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Paying interest can be a fact of life for many credit cardholders. In most cases, carrying a balance month to month on a credit card will trigger interest charges, which is essentially the cost of borrowing money from a credit card company. Compared to other types of debt, such as mortgages and car loans, credit cards tend to have higher rates of interest, which can make them an expensive way to borrow money.

One thing that people who use credit cards to their advantage have in common? They know how to avoid paying interest on credit cards. You can learn how, too. Here are some ways you might avoid interest on credit cards.

What’s an APR?

To understand how to avoid paying interest on credit cards, it helps to start by learning about credit card APR, or annual percentage rate. Basically, the APR is the rate of interest you’ll pay if you carry a credit card balance. Unlike the APR for other loan products, the APR for a credit card does not include any fees you may owe for using the card — it’s simply your interest rate.

Your APR on a credit card will depend on your creditworthiness as well as the current prime rate. Generally, borrowers with better credit will have better credit card APRs, meaning they may fall below the average credit card interest rate.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

When Is Interest Charged?

Credit card interest is charged if you don’t pay off your balance in full each month. If cardholders pay their entire statement balance by their due date, interest charges are typically waived.

When you carry a balance, interest accrues on a daily basis. Your daily interest charge is determined by dividing your APR by 365, the number of days in the year. Then, at the end of each day, the interest is calculated based on your average daily balance. Because this continues throughout the billing cycle, the interest you’re charged yesterday then becomes part of the balance on which interest is charged today.

Your lender will then tally up all of your daily interest charges at the end of the month and put that amount onto your card as a finance charge.

Recommended: When Are Credit Card Payments Due?

How to Avoid Interest on a Credit Card

There are several strategies you can use to help avoid credit card interest.

Pay Off Your Balance in Full

If you’re wondering how to avoid credit card interest, one of the easiest methods is simply paying off your credit card balance in full each month. So long as you don’t carry a balance from month to month, you should never face purchase interest charges on credit cards.

To make paying off your full balance easier to do, you might consider making multiple payments throughout the month. That way, you don’t have to fork over one lump sum on your statement due date. One technique to consider is what’s known as the 15/3 credit card payment method.

Or, you could plan to check in on your balance regularly to ensure you’re going to be able to pay it off in full. The other benefit of paying off your full balance each month is that it can help you to build credit over time.

Take Advantage of Your Grace Period

Paying off a credit card in full each month creates an additional opportunity to avoid interest on a credit card. To help avoid paying interest, you can take advantage of your card’s grace period, the stretch of time between the end of your billing cycle and when a payment is due. During this time, no interest is charged on new purchases.

Here’s a hypothetical example:

•   A cardholder’s billing cycle for the month ends on January 15.

•   Say the cardholder pays their credit card bill on February 10. On February 10, they are only required to pay the “statement amount,” which includes only the purchases made from December 15 to January 15.

•   However, the grace period applies to any purchases that are made after January 15, but that won’t technically require payment until March 10. 

•   In this way, a purchase could remain interest-free for longer than just one billing cycle.

Credit card issuers aren’t required to offer a grace period, but plenty do. However, many require the balance to be paid off in full during the previous one or two billing cycles to qualify. If you lose your grace period because you haven’t paid your balance in full, you’ll be charged interest on any unpaid portion of the balance. In addition, you’ll lose your grace period, and all new purchases will accrue interest beginning from the date the purchase is made.

Utilizing the grace period to its full extent is one way to avoid paying interest on a purchase for longer than just one month (or whatever the billing cycle happens to be). Before going this route, just make sure your card has a grace period, and second, that you qualify. If you have questions, never hesitate to call your credit card issuer to ask how and when you’re billed.

Recommended: Tips for Using a Credit Card Responsibly

Use a Balance Transfer Offer or 0% Interest Credit Card

A balance transfer credit card, or a credit card that temporarily offers a 0% APR (or a very low rate), could be an enticing option for those who want to make major headway toward paying down a credit card balance. Keep in mind, however, that good credit (meaning a score of 670+) is typically needed to qualify for these offers.

If this is an approach you’re interested in, calculate how much you’d need to pay off each month in order to eradicate your balance. For example, if you have $6,000 you want to pay off during a 12-month 0% offer, you’d need to pay $500 each month. You’ll want to make sure you can realistically pay off the full balance before the promotion ends and the standard higher APR kicks in.

Also note that many balance transfers carry a balance transfer fee, which is usually around 3% to 5%of the amount transferred. Using our example from above, a $6,000 balance transfer with a 3% balance transfer fee would cost $180. Generally, this amount is added to the card’s total outstanding balance. Before pulling the trigger and transferring a balance, analyze how much you’d save in interest compared to the cost of the balance transfer fee.

