways to help prepare for baby #2 to ensure that the experience is as “under control” as can be. First, let’s talk a bit about what you might expect, financially, when you’re expecting a second.

Hand-me-downs Are Great

It is widely believed that a second baby is less expensive than the first because the second child can wear hand-me-down clothes, use baby #1’s cribs and changing table, and play with hand-me-down toys. And for the most part, this can be true, if parents are able to resist the urge to buy adorable new clothes and toys (although you’re probably going to need another car seat).

Hand-me-downs aren’t limited to clothes and toys, of course. There are other items that can be reused: Carriers, high chairs, bottles (although you’ll want to replace the teat), cribs, strollers, breast pumps, baby baths, baby monitors, children’s toilets, cloth nappies, bouncers, stationary activity centers, nursing pillows, changing pads, and so on. You can save a lot of scratch if you don’t need to buy these again.

(Tip for parents who haven’t had baby #1 yet: Avoid buying obviously gendered clothes. You may find gender-neutral clothes easier to re-use for baby #2.)

Hand-me-downs Have Limits

While it’s a great idea to reuse certain items, this won’t be possible with every item you’ll want or need for baby #2. For example, you may want to purchase new pacifiers, bottle nipples, and even car seats.

Car seats have an expiration date—check the bottom of the seat for a sticker that should list the manufacturer, model number, and manufacture date. It is generally accepted that the expiration date is six years after the manufacture date, but don’t use it if it’s been in a car accident previously—even a minor one.

Similarly, any crib, chair, or bouncer that has sustained significant wear and tear should be replaced; it’s better to be safe than sorry with any piece of baby equipment that could lead to injury if it in some way breaks or fails. This is especially true for any piece of equipment that “holds” a baby in some way.

Also, it can be hard to resist buying special items for each baby. Parents may be unlikely to use only hand-me-down clothing, toys, furniture, and other baby equipment, so be realistic and know that you’ll probably want to buy some stuff new. This goes for enrichment items, too. There could be classes and opportunities for your second child that may be independent (and potentially very different) than for your first child.

You Still Have to Buy Daily Use Items

You can’t reuse disposable diapers, wipe cloths, baby cream, formula, medicine, and other daily use items obviously. And as anyone who has purchased diapers before knows, these items can really add up (it could cost $550 dollars in the first year! ).

Childcare May or May Not Double in Cost

Depending on your specific child care situation, your childcare may or may not double in cost. Be sure to ask your childcare provider if they provide a sibling discount. If they don’t, you may want to look around for providers that do. It may not be a lot, but any discount will help when budgeting for baby #2.

With two children, parents may even want to rethink their current childcare set-up altogether. It may be more economical to consider an at-home nanny or an au pair, or even working with another family to establish a shared childcare situation.

Ideally, you wouldn’t have to double your childcare costs, but figuring out an alternate situation just may not be feasible for some people. It’s good to have some idea of what childcare will look like as you’re planning for your second child, as childcare is a major expense for many young families.

You May Need More Space

Having a second child can be economical in some ways, and less economical in others. For example, will you need more space to accommodate another body? Will you need to move to a larger home or buy a larger car? As families expand, it’s natural for a family’s space to expand as well.

Buying or renting a house with an additional room could be a significant added cost down the line. You might not need to move right away—babies are small—but think about what you might do once your baby grows into a child and later, into a teenager.

So, what’s the verdict? Is having a second kid significantly less expensive than the first? As you can tell, it all kind of depends. Families planning to have a second child will probably want to weigh the items above to see whether the cost is going to feel similar to baby #1, or whether it could be more or less expensive.

Planning Financially For Baby #2

Project Expenses

Before having a second baby, you might wish to sit down and project the expenses involved, from medical costs to childcare to diapers to an allowance for the unexpected. If you can, consider longer term expenses like extracurricular programs and college.

Spending projections not only help you to see whether you can afford a child at your current level of income and spending, but they can guide you in knowing where you can splurge and where you might need to cut back. Spending on children can quite literally be limitless, so think of this as an exercise in prioritization.

Prepare an Emergency Fund

Kids are small, adorable… walking liabilities. Things get broken and kids (and parents) can and do get sick. Also, “regular” life stuff still happens: The economy could turn, parents can get laid off from jobs, grandparents can get sick, and accidents could happen. With little ones in tow, it’s even more important to be prepared in the event of an emergency.

Make a Debt Plan

If you have multiple sources of debt, it’s a good idea to sit down and map out a plan as soon as possible. The first step is to list all sources of debt, including monthly payments and interest rates.

