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Cars are integral to our daily lives: We drive them to and from work and school. We use them to get groceries and go to the doctor. And, when our budget allows, we use them to get out of the house and treat ourselves to an evening of fun.

But what happens when your car breaks down and you don’t have the money saved up to fix it? That’s a reality for more than half of Americans, according to Bankrate’s 2023 Emergency Savings Report, an annual survey done in partnership with the survey and market research firm SSRS. Almost 60% of Americans say they wouldn’t use cash from emergency savings to pay for an unexpected car repair. Instead, they’d turn to credit cards, friends and family, or personal loans.

Using personal loans for car repairs can be a good solution when you don’t have the cash on hand, and it may be more affordable than paying with a high-interest credit card. Below, we’ll explore the pros and cons of using personal loans for car repair as well as some alternative options.

What Personal Loans Are and How They Work

A personal loan is a loan from a financial institution that borrowers can use for a wide range of purposes, from weddings and vacations to debt consolidation and medical costs to home renovations and, yes, car repairs. You’ll repay your personal loan, plus interest, over a set number of months.

As you start to explore your options, it helps to understand how personal loans work and the different types of personal loans available.

Pros and Cons of Personal Loans for Car Repairs

Taking out a personal loan to cover the cost of car repair can be helpful, but are there drawbacks to consider? Let’s review the pros and cons:

Pros	Cons
Get fast funding to cover repairs	Increased debt
Prioritize your family’s safety on the road	Upfront fees
Ensure you can still drive to and from work to generate income	Temporary drop in credit score
Avoid high-interest credit card debt to cover repairs	Less room in monthly budget

Pros

•   Get fast funding to cover repairs: Many personal loans offer same- or next-day funding, which means you can pay for car repairs quickly and get back on the road.

•   Prioritize your family’s safety on the road: Without access to cash, some drivers may be tempted to forego necessary repairs and put themselves, their families, and other drivers in danger by driving with a damaged vehicle. A personal loan allows you to pay for damage now at a potentially lower cost before the issue grows and becomes more expensive to fix.

•   Ensure you can still drive to and from work to generate income: Despite the advent of remote working, many people still rely on their vehicle to get to and from their job. Without it, you’ll need to pay for rideshare or a car rental or depend on the kindness of a coworker to give you a lift. Otherwise, you may need to skip work and miss out on that pay. Repairing your car quickly with a personal loan helps ensure you can get yourself to and from work on time.

•   Avoid high-interest credit card debt to cover repairs: Many Americans reach for their credit card to cover the cost of emergency car repair. According to Bankrate’s 2023 survey, 25% of respondents said they’d swipe their card to pay for repairs. The problem? More than a third of Americans have more credit card debt than emergency savings — and such debt can be hard to overcome when you don’t have funds set aside for unexpected expenses.

Cons

•   Increased debt: The biggest drawback of taking out a personal loan is the increased debt. Sometimes debt is necessary, like taking out a mortgage to buy a home or getting a student loan to pay for college. However, if it’s possible to avoid debt for small expenses like car repair, you typically should. That said, fixed-rate personal loans may be a more manageable form of debt for borrowers than a variable-rate credit card.

•   Upfront fees: Many personal loans come with origination fees at the start, especially for borrowers without great credit. These fees, plus the interest on the loan, mean you’ll end up spending much more for the car repair than you would if you paid out of pocket.

•   Temporary drop in credit score: While many lenders allow you to prequalify for a personal loan without an impact on your credit score, there will be a hard inquiry on your credit report when you officially apply. Such hard inquiries temporarily lower your credit score, but don’t worry: Your score will likely rebound over time, and if you responsibly manage your personal loan, you may even see it grow higher than when you started.

•   Less room in monthly budget: When you take out a personal loan, you’ll have fixed payments for a set number of years. It’s crucial that you make these payments every month and on time. That means you’ll have a little less room in your budget until it’s paid off. If you’re living paycheck to paycheck or struggling to build your emergency savings, this tighter budget can be problematic.

Recommended: What Are Daily Simple Interest Loans?

How to Use a Personal Loan for Auto Repairs

Personal loans are straightforward. Aside from a few restrictions that vary by lender, you can use personal loans for almost anything. You’ll apply and, upon approval, have the funds deposited in your checking account. Then you can take that money and pay the mechanic directly to repair your car.

Applying for a Personal Loan

So how do you get a personal loan for car repairs? First, make sure you meet a lender’s requirements, and then you can go through the application process.

Requirements

These are the typical personal loan requirements you’ll need to meet to get approval:

•   Credit score: Each lender will have its own personal loan credit score requirements. If you have bad credit, don’t sweat it: There are lenders out there with personal loans for poor-credit borrowers. Just expect to pay higher fees and interest.

•   Collateral: Many personal loans are unsecured, meaning you don’t have to put up any collateral. However, if you are struggling with your credit score, you may have an easier time getting approved (and at a lower rate) if you’re willing to put up collateral, such as your car.

