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What is a finance charge? How about a purchase charge? The jargon used to describe credit card late fees is enough to make anyone’s head spin. Unfortunately, a survey by CreditCards.com of 100 common credit cards found that while fees have remained stable (or even gone down a bit) thanks to recent annual percentage rate (APR) hikes, these charges are still pretty universal—and potentially very costly.

Of the 100 credit cards surveyed, for example, 98 charged a late fee for missed payments. And credit card companies made $104 billion from the fees and interest we all pay on our credit card debt. Any interest and fees we pay are collectively called “finance charges.”

Finance charges might sound like another complicated fee, but they’re really just a way of referring to the interest charges that accumulate on your credit card balance. The amount you pay in interest is determined by the credit card’s APR.

In an ideal world, we would all pay off our credit card balance in full at the end of each billing cycle. If you’re doing that, then you don’t have to worry as much about your interest rate or racking up finance charges. But in reality, nearly 45% of credit card accounts are considered “revolvers,” meaning they carry a balance from month to month.

And any time you have an unpaid balance, you’re probably going to be paying a finance charge on that money. Because most credit cards have sky-high interest rates (the average for new accounts was 17.01% in October, 2018), the amount of interest you’re paying can add up quickly.

What is a Finance Charge?

A credit card finance charge refers to all fees and interest you pay on credit card debt. You’re essentially paying the credit card company a fee in exchange for them financing your debt. Again, finance charges only come into play if you carry a credit card balance.

If you pay off your credit card balance in full when it’s due, or you’re paying your balance during a 0% interest rate promotion, then you won’t accrue any finance charges. Typically, there is a grace period between the end of a billing cycle and when the payment is due. After that due date, a finance charge is typically calculated based on the amount you owe, how long you’ve owed it for, and your APR at the time your bill is due.

Even if you make the minimum payment when it’s due, you can still accrue a finance charge if you don’t pay the full statement balance. The finance charge will simply be levied on the amount of debt you still owe, and a late fee can be additionally assessed if you don’t make at least the minimum payment by the due date.

Using the Finance Charge Formula

The finance charge formula is based on your annual percentage rate and credit card balance—which means the exact amount can vary from billing cycle to billing cycle.

The APR is used to calculate a daily interest rate, which you can figure out by dividing your APR by 365. You then multiply your daily interest rate by how much debt you carry on your credit card, and how many days you’ve carried that debt, to determine the total finance charge. This is added to what you already owe on your credit card.

For example, if your credit card has a 16% APR, then your daily interest rate is .16 divided by 365 days, which equals .0004383. That means you accumulate .04383% of interest per day. (Remember that when converting numbers into percentages, you need to divide by 100. That’s why 16% became .16 instead.)

That daily credit card interest rate of .04383% is then multiplied by the balance you’re carrying and by the number of days you’ve had this balance.

So if you carried an unpaid $1,000 balance for 28 days after it was due, then $1000 x .0004383 x 28 days = $12.27 in finance charges.

Using our example, you’re adding $12.27 to your credit card if you’ve been carrying a $1,000 balance on your card for 28 days with a 16% APR. That may not seem like a lot up front, but it can add up quickly, because if your balance isn’t paid off in full by the next billing cycle, you can incur another finance charge.

The Credit CARD Act of 2009 did put some limits on fees credit card companies can charge, but once finance charges start piling up, it can get a bit overwhelming. And P.S., if this math gave you a headache, you can always consult a finance charge calculator .

How Can I Get Rid of a Finance Charge on My Credit Card?

The only way to completely avoid paying a finance charge is to pay your credit card in full by the due date. If you’re already paying a finance charge, the only way to get rid of it is to pay off the existing credit card debt that’s incurring the charges. This can get you back to a clean, finance charge-free slate.

It should be noted that some credit cards offer a promotional 0% APR for a certain amount of time. During the promotional period, finance charges do not accrue. It is possible to use a 0% APR credit card to pay off existing debt.

These are usually called balance transfer credit cards. While there is usually a balance transfer fee, the promotional 0% interest rate can allow you to pay off your debt without incurring finance charges. However, promotional 0% interest rates are typically temporary, so if you aren’t able to pay off the new credit card within the promotional period, you could end up back in the same place you started.

Can a Personal Loan Help?

If you need to get out from under your credit card debt and stop incurring finance charges, one way to do that is to pay off the credit card debt with an unsecured personal loan. If you’re considering a personal loan to get out of debt, look for a loan with a lower interest rate than you are paying on your credit card.

With some credit card interest rates hovering around 20%, using a personal loan can be a simpler way to pay off your debt without dealing with exorbitant interest rates.