Knowing that your monthly expenses are about to increase, are there any sources of debt—and therefore, monthly payments—that you can eliminate altogether? For example, do you have any credit card balances that you can work hard to wipe out, or significantly lessen, in a few months? High-interest credit card debt is a money suck; doing what you can to reduce interest expenses can help free up money for other stuff.

Consider Options for Student Loans

For some parents, paying off every source of debt, such as their student loans, won’t be possible prior to having children. This is especially the case for families that are attempting to balance making debt payments with saving up an emergency fund. Each parent will have to decide just how much to prioritize both debt payoff and saving prior to and while raising a child.

When you’re pregnant, student loans can feel overwhelming. First, know that you’re not alone and that plenty of parents successfully manage student loan payments while raising a child. If you’ll maintain a student loan balance after your second baby comes into the world, it may be worth exploring options to make those student loans cheaper.

One way to do this is through student loan refinancing. When a borrower refinances their student loans, they’re paying off their old loans—either federal, private, or both—with a new loan. Ideally, this new loan is issued at a lower interest rate or with more favorable terms. But remember, refinancing means you’ll forfeit federal loan benefits such as income-based repayment plans, deferment, and forbearance.

With a new loan, for example, a borrower can do one of a few things: First, they can keep the loan’s term (length) the same, and possibly lower their monthly interest payment thanks to an improved credit score and/or financial situation. This tactic could help free up some cash to spend on other things. Second, a borrower could use this new leeway to speed up their loan term, and pay their loans off faster. They would likely save the most on interest with this strategy, but monthly payments would likely be higher.

Third, a borrower could potentially refinance to a lower rate and lengthen the loan’s term, which could lower the monthly payment significantly. This is an option that borrowers would be wise to consider only if they absolutely must, because you might end up paying even more in interest over the long run, even with a lower rate. (You can read more about all this here .)

When preparing financially for baby #2, there’s lots of planning to consider. But it will all be worth it to bring another bundle of joy into the world.

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.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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.
SOSL18133

You did it. All those countless hours devoted to classes, late-night study sessions, and college entrance exams have paid off. That’s right, you’re going to college!

Chances are you’ve been working toward this goal for most of your life, so you deserve a major pat on the back. Bask in this moment, because once that post-acceptance glow wears off, you may be faced with some big decisions that you aren’t all that eager to make. Namely, how to be a great student loan borrower.

No matter how much you plan or how many pennies you and your family pinch, these days it’s pretty difficult to save enough to pay for school without the assistance of loans. If it provides any comfort, know you aren’t alone when it comes to facing large amounts of student loan debt once you graduate.

The average student borrower has about $37,000 in loans and as of August 2018, there were 44 million student loan borrowers in the United States. Luckily, there are ways you can prepare to manage your future student loan debt and receive some help along the way.

Understand the Cost of Your Education

When choosing where to study, you’ll have to make a lot of important decisions. Do you want to attend a liberal arts school or one that focuses on S.T.E.M. subjects? Would going to a university in a big city help you find that dream internship or would you better thrive by staying closer to home?

In an ideal world, you would make your education decisions based off many factors, but cost wouldn’t be one of them. Unfortunately, most soon-to-be college students need to consider the cost of their degree and living expenses before choosing which school to attend.

It’s not a factor to consider lightly. Before you make a final decision, you need to sit down and map out what each of your education options (including living arrangements) could cost you.

That calculation should include interest as well as costs like textbooks, meal plans, parking, sundries, and more. Most universities will map out estimates of school supplies, dorm fees, and other expenses students should anticipate while enrolled. If you’re planning on traveling for a semester abroad or pledging a fraternity or sorority, you’ll need to account for those expenses as well.

There are also ways you can plan to shorten your time at a costly university in order to keep your loan total lower. One less expensive option to consider is starting at a community college for your lower division coursework. If a community college isn’t the right fit full-time, you can always pick up elective credits at one during the summer for a fraction of the cost a typical private university would charge.

Know Your Student Loan Options

Fortunately, this step isn’t too difficult, as there are really only two overarching types of student loans: federal and private. All federal loans are backed by the federal government. Loans that are considered private are often backed by banks, credit unions, or other private lenders.

You can typically expect private student loans to have higher interest rates than federal loans. Federal student loans have fixed interest rates, meaning the interest rates don’t fluctuate post-graduation, whereas private loan interest rates can sometimes be variable, which means the interest rate can increase (or decrease) in accordance with the market if you choose a variable rate loan.