•   Proof of income and employment: Lenders want to know that you have a means of repaying the loan. To that end, you may need to prove that you’re employed — and that you make enough to cover the monthly payment.

•   Debt-to-income ratio: Lenders commonly analyze your debt-to-income (DTI) ratio, which compares your monthly debt payments vs. the amount of money you make in a month. The lower the ratio, the more likely you are to be approved.

•   Origination fee: Some personal loans may include an origination fee to be paid up front, often expressed as a percentage of the loan amount (somewhere between 1% and 10%). You may be able to pay this out of pocket, but often lenders roll it into the loan’s total cost or even deduct it from the loan amount you receive.

Recommended: Compare Personal Loan Rates and Terms

Application Process

When you’re ready, you can apply online, over the phone, or in person (it’ll vary by lender). You’ll usually hear back about approval quickly — and may even receive the loan funds on the same day.

Many lenders let you check your personal loan rates and eligibility online before you apply. There’s no hard credit inquiry for this, so it’s a nice way to see if you qualify and compare lenders.

Alternatives to Personal Loans for Auto Repairs

The ideal alternative to getting a personal loan to fix a car is paying with cash from your emergency fund. But if you don’t have an emergency fund — or don’t have enough saved up yet — paying with credit is your main option.

Personal loans are a top option, but there are some alternatives to personal loans for auto repairs:

Credit Cards

Many mechanics will let you pay for auto repair with a credit card. This can be an attractive option if you have a rewards credit card that pays cash back.

The problem is that many borrowers have variable-rate credit cards with high APRs. If you don’t pay off the debt quickly, the interest charges will start to rack up.

Title Loans

Title loans allow you to use your car as collateral to secure funding. It’s a common option for bad-credit borrowers who can’t afford car repair, but be cautious: These loans are short-term, and if you don’t repay yours, the lender will take your vehicle from you.

This is a last-resort loan. For most borrowers, there’s likely a better, safer option.

Payday Loans

Payday loans are convenient for borrowers who need cash now, because there’s usually no credit check or collateral, and you can get the money right away.

The catch? These predatory loans can have high fees and interest rates reaching more than 600%. When it’s time to repay the loan (your next payday), you might find that you can’t afford to repay it — and you’ll have to take out a bigger loan to pay off the first one.

If you’re thinking about a payday loan for car repair, it’s a good idea to reconsider. Payday loans can lead to mounting debt and bankruptcy. And even if you pay yours off, it typically won’t help build your credit score (most lenders don’t report on-time payments to credit bureaus).

Instead, you might want to consider other alternatives, like secured personal loans or even a loan from friends and family.

💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

The Takeaway

Personal loans for car repairs may be a smart option when you don’t have the cash on hand. With a personal loan, you can get fast funding to pay for the repairs within a day or two, and the small available loan amounts mean you don’t have to borrow more than you need. There are some alternatives to personal loans for auto repairs, including credit cards. However, if you’re unable to pay off what you owe quickly, the interest charges will begin to pile up.

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.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Can personal loans be used for car repairs?

Yes, you can use personal loans for car repairs. In fact, unexpected emergencies such as car repairs are a very common use case for personal loans. You can use personal loans for almost anything.

What sorts of financing can you get for a vehicle repair?

Drivers who can’t afford vehicle repair with their own emergency savings can consider a number of financing options, including personal loans and credit cards.

While title loans and payday loans are alternatives, they’re generally a risky solution that could lead to car repossession, major debt, or even bankruptcy. Similarly, some mechanics may offer their own financing, but Consumer Reports warns that these loans can be predatory, with interest rates up to 189%.

Is getting a personal loan to repair a car a good idea?

If you can’t afford to repair your car out of pocket, a personal loan can be a good idea. Personal loans may have lower rates than a credit card, and making on-time payments on your loan could even help boost your credit score.

And if the alternative is not fixing your car, you’ll either have to drive an unsafe, damaged vehicle or get around without an automobile — which can be inconvenient and lead to lost wages if you miss work.

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Photo credit: iStock/demaerre

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

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

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

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When you’re struggling with debt, a little bit of help can go a long way — and a lot of help can go even further. But shopping around for debt relief assistance can be confusing. What, exactly, are these organizations offering?

Credit counseling organizations are generally non-profits that are dedicated to not only helping their clients get out of debt, but also creating a sustainable way forward with free or low-cost educational tools and resources. In other words, they’re more holistic about your financial situation, and they’re not in it for your money (though some may charge fees, usually relatively low, for their assistance).

Debt relief companies, on the other hand, are for-profit companies that charge you, often steeply, for the service of negotiating and settling your debt with your creditors or with collections agencies. In other words, they’re less about helping you get your money right and more about getting your money.