When taking out a personal loan, you can decide whether your interest rate is fixed or variable. And because personal loans have set terms, you’ll know exactly when you’re going to be out of debt, as opposed to chipping away at your credit card balance indefinitely.

If you’re considering paying off your credit card debt with a personal loan, keep in mind that some personal loans charge origination fees and prepayment penalties. Fortunately, SoFi personal loans don’t have origination, application, or prepayment fees.

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.
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The amount of student loan debt in the United States is staggering and only continues to rise. As a result, one of the most desired employee benefits in 2018 is help with that student loan debt. And some employers who want to recruit and retain star talent, in 2018 and in the future, are coming up with creative strategies to do just that.

This trend—employers helping with student debt—is expected to increase, say some industry experts . In this post, we’ll share ways employers are helping employees to pay down student loan debt, with a focus on an August 2018 Internal Revenue Service (IRS) ruling that could provide significant relief.

401(k) Student Loan Benefit Program

Repaying student loan debt can sometimes be challenging—and the amount of student debt in the United States is enormous: at least $1.5 trillion .

Perhaps even more alarming, this amount has nearly tripled over the past 10 years , and so people owing student loan debt are understandably looking for help in repayment.

Fortunately, on August 17, 2018, the IRS made a ruling that could start to provide relief. This ruling came in the form of a private letter , #201833012. The IRS was responding to a specific request from Abbott Laboratories, but implications could be much larger in scope, making it much easier for employers to assist employees who have student loan debt.

Abbott Laboratories, the impetus behind this ruling, asked to be allowed to modify the 401(k) program offered to its employees to include student loan benefits. More specifically, they would still put 401(k) contributions into employee retirement accounts when the employee is repaying student loans, but not contributing to the 401(k) plan.

Student Debt Impact on Retirement Savings

The Center for Retirement Research at Boston College delved into whether or not growing student loan debt has affected how much people with this kind of debt are saving for retirement. Results are mixed, yet still illuminating. Findings include:

•  Student loan debt doesn’t seem to have an impact on whether someone actually participates in a 401(k) program
•  Asset accumulation remains about the same for non-graduates
•  Graduates who have student loan debt accumulate, on average, 50% less in their retirement accounts by the age of 30

The amount of the student loan debt owed doesn’t seem to play a role in this reduced retirement account accumulation. Just the fact that the debt exists, the study authors determined, “looms large in their financial decision-making.”

So, it isn’t unreasonable to conclude that, when people get help with their college debt, such as with this student loan 401(k) perk, it might result in a positive uptick in retirement savings, as well. Win/win!

Abbott Laboratories

As the Society For Human Resource Management reports, Abbott Laboratories, in response to the IRS’ ruling, created their Freedom 2 Save program , which allows qualifying employees (both full-time and part-time) who are putting 2% of their eligible pay toward student loan repayment to receive the “equivalent of the company’s traditional 5% ‘match’ deposited into their 401(k) plans, without any 401(k) contribution of their own.”

Abbott started this initiative because they recognized that they were seeking top quality talent—with degrees in science and engineering, business development and so forth—which means they wanted students who likely were being aggressively recruited by other desirable companies.

To attract and retain them, they pursued the right to offer this unique benefit to them. An estimated 2,500 to 3,000 employees currently at Abbott are expected to take advantage of this benefit.

Student Loan Employer Contributions

According to The New York Times , 4% of employers were offering student loan repayment benefits of some kind in 2018, up from 3% in 2015.

While this percentage is still small, it is expected to grow . According to the article, these more typically consist of employees being given a lump-sum, after-tax payment to help with student loan debt. These payments are sometimes paid monthly; other times, annually.

An article in Forbes shares benefits that companies are offering to help employees pay down this kind of debt in 2018. Fidelity, for example, offers eligible qualified employees up to $2,000 annually towards repayment of their student loans, up to $10,000 overall, through their Step Ahead Student Loan Assistance program.

Because this is paid monthly, if an employee receiving this benefit leaves the company, none of the money needs to be reimbursed to Fidelity. The healthcare company, Aetna, offers a similar program, and Penguin Random House is the first book publisher to offer this type of benefit. They provide $1,200 per year/$9,000 total for full-time employees who’ve been at the company for at least one year.

Refinancing Student Loans at SoFi

Whether you work at a company that offers these types of programs or not, it may make sense to refinance your student loan debt, consolidating outstanding balances into one convenient loan—and at SoFi, qualified borrowers can refinance both federal and private loans at one lower interest rate or a shorter term.