Federal loans require you to be enrolled in school at least half-time in order to be eligible and don’t require you to pay the loan until after you leave school. In fact, a post-graduation grace period of six months is usually provided to allow time for you to find work and get settled.

Private loans are an avenue that can be utilized if federal loan options have been exhausted. If you do find you don’t receive enough in federal loans in order to cover your tuition and other expenses during school, private loans could be a viable option.

Apply for Aid

Once you’ve decided on a school, your next step will likely be applying for financial aid and scholarships. Begin your financial aid and scholarship search by rounding up all the programs you might be eligible for, and keep track of each application deadline in a spreadsheet, your calendar, or both, so you don’t miss any.

You can also contact the financial aid department of the school you are enrolling in, since their office will likely know the best student loan resources available to you. They’ll most likely be happy to help you in any way that they can through the application processes.

The Department of Education has a great online resource to begin your financial aid search, starting with completing their Free Application for Federal Student Aid (FAFSA®) form, which is required for federal student aid like grants, work-study programs, and federal student loans.

Understand Your Post-Grad Repayment Options

Right now, repaying your student loans is a ways off. But before you sign on to borrow student loans, it helps to know how you’ll pay them back after you graduate.

If you have federal loans, you’ll likely be put on the standard 10-year repayment plan after graduating. If you’d prefer a lower monthly payment, federal loans also offer income-based repayment plans that private student loans don’t. And don’t forget, federal loans also typically come with a six-month grace period.

If you’re in a good financial place after graduation (or after you’ve worked for a few years post-college), student loan refinancing could also be a smart way to repay your loans. Whether you have federal or private loans, refinancing can help consolidate your loans at a potentially lower interest rate.

This new interest rate will be based off of your financial picture when you apply. The lower your interest rate is, the less you’ll spend on your loans. SoFi can refinance both federal and private loans, as well as offer fixed and variable interest rates.

Student loans can get complicated—SoFi is here to help. From helping you finance your education to helping you get out of your college debt, we’ve got you covered.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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.
SOSL18115

Direct Stafford Loan repayment can be one of the first harsh realities of modern adult life. But don’t worry, there are options that can help make your student loan repayment just a little less painful. First, let’s get some semantics straightened out: the name of your loans may not make much of a difference, but they can get confusing. In this case, the term “Direct Stafford Loans” and “Direct Loans” are used interchangeably.

Direct Stafford Loans were originally called the Federal Guaranteed Student Loan Program, but in 1988 they were renamed in honor of U.S. Senator Robert Stafford of Vermont, for his work on furthering the cause of higher education.

You have to repay your Direct Stafford Loan no matter what version of the loan you choose (more about this soon). Perhaps the most notable difference between the loan types is how you’ll be required to repay the interest (we’re going to show you).

So, When Do You Have to Pay Back Your Direct Stafford Loan?

The most direct answer is: after the grace period. We’ll explain: with each Direct Stafford Loan repayment plan, you are granted a little bit of time to sort out your life and get your act together. This stretch of rejuvenation, self-realization, and rebirth is perhaps euphemistically called a grace period.

The grace period for Direct Stafford Loan repayment begins the day you officially leave school. Also, if you change your student status to less than half-time enrollment, that earns you a grace period too.

Take note: educational institutions define “half-time enrollment” in different ways. The status is usually, but not always, based on the number of hours and credits in which you’re enrolled. Check with your school’s student aid office to make sure you are in sync with their official definition. Make sure everybody is on the same page before you assume that you are entitled to a grace period. The total timeframe of the Direct Stafford Loan repayment grace period: six months, and not a day more (with a handful of exceptions ).

Another thing to keep in mind about that grace period: you may want make the most of it by starting to pay back that loan in whatever way that you can. Even though grace periods are meant to give you time to reconfigure, the interest you’re being charged is still “capitalizing.” That means interest is still being added to the loan principal all during your grace period, and that’s not very graceful.

One quick thing to keep in mind while on the subject of grace periods: Make sure you know who your student loan servicer is in case you need to reach out to them. You don’t get to choose your own loan servicer. They’re assigned to you by the Department of Education to handle billing and other services. If you have questions regarding your loan, consider contacting your loan servicer.

What Are Direct Stafford Loans?

Direct Stafford Loans are divided into two types:

Subsidized Direct Stafford Loans

These loans are only available to undergraduate students and based on financial need. The government covers the interest payments during your time at school. During your six-month grace period or if you request a deferment, the government will also cover the interest accrued on the subsidized Direct Stafford Loan .