There are a couple other potential pitfalls to balance transfers to keep in mind as well. For one, a balance transfer won’t get to the bottom of why you’ve racked up credit card debt in the first place. Some might find it too tempting to keep spending, and if more spending were to occur on top of the balance transfer, it could lead to unwanted interest charges. This could make it even harder to escape high-interest credit card debt.

Avoid Overspending

This may sound obvious, but it’s worth mentioning: To put yourself in a position where you can pay off your credit card balances every month, make sure your monthly spending doesn’t exceed your income.

This is easier said than done sometimes, but once you start racking up credit card interest, it can become even harder to pay off your full balance. You might consider making a budget and then vowing to stick to it to ensure you stay on track with your spending each month.

Plan Out Major Purchases

On a similar note to budgeting, another method for how to avoid paying interest on credit cards is by planning ahead for big purchases. If you know you have a pricey purchase coming up that you may need to spread out in smaller payments across a period of time, be strategic about how you’ll do it.

This could mean simply saving up ahead of time until you have enough stashed up to promptly pay off your balance. Or, you might time opening a credit card with a 0% promotional APR with completing your major purchase.

Tips for Reducing Interest

Sometimes you can’t avoid interest entirely. Even in those instances, you shouldn’t give up entirely and give into interest. Here are some tips for reducing the amount of interest you pay.

Taking Out a Personal Loan

Though not an interest-free option, there are other ways to potentially lower how much you’re paying in interest on your credit card debt. One such option is taking out a debt consolidation loan that has a lower rate of interest.

A debt consolidation loan allows you to roll your debts into one monthly payment that’s a set amount and stretched over a predetermined amount of time. This can make budgeting easier. Plus, if you manage to secure a lower interest rate, you might be able to pay off your debt faster, thanks to saving money on interest.

Making Multiple Payments Each Month

Another tactic to reduce the amount of interest you pay is to make payments on your credit card balance throughout the month, instead of waiting until the due date, as mentioned above. This helps because credit card interest is calculated on a daily basis, based on your average daily account balance. If you lower your balance with more frequent payments throughout the month, your average daily balance will be lower, thus reducing the amount of interest you’re charged.

Trying the Debt Avalanche Method

If you find yourself staring down a mountain of debt, you might consider trying a popular debt payoff strategy: the debt avalanche. With this approach, you focus on paying off your debt with the highest interest rate first. Over the long run, this can save you on interest.

The debt avalanche method instructs that you apply any extra funds to your highest-interest debt, while maintaining minimum monthly payments on your other debts. Then, once that debt is paid off, you’ll move your focus to paying down your debt with the second-highest interest rate.

The Takeaway

There are several ways to not pay interest on a credit card. These range from paying your balance off in full each month to taking advantage of a 0% APR offer. And even if you can’t avoid interest entirely, there are ways to reduce the amount of interest you pay on a balance you’ve accrued.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

What is the best strategy to avoid paying interest on your credit card?

There are several different ways you can avoid paying interest on your credit card, but among the most common are paying your credit card bill in full every month, consolidating debt with a balance transfer card, and being strategic about major purchases.

When should I pay my credit card to avoid interest?

You should pay your credit card as soon as you get it to avoid interest. There can be interest charged on the previous month’s balance between when the bill is issued and the due date. By making a prompt payment, you could avoid paying that.

How can I get my credit card company to waive interest?

You can call your credit card company’s customer service and request that interest be waived. You will likely have to explain the situation that led to this request. You might get a one-time waiver on some or all interest charges, depending on the situation and the issuer’s policies.

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Making monthly mortgage payments can feel like chipping away at an iceberg, especially in the beginning. Savvy homeowners take heart that each payment earns them a little more ownership in their property. But do you know exactly how much ownership, commonly called “equity,” you currently have? Knowing how to calculate home equity can help you feel a growing sense of satisfaction as you make those mortgage payments.

Simply put, home equity is the difference between the value of a property and the outstanding balance of all mortgages, liens, and other debt on the property. Read on to determine how much of your home you really own, what you can do to increase your equity, and how you can leverage that equity to make it work harder for you.

How to Calculate Your Home Equity

As noted above, home equity is the difference between your home’s current value and the outstanding balance of your mortgage and other debt on the property. It’s a simple equation:

Home Equity = Home Value – Home Debt

How to Find Your Home’s Value

To estimate your home value, you can use the purchase price of your home, but that doesn’t account for any appreciation in value. For a precise calculation of your home equity, you’ll need to know your home’s current value with appreciation. You can get an estimate of your home’s value with an online property tracking tool. These calculators approximate the appreciation of your home by comparing it with similar properties in the area. While helpful, these tools can’t provide an exact measure.

To determine your real-time home value, you’ll need to contact your mortgage lender and request an official appraisal. Your lender will conduct an inspection and evaluation of what your home is worth in the current market. The appraiser may ask you for documentation of any work you’ve done on your home to come to a more exact figure.