While both types of organizations can help you find relief from at least some of your debt, their motivations and structures are very different. Let’s take a closer look.

Debt Settlement vs Credit Counseling: What’s the Difference?

As mentioned, debt settlement is usually done by a for-profit debt settlement company that works to negotiate your debts with creditors or collections agencies for a fee. Not all creditors will negotiate with debt settlement companies, but if they will, you may be able to pay a lower overall amount. Keep in mind that it still may not immediately improve your credit score, and in some cases, may even make it worse (which we’ll discuss more in just a moment).

Credit counseling, on the other hand, is usually performed by financial professionals who work at non-profit credit counseling organizations. While they may help you create a debt management plan — potentially even one that might save you money — that’s not all they’re there to help you with.

Even if they don’t negotiate directly with your creditors, credit counselors can help you create or manage a budget, develop a sustainable plan to minimize debt over the long run, and give you access to low- or no-cost resources including workshops and educational materials. While they may assess a fee, it’s usually low, and they may also have options even if you can’t afford to pay them at all.


💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why SoFi credit card consolidation loans are so popular.

How Does Debt Settlement Work?

Debt settlement companies are just that: companies charging you for the service of settling debts. However, since not all creditors will even work with debt settlement companies, they may not actually be able to save you any money. If they can, they’ll be charging you for their service. Their fees may be a lot higher than a credit counselor’s would be.

Pros of Debt Settlement

•   Debt settlement might help you save money on very large debts. If a debt settlement company can successfully negotiate with your creditor, you may be able to get out of debt by paying far less than you would otherwise owe, so long as you can pay it as a lump sum.

•   Legally, your money must remain under your control while you’re saving it. The debt settlement company may require you to save up the lump sum in a special account. But even if they do, those funds must remain under your control until they are used by the company to pay off your debt.

Cons of Debt Settlement

•   Debt settlement is expensive. Even if the settlement is expensive, the company will charge you for their services, which eats into the amount you’re saving on your debts. Keep in mind that debt settlement companies are for-profit organizations.

•   Debt settlers aren’t looking at the whole picture. While a credit counselor may be able to help you come up with a sustainable, holistic plan to manage your money going forward, debt settlers are focused only on, well, settling your debt. This means you could wind up in the exact same place in the future, if your financial habits don’t change.

•   Debt settlement services might actually make your credit worse. Some debt settlement companies may tell you to stop paying your debt until they reach an agreement with the creditor, which could be negatively reflected in your credit score and history.

•   Debt settlement doesn’t always work. Because some creditors won’t negotiate with debt settlement companies, using one may not actually save you any money. (Note: According to Federal Trade Commission rules , a debt settlement company can never charge you for their services before they’re successfully rendered. If you encounter a debt settlement firm that’s trying to take your money up front, you shouldn’t work with them.)

What Is Credit Counseling?

Credit counseling is very different from debt settlement: It’s a holistic approach to money management offered by expert financial planners and advisors at a low cost.

While helping you negotiate and potentially lower your debts with creditors is one potential service a credit counselor may offer (though they may also not), their main concern is getting you set up for a successful financial future in the long term.

Pros of Credit Counseling

•   Credit counseling is built to be affordable. While credit counselors may charge a small fee for their services, they’re usually much lower than you’d pay for financial advice in any other context. Plus, no-cost options are often available for those with demonstrated need.

•   Credit counseling can help you build a sustainable financial future — not just settle a debt. By giving you the knowledge and tools you need to create positive financial habits, credit counseling can help you make a lasting change, not just pay off a bill.

•   Credit counseling can give you access to other educational opportunities and materials. Along with one-on-one credit counseling, these non-profit organizations may host community workshops and classes or provide you with free information.

Cons of Credit Counseling

•   Credit counseling requires you to do some of the work. Although credit counselors will assist you along the way, you’re the one who has to create (and stick to) a budget and form positive credit habits.

How Can a Non-Profit Credit Counselor Help You?

By helping you form the long-lasting financial habits that can keep you out of debt or make it easier to follow your monthly budget, working with a credit counselor can change the shape of your financial future.

In short, think of debt settlement agencies as for-profit firefighters: They may be able to help you put out a blazing debt spiral in an emergency, but they’ll charge you for the privilege. Non-profit credit counselors, on the other hand, help you put out the fire and teach you how to keep your financial life flame-free, all for low or no cost.

What Is the Process of Working with a Non-Profit Credit Counselor?

When you sign up to work with a credit counselor, you’ll likely start with an initial consultation session, which may be in person, over the phone, or over a video conferencing service. This initial consultation will likely last about an hour and may include going over your budget and creating a debt management plan.

Depending on your needs, your counselor may recommend follow-up sessions, or may direct you to workshops and resources to help you DIY your own financial education.

What You Should Know About Debt Relief Companies

While both debt settlement companies and credit counseling agencies can help you get out of an immediate debt crisis, rebuilding your credit is always a time-consuming and work-intensive process that takes persistence and patience. A credit counselor can help you tackle that project with support.