Calculating financial need can get tricky. Once your status is officially figured out, it’s called your “demonstrated financial need,” and it’s defined as the difference between total college costs and your family’s ability to pay. Ultimately, the final number is the amount of money your family needs for you to attend college.

Unsubsidized Direct Stafford Loans

These student loans are offered to undergraduate, graduate, and professional candidates, and are not based on financial need. So if you’re keeping score at home, this is in contrast to the subsidized Direct Stafford Loans, which are available to undergraduates only and based on financial need.

For Unsubsidized Direct Stafford Loans, the government does not cover your interest while you are in school, or if you request a deferment. During your six-month grace period, interest will continue to accrue, and you’ll be responsible for paying it once the grace period ends. As we mentioned earlier, you can also opt to pay the interest during this time, which will help reduce the debt of the loan later.

As with all Direct Stafford Loans, interest rates are fixed, which means that they stay at the same rate for the entire life of the loan. This could be a good thing, but it really depends on what the interest rate is at the time of signing the loan. Interest rates go up and down, so how “good” your rate is depends on how high or low the interest rate happens to be at the time you sign up for the loan.

Direct Stafford Loan Repayment Options

Here’s where you can get a handle on the whole Direct Stafford Loan repayment situation. The most important thing to remember is this: You. Have. Options. So don’t panic if your grace period is coming to an end.

One of your options is to refinance your student loans, which may be appealing if you’re in a financially stable place. Keep in mind that you can’t directly refinance government loans. However, you can refinance your Direct Stafford Loan by taking out a new loan with a private loan company at a hopefully lower interest rate. Doing this may give you some flexible repayment options.

Before you do, know the difference between refinancing and consolidating your loans. You can distinguish them as (broadly) two different strategies: completely starting over (refinancing) as opposed to merely reconfiguring (consolidation).

Refinancing lets you pay off the loans you already have with a brand-new loan from a private lender. This can be done with both federal and private loans. When you refinance, your existing loans get paid off completely, and you put those original creditors behind you forever. The new loan from a private company may allow you to breathe easier with better interest rates and repayment terms. You can also pick the private lender with the terms that best suit your needs. Don’t be afraid to comparison shop—and don’t forget that SoFi has no prepayment penalties or origination fees!

Consolidating student loans is simply gathering up all of the loans you currently have and piling them into one loan. You can typically only consolidate federal loans, and you do so with a Direct Consolidation Loan. With a Direct Consolidation Loan, your new interest rate is the weighted average of all your interest rates combined (rounded to the nearest eighth of 1%).
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Thinking of skipping a few student loan payments? Not a good idea. Your credit score may take a hit, and this could disqualify you from an opportunity to get a credit card, a car, or a mortgage. The days that pass before your loan goes into default: 270 . That may sound like a long time, but it can go by in a flash.

If you’re thinking about refinancing your Direct Stafford Loans with a private loan, you can shop around for the best rates and repayment terms, and choose the loan company that makes the most sense to you. Refinancing can be done with both federal and private loans.

Benefits of refinancing your Direct Stafford Loans could include lower monthly payments or lowering your interest rate. Your interest rate and refinancing terms will vary, based on your financial situation and credit history. If refinancing results in a lower monthly payment, you might have greater flexibility in your monthly budget, such as more savings or redirecting the additional cash to other debts.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the
FTC’s website on credit.
SLR18209

Perhaps you’ve found your dream home, or maybe you’re still in the exciting stages of looking for the house you want. In either case, you’re likely thinking about getting a mortgage loan—and you may be wondering if the amount of debt you currently have will become a stumbling block to qualifying for a mortgage.

To qualify for a mortgage, a lender needs to be confident that you can responsibly manage the amount of debt that you’re currently carrying along with a mortgage payment. The formula used to determine that is called a debt-to-income (DTI) ratio.

More specifically, a DTI ratio is the percentage of your qualifying monthly income, before taxes, that is needed to cover ongoing debts. This could include student loan payments, a car payment, credit card payments, and so forth. If the DTI ratio is too high, then a lender may see you as a higher risk.

This post will describe DTI in more detail, including how to calculate yours, what lenders typically like to see, and what might be too much debt to buy a house. We’ll also share strategies to manage your debt and lower your DTI ratio to help you qualify for the house of your dreams.