How Much Is Left on Your Mortgage?

Calculating home equity also involves knowing what you owe on your current home mortgage loan. You can find your mortgage payoff amount (which is different from your balance) on your lender’s online portal. Add to that the outstanding amount you owe on any second mortgages, liens (for unpaid taxes or child support, for example), home equity lines of credit, and any other loans that use your home for collateral. The sum of these items is your home debt, the last figure in the equity equation.

Using the Loan-to-Value Ratio to Represent Home Equity

The loan-to-value ratio (LTV) is the percentage of your home’s value that is borrowed — it’s like the opposite of equity. Lenders set maximum LTVs, typically 80%, for home equity loans. This means homeowners cannot borrow more than 80% of their home’s value.

You can calculate your LTV by dividing your outstanding home debt, discussed above, by your home’s appraised value:

LTV = Home Debt ÷ Home Value

For example, if your home is worth $375,000, and you still owe $200,000, your LTV is 53%. (200,000 ÷ 375,000 = .53) This means you still owe 53% of the equity in your home. Subtract 53 from 100 to see how much equity you have built in your home: Your available equity is 47%.

Examples of Home Equity Calculations After 1, 3, 5, 10 Years

The table below shows how much equity a fictional homeowner accumulates over the first 10 years of their mortgage. This assumes an initial home value of $300,000, with annual appreciation of 10%, a mortgage APR of 7.5%, and a monthly payment of $1678.11. The LTV is rounded to the nearest whole percentage. (The actual annual appreciation for American homes over the last 10 years on average was 7.4%.)

Recommended: How Much Will a $300,000 Mortgage Cost You?

What Is a Good Amount of Home Equity?

Common wisdom says that it’s smart to keep at least 20% equity in your home. This is why many lenders limit your LTV to 80%. To borrow against your home, then, you’ll typically need more than 20% equity.

Fortunately, that’s not a problem for most homeowners. Research firm Black Knight recently estimated that Americans have $193,000 of “accessible” home equity on average, over and above the recommended 20%. This is mostly due to rising home values.

Recommended: How Home Ownership Can Help Build Generational Wealth

How Much Home Equity Can You Take Out?

The amount of equity you can take out depends on the lender and the type of loan. However, most lenders will allow you to borrow 80%-85% of your home’s appraised value. The other 15%-20% remains as a kind of financial cushion.

A homeowner who doesn’t want to take out a home equity loan but needs cash might consider a Home Equity Line of Credit (HELOC). A HELOC allows owners to pull from their property’s equity continually over time. Borrowers can take only what they need at the moment. HELOCs use the home as collateral, which might not appeal to all borrowers.

Tips on Increasing Home Equity

Your initial home equity is determined by your down payment. The larger the down payment, the more equity a homeowner has right off the bat. The average down payment among American homebuyers is currently 13%. But a down payment of 20% or more can qualify borrowers for more favorable mortgage rates and also helps you avoid paying for private mortgage insurance.

After the down payment, home equity typically accumulates in three ways: monthly mortgage payments, appreciation, and home improvements. Beyond waiting for their home to appreciate, homeowners can increase their equity in several ways:
Pay more than your minimum mortgage payment each month. The extra money will go toward your principal, increasing your equity more quickly. Learn how to pay off a 30-year mortgage in 15 years.

Make biweekly payments instead of monthly. Your mid-month payment will incrementally lower your interest due. And by the end of the year, you’ll have made an extra mortgage payment.

Make strategic home improvements. Certain updates increase your home’s value more than others.

Refinance to a shorter-term loan. By refinancing to a 10- or 15-year mortgage instead of a standard 30-year, each mortgage payment will increase your equity at a faster rate.

The Takeaway

Calculating home equity involves subtracting your mortgage payoff balance (found on your lender’s website) from your home’s current value. To get the most accurate idea of your home’s market value, you’ll need an appraisal by your mortgage lender, which can cost $300-$450. Homeowners typically can’t borrow more than 80%-85% of their home equity. Knowing how to calculate equity in your home can be a first step in determining how to use that equity to fund renovations or another important expense.

SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.

FAQ

How do you determine your home equity?

To quickly estimate your home equity, subtract the amount you owe on your current mortgage from your home’s current value.

What is the formula to calculate home equity?

To figure out home equity, simply subtract the amount you owe on your home mortgage loan (and any other loan you may have that is secured by your home) from your home’s current value.

How much equity can you borrow from your home?

A lender will generally let you borrow 80%-85% of your home’s value, minus the amount you owe on your mortgage. Some lenders allow you to borrow more.

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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Broadly speaking, the best way to build credit is actually quite straightforward: Be the kind of borrower you’d want to lend to. While that might sound simple, it isn’t always second nature to know exactly how to go about doing that. For instance, you might know it’s critical to make payments on time, but you might not be aware that it’s important to keep your unused credit cards open.