Keep in mind that there are ways to tackle a debt spiral yourself, too, such as taking out a personal loan in order to consolidate multiple lines of credit or debts.


💡 Quick Tip: A low-interest personal loan from SoFi can help you consolidate your debts, lower your monthly payments, and get you out of debt sooner.

The Takeaway

Debt settlement is offered by for-profit companies that may charge steeply for their services — and might not even be able to help. Credit counseling, on the other hand, is a more holistic service offered by non-profit organizations that have your best interests and a firm financial future at heart.

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.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What is the difference between debt settlement and credit counseling?

Debt settlement is a service offered by for-profit companies who negotiate your debts with creditors and collections agencies for a fee, often a large one. Many creditors won’t work with debt settlement agencies, anyway, so they may not be able to help you in the first place. In addition, under Federal Trade Commission rule, they’re not allowed to charge their fee before their services are successfully rendered.

Is it better to consolidate or settle debt?

While everyone’s financial needs are different, consolidating your debt is a self-directed debt relief strategy that can help you build your credit and positive financial habits that’ll keep you in good standing. Debt settlement agencies are for-profit companies that may charge you steeply for the privilege of helping you negotiate your debt with creditors. They’re unlikely to get you a better deal than you would get by negotiating on your own.

How bad is debt settlement for your credit?

Many factors go into determining someone’s credit history, but debt settlement agencies may advise you to stop paying your bills until their negotiations are over. This can be bad for your credit history, though paying off large amounts of debt, especially debt in collections, can be positive for your credit history. It’s all about creating sustainable habits over the long run.

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Photo credit: iStock/Delmaine Donson

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.

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.

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

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

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Credit counseling services can be a smart way to access professional financial advice at a low cost — or, in some cases, even for free. Usually nonprofits, these organizations can offer educational materials, workshops, and one-on-one counseling with trained financial professionals to help you make an achievable plan to repay your debts, set up a sustainable budget, and more.

It’s important to understand, however, the difference between credit counseling organizations and debt settlement agencies. The latter are usually for-profit companies that may not always be acting with your best interests in mind.

Here’s what you need to know about credit counseling, including how to tell when you might need it.

What Is Credit Counseling?

Credit counseling is a free or low-cost service offered by what are usually nonprofit organizations. Credit counselors can work with you one-on-one to offer fiscal advice and get your finances in order. For example, a credit counselor might help you:

•   Plan a debt repayment strategy

•   Create an overall debt management roadmap

•   Set up or retool your budget

•   Learn how to get a free and accurate copy of your credit report and scores

Many credit counseling services also offer educational resources, like flyers or online information, and workshops or classes that can help many people learn more about how to manage their money at once.

In some cases, credit counselors may offer to reach out to your creditors directly to negotiate with them, which could help you save money. Counselors may be able to get late fees waived, attain a longer repayment period, or ask for lower interest rates.

However, this is not the primary or sole function of credit counseling agencies, and not all credit counselors offer this service.

💡 Quick Tip: A low-interest personal loan from SoFi can help you consolidate your debts, lower your monthly payments, and get you out of debt sooner.

How Does Credit Counseling Work?

Every individual credit counseling agency is different, and they each have their own process that they can walk you through. But in most cases, you’ll be offered an initial consultation with a credit counselor, which may take place online, in person, or over the phone.

During this meeting, the counselor will likely ask a series of questions about your financial standing, and may help you develop a budget or create a debt repayment plan on the spot. Depending on your needs, follow-up appointments may be offered, and you may also get invitations or access to free classes, workshops, educational resources, and more.

In all cases, a credit counseling agency should have your best interests at heart, and should be willing to offer you free information about their services. If a credit counseling agency requests you to pay high fees or pay up front, or refuses to work with you if you can’t afford to pay, you should look for a different organization.

Credit Counselors vs Debt Settlement Agencies

It’s easy to get credit counseling organizations mixed up with debt settlement agencies, but the two are very different — and the difference is critical. Whereas credit counselors are usually non-profit organizations that offer free or low-cost help, debt settlement agencies are very much for-profit companies.

Furthermore, debt settlement agencies charge for the service of negotiating debt settlements with your creditors or collections agencies, rather than offering a more holistic financial education or plan.

Unfortunately, many creditors refuse to negotiate with debt settlement agencies, so hiring one is often a waste of your time. If you do choose to work with a debt settlement agency, remember that under Federal Trade Commission rules , you can’t be charged for their services until they are rendered successfully. Because, again, many creditors simply won’t talk to these companies. If you pay up front, you could be out of luck). In other words, if a debt settlement agency attempts to charge you up front, take your money and run.

Alternative Options for Managing Credit Card Debt

While working with a credit counseling organization can be a great way to access low-cost help in many different financial areas, it’s not the only way to eliminate credit card debt. There are plenty of self-directed strategies that can help you get your money right, right from home.