Understanding How Your DTI Ratio Can Affect Your Mortgage Options

The DTI formula is pretty simple. First, make a list of all your debts with recurring payments. Then, if you’re a W2 earner, take your pre-tax monthly income and divide your monthly expenses by this amount. That percentage is your DTI ratio .

Note that, with a mortgage, to calculate your DTI ratio, you’ll need to have a reasonable estimate of monthly property taxes on the home, insurance (homeowners, for sure, and PMI and flood insurance, if applicable), and HOA dues, if applicable. Even if you wouldn’t necessarily pay those bills on a monthly basis, you’ll need the bill broken down into a monthly amount for DTI calculation purposes. (And remember these are just examples. Your actual DTI, as calculated by a lending professional, may differ.)

If your debt-to-income ratio is too high, it can impact the type of mortgage you’ll qualify for. Each mortgage lender will have their own preferred DTI ratio, of course, and lenders can and do make exceptions based on your unique financial situation. Here’s an explainer on desirable debt-to-income ratios from the Consumer Financial Protection Bureau.

Preparing for When You Need a Mortgage

If you know you’ll want to buy a house within, say, the next year or two, it can be beneficial for you to understand how much home you can afford. This will give you time to manage your finances to make getting a mortgage approval easier. Perhaps you can’t pay off all your debt in that time frame, but there are strategic moves to make to position yourself better when mortgage time is upon you. In addition, consider reviewing our home buyers guide to get a better understanding of everything you need to prepare for your mortgage.

First, be careful. There are plenty of debt-related myths, but let’s address two debt-related realities:

1. Having a lot of debt in relation to your income and assets can work against you when applying for a mortgage.
2. If you are consistently late on debt payments, lenders may question your ability to pay your mortgage on time.

Here are a few tips that can help with some of the most common debt challenges:

Student Loan Debt

If you’re looking to take control of your student loan debt, consider refinancing your student loans into one new student loan with a potentially lower interest rate.

This can make paying back your loans easier, because there is just one monthly payment to make. Plus, with a (hopefully) lower interest rate, you can pay back less interest, overall. And, if you’re concerned about your monthly DTI ratio being too high when you go to apply for a mortgage, you may be able to refinance your student loan to a longer term for lower monthly payments, to reduce your current monthly DTI ratio. (Keep in mind, though, that extending your loan term may mean paying more interest over the life of your loan.)

When you refinance at SoFi, you can combine federal loans with private ones, something not many lenders permit. Request a quote online to see what you can save. Note that SoFi does not have any application fees or prepayment penalties.

Credit Card Debt

When you have a significant amount of credit card debt, the monthly payments can negatively impact your DTI ratio.

If you’re concerned about managing credit card debt payments while paying a mortgage, you could even consider focusing your efforts on getting out of credit card debt before you start the homebuying process.

To manage your credit card debt, and ultimately eliminate it, here are a few debt payoff methods to consider

•  The snowball method. List your credit cards from the one with the lowest balance to the one with the highest. Then, focus on paying off the one with the smallest balance first, while still making minimum payments on the rest. When that first card is paid off, focus on the next one on your list and so forth.

•  Tackling high-interest debt first. Using this method, you list your credit cards from the one with the most interest to the one with the least. Then, focus on paying off the credit card with the highest interest while making minimum payments on the rest. Then tackle the next one, and then the next one.

•  Consolidating credit card debt using a personal loan before you apply for a mortgage loan. When you do this, you’ll have just one loan, and personal loans typically have lower interest rates than credit cards (if you qualify). Ideally, keep credit cards open while only using them to the degree that you can pay off in full each billing cycle. And as with all debt payments, make all personal loan payments on time.

By reducing and managing your credit card debt, you can better position yourself for a mortgage loan on the house of your dreams.

Consolidating Your Credit Card Debt with a Personal Loan

Ready to consolidate credit card debt into a personal loan? SoFi makes it fast and easy, and it only takes minutes to apply. Plus, our personal loans have the following perks:

•  Low rates

•  No fees

•  Access to live customer support seven days a week

•  Community benefits; ask about how, if you lose your job, we can temporarily pause your personal loan payments and help you to find a new job

We look forward to helping you achieve your financial goals and dreams. Learn how a personal loan from SoFi can help.

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 Mortgages are not available in all states. Products and terms may vary from those advertised on this site. See SoFi.com/eligibility-criteria#eligibility-mortgage for details.
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 on credit.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
PL18224

Hard as this may be to imagine, 75 years ago, we didn’t have anything like today’s modern credit cards. Nowadays, studies are conducted annually to monitor the rising average credit card debt in our country, and this figure is seen as an indicator of the economy and of people’s individual spending habits.