If you’re setting out on your journey toward building credit, here’s a rundown on how to build credit, with 10 strategies you can stick to.

Strategies for Building Credit

1. Acquire Credit

Perhaps the first crucial step in how to build credit is to acquire credit accounts. For someone who does not have a credit history of their own, getting a co-signer or becoming an authorized user on an established cardholder’s account can help you get started. You might also consider a secured credit card or applying for a credit card designed specifically for students. Or you can look into a credit-builder loan.

In the long run, however, you’ll be in a much stronger position if you can borrow in your name alone. Establishing credit of your own can make it easier to borrow in the future for such things as an auto loan, a personal loan, or even a mortgage.

2. Pay Bills Consistently and On Time

Timely payments are crucial, and making at least the minimum payment each month on a revolving credit line can make a positive impact on your credit score.

That’s because payment history makes a bigger impact on a person’s credit score than anything else. A borrower’s credit score summarizes their health and strength as a borrower, and payment history makes up 35% of that score on a credit rating scale. So the most important rule of credit is this: Don’t miss payments.

Many lenders will actually allow you to customize due dates so they line up with pay dates, and most let you set up automatic payments from a checking or savings account. Take the time to find what works for you to make your payments in a timely fashion.

Recommended: When Are Credit Card Payments Due?

3. Manage Your Credit Utilization Rate

The further away a person is from hitting their credit limit, the healthier their credit score will be, in most circumstances. A borrower’s debt-to-credit ratio, also known as the credit utilization rate, should ideally be no more than 30%. Higher utilization rates can negatively affect a person’s credit score.

Paying revolving credit lines in full each month can have a positive impact on your credit score because doing so essentially lowers your credit utilization rate. Additionally, keeping tabs on your credit utilization rate before continuing to swipe is key to using a credit card wisely.

4. Keep Unused Credit Cards Open

Lenders want to see accounts maintained in good standing for a long time. As such, a credit history looks better when it has a solid number of accounts in good standing that have been open for a while. When debt accounts are closed, that history ends, and eventually closed accounts drop off your credit report entirely.

To keep this from happening, avoid closing old credit cards, even if you’re not using them anymore. You might consider using these accounts to automate a few bills, like car insurance or a monthly subscription account, to avoid account closure due to inactivity.

5. Diversify Your Credit Mix

Having a diverse mix of credit products can also have a positive impact on a person’s credit, accounting for 10% of a credit score calculation.

Opening at least one credit card is a good step for most borrowers. Using a personal loan to finance a large purchase with a relatively low interest rate, and paying off that personal loan on time, can also have a positive impact on a person’s credit. Student loan refinancing can be another way to diversify your credit mix, while potentially lowering your interest rate.

However, while having a mix of credit can help your standing as a borrower, it’s not a good idea to open a line of credit that’s not needed just to increase your mix of credit types. Instead, stick to applying only for credit you actually need and that you’re confident you can afford to pay off.

6. Check Your Credit Report

It’s recommended to check your credit reports from the three major credit bureaus at least once a year. Doing a regular review of your reports is a good way to monitor your overall credit health and understand the impacts of different activities. It’s also important to make sure that everything listed in your credit report is accurate, and to flag any errors or fraudulent activity.

Where Can You Track Your Credit Score?

You can get a free copy of your credit report every 12 months from each of the three major credit bureaus (Equifax, Experian, and TransUnion). Request your copy online by visiting AnnualCreditReport.com. Note that you can also request a copy anytime you experience an adverse action based on your credit report (like being denied for a loan), among other circumstances.

Checking your credit score is even easier. While it’s not included in your credit report, you can get your current score from your credit card company, financial institution, or on a loan statement. Another option is to use a free credit score service or site. If you’re tracking changes to your credit score, it’s helpful to know how often your credit score updates and then check in accordingly.

7. Limit Credit Applications

When making major life changes, like starting a job, getting married, or having children, sometimes multiple lines of credit might be helpful to get through it all. Financial institutions understand that, but they also know that, historically, people who borrow a lot of money at once from multiple sources tend to have more difficulty paying them back. Spreading out credit applications over time whenever possible typically has a lower impact on an overall credit score.

Recommended: What Is the Average Credit Card Limit?

8. Avoid Overspending

Perhaps one of the most effective ways to ensure you keep building your credit in the right direction is to only spend what you can afford to pay off. This will help you more easily maintain a lower credit utilization rate, and it can prevent you from racking up a balance and falling into a debt spiral.

Plus, if you pay off your balance in full each month, as opposed to only making the minimum payment, you can avoid incurring interest charges. This is a perk that’s foundational to what a credit card is.

9. Get Credit For Other Bills You Pay

If you’re early in your credit building journey, it can help to get credit for other payments you’re making on time, such as your rent payment, utility bills, or even streaming services fees. For instance, Experian Boost adds on-time payments in other accounts to your Experian credit report. There are also a plethora of rent-reporting services out there that will report your timely rent payments to the credit bureaus.