For instance, debt consolidation is one tactic that may help you get a handle on your credit card debt. Here’s how it works.

To consolidate credit card debt, you’d take out a new loan or a new credit card that allows balance transfers at a 0% interest rate. (Yes, it sounds counterintuitive to fix credit card debt by taking out another loan or line of credit, but hear us out.)

Then, you pay off all of your credit card debts with the personal loan, or transfer all of your balances onto the new credit card. In either case, you’ll now be left with a single monthly payment rather than multiple payments, which can be hard to keep up with and easy to forget about.

Both tactics can also help you save money on interest, too, which can help you get out of debt faster and more efficiently. Different types of personal loans often have lower interest rates than credit cards do, and if you go the balance transfer route and choose a card with a 0% rate, you may save yourself from paying any additional interest at all.

Beware, though: Those 0% balance transfer rates are usually only promotional, and wear off after a certain period of time, like a year. At that point, if you hadn’t paid off the balance in full, you’d likely be stuck paying double-digit interest on whatever was left over once again.

💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why SoFi credit card consolidation loans are so popular.

The Takeaway

If you’re struggling with credit card debt or simply looking for professional financial help from a budget-friendly source, pursuing credit counseling can be a smart step to take. These nonprofit organizations offer a variety of different workshops, services, and materials that can help you fashion a more sustainable financial future.

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.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What is the purpose of credit counseling?

Credit counseling exists to help people find better ways to manage their money and to create sustainable budgets and debt management strategies. Usually nonprofit organizations, credit counseling agencies may offer workshops, educational materials, and one-on-one counseling services at a low cost, or even for free, to people who need some help getting their money right.

What is the credit counseling process?

While each credit counseling organization is different, in most cases, you’ll be offered an initial credit counseling consultation appointment that may last about an hour and take place in person, on the phone, or through a video conferencing platform. You may be offered follow-up appointments as well as educational resources and workshops. While most credit counselors are part of nonprofit organizations, there still may be some fees associated with their services, though these are usually much lower than a professional financial advisor’s fees.

Do you need credit counseling?

Only you can decide if you need to pursue credit counseling, but if you’ve been struggling with credit card debt and found yourself unable to create or stick to a sustainable debt repayment strategy, credit counseling could help.

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Photo credit: iStock/Rockaa

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

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

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

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

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

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If you’re like most Americans, you love your plastic and swiping or tapping through your day. In fact, about 84% of Americans have at least one credit card, with the average wallet holding three.

The national love affair with credit cards is built on their convenience, how they provide a line of credit to enable buying things we can’t quite afford to pay for with cash, and those enticing rewards that are often offered.

But the picture is not altogether rosy: As a nation, US citizens have more than $1 trillion in credit card debt. And with interest rates averaging over 20%, that debt can be hard to chip away at.

To help you better understand how credit cards work, how much credit card debt people typically have, and what are smart strategies for paying down credit card debt, keep reading. You’ll learn interesting facts as well as helpful hints.

10 Facts About Credit Card Debt

Ready to learn more about credit card debt, a form of revolving debt? These 10 credit card facts will help you better understand who has how much debt and where difficulties paying the balance typically crop up.

1. More Than Half of Americans Have Outstanding Credit Card Debt

A majority of active credit card accounts carry a balance, according to the American Bankers Association. The specific figure is 56%. This indicates that carrying a balance is a common situation for many Americans, even with the eye-wateringly high interest that’s charged.

Recommended: Tips for Using a Credit Card Responsibly

2. Households with Credit Card Debt Owe an Average of Almost $8,000

American families had an average credit card balance of $7,951, according to calculations using Federal Reserve Bank of New York and US Census Bureau data. In 2013, that figure was $5,508.

Just because this is the norm, it doesn’t mean that it’s ideal: The best-case scenario is to only charge as much as you can afford to pay off in full every month.

3. It Can Take More Than a Decade to Pay Off $7,951 in Debt

Racking up credit card debt takes much less time than getting rid of it. Let’s assume that like the average American, you have $7,951 in credit card debt, as noted above.

At the current average interest rate of 21.19% on existing accounts, with a $150 monthly payment, it would take you 158 months — or 13 years and two months — to pay that off. And you would pay $15,606.40 in interest, or almost twice the original amount you charged!

But the more you can pay each month, the faster you’ll extinguish the debt. In this example, if you increase your monthly payment to $500, you’d pay off the debt in just a year and seven months and only spend $1,465.06 in interest. These scenarios are, however, assuming that you are not accruing new debt and therefore paying off larger credit card bills.

4. Gen Xers Have the Most Credit Card Debt

Ready for more credit card facts? Here is how age and debt intersect. Gen Xers, the generation that includes people born between 1965 and 1980, have the highest average credit card balance: $9,589. Next in line are Baby Boomers, born between 1946 and 1964, who have somewhat less debt — $8,192 on average — than Gen Xers.