It wasn’t as easy to buy what you needed in the pre-credit card era, and this form of payment has important benefits, including giving users a short window of time to make purchases on credit without paying interest on the balance.

But, the ease of credit card use also makes it ultra-easy to build up a mountain of debt, and the credit card debt spiral can be especially challenging to break. We’ll share more about why that’s so, later on in this post, along with tried-and-true methods to get out of this unwanted spiral of debt.

First, though, we’ll answer two commonly asked questions:

•  What is the average credit card debt this year?

•  How can I get out of credit card debt?

What is the Average Credit Card Debt This Year?

BusinessInsider.com reported on a 2018 study that shared how more than 40% of households in the United States have credit card debt, with the average household having a balance of $5,700. This average varies by where exactly you live in the country.

On the one hand, the percentage of Americans who have credit card debts has been decreasing for the past 10 years. On the other hand, when looking at people who do have this kind of debt, the average amount has been increasing.

Related: What is the Average Debt by Age?

From an economic standpoint, this is useful information to have. This data can also be helpful in allowing you to place your own financial situation into context. And if you’re unhappy with the amount of debt you’re carrying, the real question is how to get out of credit card debt. Fortunately, we’ve got plenty of insights and solutions to share.

First, let’s take a closer look at that average amount of credit card debt: $5,700. This takes into account every household, about 40% of which are in debt. However, if you just count the households in debt that don’t pay off their balances every month, that average debt increases to $9,333.

If you don’t have the means to pay the debt balance off all at once, then as you’re making payments interest keeps accruing, often compounding daily. So, it can be challenging to pay down that debt, especially if you’re making minimum payments or an amount that’s not significantly more than the minimum.

Here are a few more credit card facts to consider:

•  About one in every five adults in the United States has a credit card balance that’s higher than the amount of funds in their emergency savings accounts.

•  Men have, on average, higher credit card balances than women do, about 22% more.

•  About 68% of Americans have credit card debt when they die, on average $4,531. Compare that to the number of people who have mortgage loans when they pass away (37%) and those who have car loans (25%), and you can see how prevalent credit card really is.

Rising credit card debt can be exacerbated when there isn’t an emergency savings account to fall back on, and our cultural climate of consumerism, one where more is always better, doesn’t help.

If you no longer want to be average in the amount of your credit card debt, meaning you want to get out from underneath your debt, there are solutions.

Tips to Get Out of Credit Card Debt

To break the cycle of debt, it’s important to reverse engineer how it works and understand what makes it so challenging to get out of. Credit card companies typically compound interest, which means that interest accrues on the debt, and then you also pay interest on the interest.

Related: What is the Average Credit Card Debt for a 30-Year Old?

To make the situation even more challenging, interest is sometimes compounded daily, and so it’s easy to see how interest can quickly add up. This is true especially when you make minimum payments. It’s even true if you pay more than what’s owed as a minimum payment, but still have a remaining balance. If you’re late on a payment, you’re often charged a late fee, which is added to your balance—and then you’ll owe interest on that new total amount, as well.

So, What Can You Do?

Here are four methods to consider to ultimately pay off your high-interest credit card debt. You can choose the strategy that fits your financial philosophy and needs best, continue paying on all your debts, and then focus on not adding to your credit card debt as you pay down what you currently owe.

Choices include:

•  Debt snowball method: Using this method, you’d rank your credit card debts by outstanding balances. Then, focus on paying off your smallest debt first, and use the sense of accomplishment you’ll feel to fuel your motivation going forward. Then, pay off the smallest of your remaining debts, continuing until you’ve paid off your credit card debt entirely. A Harvard Business Review study showed that people using this method tend to pay off their credit card debts the quickest.

•  Debt avalanche method: In this method, you’d rank your credit cards by the interest rate charged. Then, focus on paying off the card with the highest interest rate first, and then the next highest and so forth. This is also known as the debt-stacking or ladder method.

•  Debt snowflake method: As a different strategy, you can use any extra money collected—from gathering change to a side gig—to pay down your credit card balances.

•  Debt consolidation method: Using this method, you would consolidate your credit cards into one debt, with low-rate personal loans/a>. You can potentially reduce your interest rate by using a personal loan and streamline the number of bills you need to pay monthly.

•  If you lose your job, we can temporarily pause your payments—and even help you find a new job.

•  You can find your rate in just two minutes’ time!

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FTC’s website on credit.
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