10. Pay Off Any Existing Debt

Another important strategy toward building credit is to pay down any debt you may currently have. Especially important when it comes to the time it takes to repair credit, saying goodbye to existing debt allows you to lower your credit utilization rate, which in turn builds your credit score. There are a number of tactics out there for paying off debt, from a debt consolidation loan to a balance transfer credit card.

What Is a “Good” Credit Score?

A “good” credit score is considered within the range of 670 to 739 under the FICO Score, the credit scoring model most commonly used by lenders. “Very good” is considered anywhere from 740 to 799, while “exceptional” is 800 and above.

Keep in mind, however, that these exact credit score ranges can vary a bit from model to model. For instance, in the VantageScore^® range, a score of 661 to 780 is considered “good.” In general though, anything in the upper 600s is generally within the range of a “good” credit score.

How Long Does it Take to Build Your Credit Score?

According to Experian, one of the three major credit bureaus, it generally takes around three to six months of data to generate an initial credit score.

Credit card issuers typically don’t report account activity until the end of the first billing cycle, so it’s worth waiting a month or two before you check in on the status of your score. If you’re anxious to ensure your activity counts, it’s also a good idea to check with your issuer to make sure they report to the credit bureaus.

What Can You Do with “Good” Credit?

The importance of having good credit can’t be overstated. By building credit, you’ll have easier access to borrowing opportunities in the future, whether that’s an auto loan for a new car or a mortgage for a new home. A better credit score also allows you to secure better terms, such as lower interest rates and a higher borrowing capacity.

The Takeaway

As you can see, there are a number of ways to build credit. First and foremost, you’ll want to make sure you’re following the tenets of responsible credit usage, as these are arguably the best ways to build credit. From there, you can consider additional credit building strategies, such as ensuring that your on-time rent and utility payments count.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How long does it take to build credit?

Once you open your first credit account, it generally takes around three to six months to start building a credit score.

How do I establish credit with no credit history?

There are several ways to establish credit if you have no credit history. Some strategies to explore include becoming an authorized user on a friend or family member’s credit card account, applying for a secured credit card, applying for a retail card, taking out a credit-builder loan, and reporting your on-time rent and utility payments to the credit bureaus.

How can I improve my credit as quickly as possible?

Though it takes time to repair or build credit, there are some steps you can take. For starters, work on paying down credit cards with high balances. And be sure to pay your bills on time, every time. If you’re having trouble keeping track of due dates, consider setting up autopay or calendar reminders for yourself.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

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If you’re in a bind and there aren’t many other options available to you, it is possible to get a personal loan for paying rent. However, you’ll need a solid credit score and credit history to get a good interest rate on a rental assistance loan.

Before you’d get a loan for rent, you may want to evaluate the costs involved and the pros and cons. Read on to learn more about getting a loan for rent payment.

What Types of Loans Can You Use for Rent Payments?

There are several different types of personal loans that you can obtain for paying rent. These include secured and unsecured personal loans for rent assistance, as well as payday loans.

Secured Personal Loans

Secured loans require putting up collateral, which is an item of value used to back up the loan. If the payments on the loan are not made, the lender can seize the collateral and sell it to make up for their losses. Some types of collateral that may be used include cash savings, stocks, a car, a boat, a home, jewelry, fine art, and future paychecks.

Securing a loan with collateral may result in a lower rate, but all conditions are dependent on what the lender is willing to take and what terms they’re willing to offer on a personal loan.

Unsecured Personal Loans

Unsecured personal loans do not require collateral. Since the lender has fewer options for recovering the funds should the borrower default, these types of loans often come with higher rates and shorter terms.

Payday Loans or Cash Advances

A payday loan, or cash advance loan, is a small, expensive loan you repay all at once, typically on your next payday. Interest rates and fees can be exorbitant. As a result, this type of loan should generally only be a last resort for covering rent payments.

Recommended: The Problem With Online Payday Loans and Fast Cash

Reasons Why You May Need to Use Loans for Rent

Using a personal loan for rent isn’t something you’d want to do routinely, but you may come across certain scenarios where it may make sense, such as when:

•   You have a short-term financial setback.

•   You’ll soon have the funds to pay the loan back.

•   You have a good to excellent credit score.

•   You can afford to make the monthly payments.

•   Your only other option is a payday loan.

Keep in mind that while there’s a lot you can use a personal loan for, taking one out still involves assuming debt. If you’re not confident you can repay a loan for rent, then it’s worth considering if you have any other options available to cover your rental costs for the month.

What Happens If You Do Not Pay Your Rent?

If you do not pay your rent, your landlord can start eviction proceedings against you. Laws vary from state to state and city to city, but it’s important to pay your rent on time.