5. Alaskans Have the Highest Credit Card Debt

In a state by state analysis of credit card debt, Alaska residents led the pack with $7,324 per person. Those who live in Wisconsin were found to have the lowest at $4,987.

6. 42% of College Students Have Credit Card Debt

The habit of carrying credit card debt unfortunately starts early, with more than four out of 10 college students carrying a balance on their credit cards. Of these, 28% say their debt exceeds $2,000. They say they accumulated that amount due to nonessential purchases, such as impulse buys, Uber rides, or fancy coffees.


💡 Quick Tip: To avoid paying interest, pay off your credit card bill in full and on time each month. Only making the minimum payment each month can lead to paying a lot in interest over time.

7. One in Three Americans Owes More On Credit Cards Than They Have Saved

This may be a scary fact about debt, but one in three US adults owes more on their credit card than they have saved. In fact, 36% say this is the case, versus just 22% a year earlier. That shows a two-sided problem: too much spending and too little saving.

Recommended: Paying Off $10,000 in Credit Card Debt

8. Richer People Have Credit Card Debt Longer

More interesting credit card debt facts: People who earn more than $100K a year are more than two times as likely as lower earners to have credit card debt for five years or longer. Among six-figure earners, 72% say they have had debt for at least a year vs. 53% of those who earn less than $50,000 per year. When considering those who’ve held credit card debt for five years or more, you’ll find that 27% of the high earners vs. 13% of the lower earners are in that situation.

Perhaps this statistic suggests that high-earners feel they have the means to handle debt and therefore don’t rush to repay it.

9. Men Have More Debt Than Women

Men have an average of $6,357 in credit card debt, while women have an average of $6,232. Perhaps not a huge difference, but so much for the myth of women shopaholics using credit cards to fill an overflowing closet with shoes.

There are many potential reasons for this difference, but some studies have found that women are less comfortable with debt.

10. There’s a Good Chance You’ll Die With Credit Card Debt

Here’s the last of these debt facts, and it can be a grim one: Nearly three-fourths of Americans are in debt when they die, according to one benchmark study.

And 68% die with credit credit card balances — more than the share who have mortgage debt (37%) or car loans (25%) when they pass away. That’s not exactly a desirable legacy. Although family members don’t generally become responsible for the debt, it may be taken out of the deceased person’s estate.

Why Is Credit Card Debt So Common?

There are many reasons that Americans have so much credit card debt, from rising healthcare and educational costs to lack of emergency savings to a cultural consumerism that encourages people to live beyond their means.

Regarding that last point, you may hear about the phenomenon referred to as Fear of Missing Out or FOMO spending, which is a modern version of “keeping up with the Joneses.” In other words, because your friends, coworkers, or influencers you follow on social media are buying something, you feel you should as well.

Or perhaps part of the problem can be explained by what is known as lifestyle creep. This situation occurs when you earn more money but your spending rises too, so your wealth doesn’t grow. For example, if you took a new, higher-paying job and decided to lease a luxury car or take a couple of lavish vacations, your wealth wouldn’t increase, though your credit card balance might.

Tips on Avoiding Credit Card Debt

Perhaps these facts about debt will motivate you to work on avoiding a credit card balance. If so, the following strategies could help.

•   Review different budgeting methods, and find one that works for you. Many people use the popular 50/30/20 budget rule, for example. Also, see if your bank offers tracking and budgeting tools to help you rein in spending.

•   Gamify savings. You might try sleeping on it rather than making impulse buys to see if the urge to spend passes; it often does. Or go on a spending freeze for a specific period of time or for a certain kind of purchase (say, no dining out in March; no clothing purchases in April).

•   Try buying with cash or your debit card vs. plastic. That will help prevent your debt from snowballing.

•   Consider trying a balance transfer card, which typically gives you a period of zero interest during which time you can pay down what you owe.

•   In terms of a debt payoff strategy, you might investigate getting a personal loan with a lower rate than what your card charges. That could allow you to pay off the plastic debt and then have more manageable monthly payments.

•   Seek help if you are really struggling to get your debt under control. Nonprofit organizations can help you accomplish this.

Opening a Credit Card

Now that you know some facts about credit card debt and ways to pay it off, you may be looking for a new card that better suits your financial and personal goals. Shopping around to compare features, such as interest rates and rewards, can be a wise move.

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 are the main causes of credit card debt?

Credit card debt can crop up in a variety of ways. Sometimes it’s because expenses get pricier, whether due to lifestyle creep or inflation. Other times, it’s not being mindful about daily spending and making impulse buys. Given how many Americans have more credit card debt than money saved, it’s a common but challenging issue.

How much does the average person have in credit card debt?

Credit card debt facts reveal different angles on this number. The average American household has $7,951 in credit card debt. Some studies put the individual figure at $5,573.