You’ll want to decide if you want a shorter term to pay off the debt more quickly and pay less interest over the life of the loan—or a longer term that may lower your monthly payment and free up your cash flow. Whichever you decide, the choice is available at SoFi, and we charge no fees. None.

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. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC .
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 about bankruptcy.
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.

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Got credit card debt? You’re certainly not the only one. Americans owe a total of $905 billion n in credit card debt alone. Finding your way out of credit card debt can be pretty stressful. But maybe the energy you’re expending watching your balance creep up could be better spent devising a payoff plan.

Paying off credit card debt is a crucial step toward saving for the future. Credit card debt, unfortunately, might slow you down if you’re saving for a house, or trying to open your own business. That’s why knocking out credit card debt now may help your finances in the long run.

If you’re feeling overwhelmed by your monthly credit card payments, creating a debt payoff plan is an excellent way to reclaim control over your debt and your financial life. Even if you’re making multiple debt payments every month, having a plan to get through it all may put you at ease. This guide will help you make a step-by-step plan to getting debt-free.

Organize Your Budget

Before you clean up your debt, you first have to organize it. Start by figuring out your monthly income after taxes, your non-negotiable expenses, and the debt payments you have to make each month.

And when you’re writing this all down, make sure you include every debt, from your student loan payments to that $500 medical bill you you’re paying off over the next few months. When you’re writing out your expenses, don’t forget about utilities, groceries, gas, and your designated take-out budget.

This is a good time to check if there are expenses in your budget that you could easily cut out. Maybe just in going through your bank statements, you’ve noticed you’re spending too much on eating out. To help you easily track your spending, sign up for SoFi Relay. You can keep tabs on your cash flow and spending habits so you know where you stand.

Or perhaps you could save some cash by shopping at a less expensive grocery store, or using public transportation more. The more excess spending you can shave from your budget, the easier it can be to put more money toward your credit card debt.

Based on your monthly expenses, figure out how much money you are able to contribute to your credit card debt each month. If you are just paying the minimum on your credit card each month, determine how much additional cash you could contribute to your debt each month.

Then factor it right into your budget. If you plan to pay $400 toward your credit card debt each month, for example, and you get paid twice a month, maybe you get into the habit of always paying $200 to your credit card debt the day after you get paid.

Choose a Debt Payoff Method

For some of us, our credit card debt isn’t on one card, but is instead spread out over multiple cards. You can either order your credit card debts from smallest to largest (i.e., “The Snowball Method”) or from highest to lowest interest rate.

If you want to use the Snowball Method, you’re going to pay your smallest credit card debt off first, and then turn your attention toward the next smallest, and so on. By ordering your debts from smallest to largest, you build momentum, because you’re potentially knocking out debts more often.

When you are working on paying off your smallest credit card debt, you may want to put any extra resources you have toward getting rid of that debt. In the meantime, don’t forget to pay the minimum balance due to the rest of your credit cards.

On the flip side, the advantage of paying off your credit card debt starting with the highest interest rate card is pretty straight forward: It saves you the most money. Why? Because the cards with the highest interest rates are, naturally, costing you more.

If you want to pay your debt off in the most cost-effective way, start with the highest interest rate credit card, while paying the minimum balance on all the other cards. Once you’re done with the highest interest rate card, turn your debt payoff attention to the next highest interest rate card. Continue until you’re credit card debt free.

And don’t forget to put extra cash toward your debt when you can. Paying additional money toward your debt is called “The Snowflake Method”—there’s a lot of snow analogies when it comes to debt payoff). Holiday bonuses? Put it toward your debt. Birthday cash? Right to your credit card payment. Tax return? Instead of springing for a vacation, re-route that cash to your credit card.

Consolidating Your Credit Card Debt

If you’re not a number cruncher, complicated debt repayment methods might create more stress than they’re worth. Instead of these methods, you could consider replacing your multiple credit cards with a single credit card consolidation loan. That would mean making one monthly payment, instead of trying to keep up with paying off multiple credit cards.

By taking out a personal loan, it’s finally possible to focus on paying off one bill with one fixed interest rate and a set loan term. Depending on your financial history, you could qualify for a much lower interest rate on a personal loan than you’re paying on your credit cards. And paying your credit card debt off with a low-rate personal loan could help simplify and expedite your credit card debt payoff plan.

SoFi doesn’t provide tax or legal advice. Individual circumstances are unique. Consult with a qualified tax advisor or attorney.
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.
The information provided is not meant to provide investment, tax or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. Advisory and automated services offered through SoFi Wealth LLC. An SEC registered investment advisor. SoFi Securities LLC, member FINRA / SIPC .
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