If you know you’re going to have trouble paying rent, dig out your lease agreement and find out if you have a grace period, what the late fees are going to be, and who to contact if you need to pay late. If you reach out to your landlord before you miss a due date and explain your situation, they may be willing to give you a grace period and delay eviction proceedings.

Is It a Good Idea to Use Personal Loans for Rent Payments?

Generally, experts advise against using a personal loan for paying rent. Ideally, you should have an emergency fund that can cover these essential costs if something unexpected arises.

However, if you’ve decided this is your best course of action, there are some positive aspects to obtaining loans for rent over other potential options. Of course, there are downsides to take into account as well.

Recommended: How to Start an Emergency Fund

Pros of Using Loans for Rent Payments

Personal loans are known for their flexibility and versatility. Here are some of the upsides of turning to a personal loan for paying rent.

Potentially Competitive Loan Terms

A personal loan can come with competitive terms. If you’ve kept your credit in good shape, you may be able to qualify for a low interest rate with low fees and a reasonable repayment term. Your credit score doesn’t have to be perfect to be approved for a personal loan, but a score higher than 670 can increase your chances of getting approved for a personal loan with a competitive interest rate.

Recommended: Typical Personal Loan Requirements Needed for Approval

Versatility and Accessibility

Personal loans are known for being flexible. Borrowers can use them for a wide variety of purposes. For instance, you can use a personal loan for debt consolidation or to cover home renovations, an upcoming vacation, or even rent, among other things. Plus, personal loans offer quick access to funds — sometimes even the same day you apply.

Could Help You Build Credit

If you make all of your payments on time, having a personal loan could improve your credit profile. Adding an installment loan can also improve your credit mix, which is factored into your score.

Affordability

Interest rates on personal loans are generally lower than interest rates for credit cards. Your landlord may not even be able to take a credit card payment.

Cons of Using Loans for Rent Payments

Using a personal loan to pay rent generally isn’t recommended unless it’s a last resort. There are a number of drawbacks to consider.

Additional Fees

Personal loans aren’t free. You may have to pay an upfront fee to take out the loan, not to mention late fees if you miss a payment or even prepayment penalties if you pay in advance.

Possible Harm to Credit Score

If you run into trouble making your loan payments on time, it could have a negative impact on your credit. This could make it harder to qualify for other types of loans, such as auto loans and mortgages, with favorable interest rates in the future.

Interest Rates

If you’re having trouble making your rent payment, other areas of your financial life may have taken a hit. This could mean the interest rate you’re given for a personal loan will be less than ideal. Even if you’ve been able to maintain great credit, you’ll still need to pay interest on a loan for rent.

Increased Debt

Personal loans add debt to your bottom line. You’ll pay more over time by financing your rent payment into a loan. If you’re experiencing financial woes, adding a loan payment on top of what you’re going through may not be a good option.

More Personal Loan Tips

It’s possible to obtain a personal loan for a wide range of purposes, including paying rent. However, it’s important to weigh the pros and cons of getting a loan for rent before you do so. You’ll owe interest (and possible fees), and you could do harm to your credit if you’re not timely about repayment. But if it’s your last resort, a loan for rent is an available option.

If you do decide to get a personal loan — whether for covering rent or another purpose — it’s important to shop around to find the best possible offer.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

Are you able to use loans for rent payments?

Yes, you can use loans for rent payments. You may want to examine all your options before you do, though. Personal loans carry fees and interest, and if you miss payments, you can drag down your credit score.

Is it hard to get a loan for rent payments?

It can be hard to get a loan if you have poor or thin credit or a low income. A lender will analyze your credit score, credit history, and income to determine what amount you can afford to borrow and on what terms.

What type of loan is good for rent payments?

Personal loans are a flexible means to pay for a number of things, including rent. Payday loans and credit card cash advances are high-cost ways to make rent payments, and generally should be avoided.

Photo credit: iStock/nortonrsx

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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 .

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A car loan, a mortgage, student loans, credit cards. It might feel like a dark debt cloud is looming over you sometimes. If you carry some debt on your personal balance sheet, you’re not alone.

Total household debt in the U.S. rose to $17.69 trillion in the first quarter of 2024, according to the latest statistics from the Federal Reserve Bank of New York.That includes everything from mortgages to credit cards to student loans. We’re a heavily indebted nation, and for some, it may take a psychological toll. If that’s you, here’s the comforting news: There are some tried-and-true strategies for paying back outstanding debt.

What Is Considered Outstanding Debt?

Outstanding debt refers to any balance on a debt that has yet to be paid in full. It is money that is owed to a bank or other creditor.

When calculating debt that’s outstanding, you simply add all debt balances together. This could include credit cards, student loans, mortgage loans, payday loans, personal loans, home equity lines of credit, auto loans, and others. You should be able to find outstanding balance information on your statements.