How serious is credit card debt?

Credit card debt can be very serious. It’s high-interest debt, and it can be difficult to pay off. It can make it hard for individuals to save for their future and can negatively impact their debt to income ratio, which can be an issue when applying for loans.

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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.

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

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If you’ve been denied a personal loan recently or don’t think a personal loan is right for you, you might feel at a loss as to how to cover a large expense or fund a major project.

The good news is, there’s no shortage of personal loan alternatives that suit a variety of situations. Let’s take a closer look.

Credit Card

A credit card offers you a line of credit that can be used for a variety of purchases. You can borrow up to a set credit limit, and each month that you carry a balance, you’ll owe at least the minimum payment. Credit cards are generally seen as a better option for smaller, everyday purchases, while a personal loan may make more sense for larger, more expensive items, such as a house or car.

Using a credit card responsibly can be a good way to establish your credit history, so long as you make timely payments each month. And some cards may come with perks, such as rewards points or travel rewards.

On the downside, if you don’t pay off the full balance of your credit card each month when it’s due, then your balance will accrue interest. (And credit cards typically have higher interest rates than personal loans.) If you continue to make charges on the credit card while only making minimum monthly payments, then it will take you even longer to pay off the balance. To find out how much interest you’ll pay on any balance, you can use a credit card interest calculator.

Applying for one credit card can ding your credit score by just a few points. But applying for multiple cards at once could raise red flags for lenders and can drag down your credit score.

Pros

•   Can tap into funds as needed and repay as you go

•   Can build credit as long as you make on-time payments

•   Some cards come with perks such as rewards points and travel-related benefits

Cons

•   Can have higher interest rates than personal loans

•   May take you longer to pay off the balance if you only make the minimum payments

•   Applying for too many cards at once may hurt your credit

Recommended: Personal Loan vs. Credit Card

Personal Line of Credit

A personal line of credit is a type of revolving credit line that can be used for many different things. Like credit cards, a personal line of credit has a maximum credit limit, and borrowers are required to make a minimum monthly payment. Once the debt is repaid, money can be withdrawn once again. Personal lines of credit may be secured, which require collateral, or unsecured, which do not require collateral.

When comparing a personal line of credit vs. a personal loan, you may discover that a personal line of credit allows you to access money over time instead of all at once. This level of flexibility may reduce interest charges, because you’re only taking out the money you plan on using right away. And generally speaking, the interest rates on a personal line of credit tend to be lower than those on a credit card.

However, it can be difficult to qualify for an unsecured line of credit with a good interest rate, as they’re more risky for the lender. Plus, the flexibility of a line of credit could make it easy for borrowers to take on more debt or take longer to pay off what they owe.

Pros

•   Typically has a lower interest rate than credit cards

•   Funds can be used for a variety of purposes

•   You can access funds as you need them

Cons

•   May be difficult to qualify for an unsecured line of credit with a good interest rate

•   Can be easy to take on more debt or take longer to pay off the balance

Recommended: Personal Line of Credit vs. Credit Cards

Home Equity Loan

If you’re a homeowner and meet certain requirements, you may have the option to take out a home equity loan. This means you’re essentially borrowing against the equity you’ve built in your home.

Like a personal loan, funds from a home equity loan are disbursed in one lump sum, and you owe monthly payments for the life of the loan. Your home secures the loan, and because of that, lenders tend to offer a lower interest rate than they would on most unsecured loans. Interest rates are usually fixed.

It’s worth noting that repayment begins right away, and if you fall behind on your payments, you risk losing your home. In addition, the loan amount is set, so if you need more money, you’ll need to apply for another loan.

Pros

•   Low interest rate

•   Can borrow large amounts of money

•   Funds can be used for a wide variety of purposes

Cons

•   Risk losing your home if you fall behind on payments

•   Repayment begins immediately

•   Loan amount is set

Home Equity Line of Credit (HELOC)

Like a home equity loan, a home equity line of credit (HELOC) is secured by the equity you’ve built in your home, and your home is used as collateral.

One of the main differences is that a HELOC offers a revolving line of credit, which means you can tap into funds as needed and only pay interest on what you borrow. There are usually low or no closing costs involved with a HELOC, and the interest rate is likely to be variable.

There are some potential drawbacks to keep in mind when comparing HELOCs vs. personal lines of credit. For starters, you may have to pay closing costs on the loan amount, though some HELOCs come with low or zero fees. Your interest rate will likely change with the federal funds rate, which means that over time, your monthly payment amount may fluctuate. Also, if you fail to make payments and the loan goes into default, you risk losing your home.