How to Find Outstanding Debt

When paying off outstanding debt, you first might need to track it all down.

As you move throughout the debt payoff journey, you may find it helpful to start a file for your statements and correspondence. Also, you could create a list or input information into a spreadsheet. Organizing your information is necessary for building a debt payoff strategy.

It can be a good idea to build a list of all debts with the most useful information, such as the outstanding balance, the interest rate, the monthly payment, the type of debt, and the creditor. If you have an installment loan, such as a personal loan, the principal amount of the loan is another helpful piece of information.

What if I Can’t Find All My Outstanding Debts?

If you feel as though you’ve lost track of some debts, you may want to start by requesting a credit report from at least one of the three major reporting agencies, Experian®, TransUnion®, or Equifax®. You are legally entitled to one free copy of your credit report from each of the three agencies per week. It’s easy to request a credit report from AnnualCreditReport.com.

A credit report includes information about each account that has been reported to that particular agency, including the name of the creditor and the outstanding debt balance.

It is possible that some outstanding debts may have been sold to a collection agency. The name of the original creditor may be included on the credit report. If that is not the case, you may need to investigate further.

Some outstanding debts may not appear on a credit report. Creditors are not required to report to the agencies, but most major creditors do. That said, a creditor could choose to report to none, one, two, or all three of the agencies. If you’re in information-collecting mode, you may want to consider requesting reports from more than one agency, or all three.

Outstanding Debt Amounts

Aside from how a debt is structured — revolving or installment debt — it can also be thought of as “good” debt or “bad” debt.

Generally, if borrowing money (and thus incurring debt) enhances your net worth, it’s considered good debt. A mortgage is one example of this. Even though you might incur debt to purchase a home, the value of the home will likely increase. As it does, and as you pay down the mortgage balance, your net worth has the potential to increase.

Bad debt, on the other hand, is debt taken on to purchase something that will depreciate, or lose value, over time. Going into debt to purchase consumer goods, such as cars or clothing, will not enhance your net worth.

Each person has a unique financial situation, level of comfort with debt, and ability to repay debt. What one person may be able to justify may be completely unacceptable to another.

How Does an Outstanding Debt Impact Your Credit

One thing lenders may consider during loan processing is the applicant’s debt-to-income ratio (DTI), which compares how much you owe each month to how much you earn. Lenders will often look at this number to determine their potential risk of lending. Different lenders have different stipulations about this ratio, so asking a potential lender about theirs is a good idea.

Calculating DTI is done by dividing monthly debt payments by gross monthly income.

•   Monthly debt payments can include rent or mortgage payment, homeowners association fee, car payment, student loan payment, and other monthly payments. (Typically, monthly expenses such as utilities, food, or auto expenses other than a car loan payment are not included in this calculation.)

•   Gross income is the amount of money you earn before taxes and other deductions are taken out of your paycheck.

Someone with monthly debt payments of $1,000 and a gross monthly income of $4,000 would have a DTI of 25% ($1,000 divided by $4,000 is 25%).

Generally, a DTI of 35% or less is considered a healthy balance of debt to income.

Should I Pay Down Outstanding Debt?

Barring extenuating circumstances, it’s a good idea to make regular, consistent payments on your debt. Whether or not you decide to pay the debt back on an expedited schedule is up to you.

Some may not feel the need to aggressively tackle their outstanding debt. They may be just fine to continue paying off a balance until the loan’s maturity date. This may apply to people with manageable debt payments, those who have debts with lower interest rates, or those focusing on other financial goals.

For example, someone with a low-interest-rate mortgage loan may not feel the need to pay it down faster than the agreed-upon schedule. So they continue to make regular, scheduled payments that make up a manageable percentage of their monthly budget. Therefore, they are able to work on other financial goals in tandem, such as saving for retirement or starting a fund for a child’s college.

Other scenarios may call for a more aggressive strategy to pay down debt. Some reasons to consider an expedited plan:

•   Your debt levels, and therefore monthly payments, feel unmanageable.

•   You’re carrying debts with higher interest rates, like credit cards.

•   You want to avoid missed payments and added fees.

•   You simply want to have zero debt.

You’ll also want to keep in mind that carrying a large debt load could negatively affect your credit. One factor in a credit score calculation is the ratio between outstanding debt balances and available credit on revolving debt, like a credit card — the credit utilization rate.

Using no more than 30% of your available credit is recommended. So, if a person has a $5,000 credit limit on a card, that would mean using no more than $1,500 at any given time throughout the month. Using more could result in a ding on their credit score.

Carrying debt also means paying interest. While some interest may not be avoidable, it’s generally a sound financial strategy to pay as little in interest as possible.

Credit cards tend to have some of the highest interest rates on unsecured debt. The average interest rate on a credit card is 27.65%, as of June 6, 2024. With high rates, it’s worth seriously considering paring back debt balances.

Outstanding Debt Management Strategies

The next step is to pick a debt reduction plan.

Two popular strategies for paying off debt are called the debt snowball and the debt avalanche. Both ask that you isolate one source of debt to focus on first.

Simply put, you’ll make extra payments or payments larger than the minimum monthly payment on that debt until the outstanding balance is eliminated. You’ll continue making the minimum monthly payment on all your other debts.

Debt Snowball

A debt snowball payoff plan involves listing all of your debt in order of size, from smallest to largest, ignoring interest rate. You then put extra funds towards the debt with the smallest balance, while making the minimum required payments on the rest. Once that debt is paid off, you put extra money towards the next-smallest debt, and so on.

The idea here is that there’s a psychological boost when a card is paid off, so it makes sense to go after the smallest first. That way, when a person works up to the card with the next highest balance, they can focus singularly on it, without a bunch of annoying, smaller payments getting in the way of the ultimate goal.

It’s called a snowball because the strategy starts small, gaining momentum as it goes.

Debt Avalanche

Alternatively, the debt avalanche method starts by listing debt in order of interest rate, from highest to lowest. You then put extra money towards the debt with the highest interest rate. Because this source of debt costs the most to maintain, it is a natural place to focus. Once that debt is paid off, you focus your extra payments towards the debt with the next-highest interest rate.

The debt avalanche is the debt payoff strategy of choice for those who prefer to look at things from a purely mathematical standpoint. For example, if a person has one credit card with a 27% annual percentage rate (APR) and another with a 22% APR, they’d focus on that 27% card with any extra payments, no matter the balance.

Of course, it is also possible to modify these strategies to suit personal preferences and needs. For example, if one source of debt has a prepayment penalty, maybe it drops to the bottom of the list. If there’s a particular credit card you tend to overspend with, perhaps that’s a good one to focus on.

Outstanding Debt Payoff Methods

Once you decide on a strategy, whether it’s one discussed above or something that works better for your financial situation, you’ll need to figure out where the money will come from to pay down outstanding debt.

A good first step is to simply list your monthly income and expenses. If you find that you have enough money to begin making extra payments toward your outstanding debt balances, then you might choose to start right away.

Some people choose to keep a 30-day spending diary to get a clear picture of what they spend their money on. This can be a good way to pinpoint areas you might be able to cut back on to have more money to apply to outstanding debt.

If your existing budget is already tight and won’t accommodate extra payments, you might consider looking for some other financial strategies.

Increasing Income

Sometimes the answer is just to make more money. That could mean getting a part-time job or selling things you no longer need or want. You might also think about asking for a pay raise at your regular job.

Using Personal Savings

Tapping into money you’ve saved can be another way to pay down outstanding debt. Savings account interest rates, even high-yield savings accounts, generally pay much less interest than you’re paying on your outstanding debts. Keeping enough money in a savings account as an emergency fund is recommended, but if you have a surplus in your personal savings, putting that money toward your debt balances is a good way to make headway on outstanding debt.

Consolidating With a Credit Card

Using a credit card to pay off debt may seem like an unwise choice, but it can make sense in some situations. If your credit score is healthy enough to qualify for a credit card with a zero- or low-interest promotional rate, you might consider transferring a higher-rate balance to a card like this.

The benefit of this strategy is having a lower interest rate during the promotional period, potentially resulting in savings on the overall debt.

There are some drawbacks to transferring a balance in this way though. One is that promotional periods are limited, and if you don’t pay the balance in full during this period, the remaining debt will revert to the card’s regular rate. Also, it’s typical for a promotional-rate card to charge a balance transfer fee, which can range from 3% to 5%, or more, of the balance transferred. This fee will increase the amount you will have to repay.

Consolidating With a Personal Loan

Using one new loan to pay off multiple outstanding debt balances is another debt payoff method. A personal loan with a lower overall rate of interest and a straightforward repayment plan can be a good way to do this.

In addition to one fixed monthly payment, a personal loan provides another benefit — the balance cannot easily be increased, as with a credit card. It’s easy to swipe a credit card for an additional purchase, potentially undoing the progress you’ve made on your debt repayment plan.

To consolidate your outstanding debt with a personal loan, you might want to look around at different lenders to get a sense of what interest rates they might offer for you. Typically, lenders will provide a few options, including loans of different lengths.

The Takeaway

Outstanding debt can be a heavy burden. Many people owe large amounts of debt, but don’t know how to start making a dent in their balances. A good place to begin is by identifying your current income and expenses to see your overall financial picture. From there, you may decide to focus on paying down certain debts over others. You can then choose the best paydown method for your financial situation.

Ready to kick-start your debt payoff strategy? With low fixed interest rates on loans of $5K to $100K, a SoFi Personal Loan for credit card debt could substantially decrease your monthly bills.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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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