Pros

•   Only borrow what you need

•   Lower initial interest rates than unsecured loans

•   Repayment terms can be flexible

Cons

•   Can lose your home if the loan goes into default

•   Variable interest rates

•   Can be upside-down on your mortgage (i.e., you owe more on your home than what it’s worth)

Retirement Loan

Also known as a 401(k) loan, a retirement loan is a type of loan where you borrow from your retirement account and pay yourself back over time with interest. You can typically borrow against a 401(k), 403(b), or 457(b) retirement plan.

Per IRS guidelines, you can borrow up to $50,000 or 50% of your account balance, whichever is less. Unless you’re putting the money toward buying your primary residence, you have five years to repay your loan and need to make quarterly payments.

Pros

•   Don’t have to go through a lengthy application process

•   Doesn’t impact your credit

•   Loan repayments are automatically taken out of your paycheck

Cons

•   Can’t borrow more than $50,000

•   Missing out on compound interest and growing your retirement funds

•   If you file for bankruptcy, you’re still on the hook for paying off the loans

Peer-to-Peer Loan

Also known as social lending or crowd lending, a peer-to-peer loan (P2P loan) is a financing model where individuals borrow from others through an online platform. In turn, the financial institution is cut out of the picture, and individuals can borrow from individual investors or lenders.

The main draw for lenders is that they might earn more on the interest than if they put their money in a savings account. Borrowers might be eligible for lower interest rates or less-strict lending criteria. What’s more, the funding process is often quicker than going through a bank — an application may be approved within minutes and funds disbursed within a few business days.

Pros

•   Flexibility in how funds can be used

•   Speedy funding process

•   May qualify with fair credit

Cons

•   Often have origination fees (up to 8% of the loan)

•   Might have a higher interest rate

•   Might have late fees

Salary Advance

If you have an urgent financial need or personal emergency, you might be able to get part of your future paycheck now. In essence, it’s a loan from your employer, with the expectation that you’ll pay it back.

Your company might charge a fee or interest rate to cover the extra paperwork and accounting. However, it could be a solid way to pay for an emergency, provided you know the terms, restrictions, and what a salary advance entails.

Pros

•   Easy repayment methods (i.e., funds are automatically deducted from your paycheck)

•   Can provide easy, quick access to funds

•   Interest rates may be lower than other types of loans

Cons

•   Not offered by all employers

•   May need to meet eligibility requirements, such as a minimum number of years of employment and no previous paycheck advance requests

•   Might get complicated if you leave your job and haven’t repaid the advance

•   Smaller-than-usual paychecks could make it more difficult to make ends meet

Mortgage Refinance

A mortgage refinance is when you’re swapping your current mortgage for a new one. There are different reasons why this route might be attractive for you, such as locking in a lower interest rate or a lower monthly payment. With a cash-out refinance, for example, you replace your existing mortgage with a new mortgage for more than the previous balance. You receive the difference in cash.

Pros

•   You can receive a tax break if funds are used for home improvements

•   Can have relatively lower interest rates than other types of financing

•   Can stretch out your repayment period

Cons

•   Can risk foreclosure if you aren’t able to keep up with payments

•   Will need to pay closing costs

💡 Quick Tip: In a climate where interest rates are rising, you’re likely better off with a fixed interest rate than a variable rate, even though the variable rate is initially lower. On the flip side, if rates are falling, you may be better off with a variable interest rate.

Small Business Loan

If you plan on using a personal loan for business-related reasons, you might consider a small business loan instead. There’s no shortage of financing for small businesses, and lenders include banks, credit unions, online lenders, P2P platforms, and loans backed by the Small Business Association (SBA).

The requirements, loan amounts, and options might vary widely among lenders and loan types. But in general, lenders will look at your personal credit score, finances, and debt-to-income ratio. You’re also often required to provide a business plan.

Pros

•   Longer repayment terms

•   Flexible business-related uses

•   Typically have better interest rates

Cons

•   Slower financing times

•   Rigorous documentation requirements

•   Might need to provide collateral

The Takeaway

There are pros and cons of personal loans, so if you decide to explore other funding options, rest assured there’s no shortage of personal loan alternatives. Examples run the gamut from home equity loans and HELOCs to personal lines of credit and credit cards and more.

By knowing what’s out there and weighing the advantages and disadvantages of each, you’ll stand a stronger chance of figuring out what is best suited for your needs, preferences, and situation.

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.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What alternatives to personal loans are the most popular?

The most popular options for personal loans are credit cards, retirement loans, home equity loans, home equity lines of credit (HELOCs), peer-to-peer loans (P2P), and a cash-out refinance.

Each option has its pros and cons and different lending requirements. And each may be better suited for specific borrowers.

Why would you need to use an alternative to a personal loan?

You might need a personal loan alternative if you don’t qualify for a traditional personal loan, or, if, after doing your research, you’ve found that it isn’t the best option for your needs.

Can you use personal loan alternatives even if you have a personal loan?

Yes, you can use personal loan alternatives if you currently have a personal loan. However, if you have multiple loans, it’s important to ensure you can keep up with the payments.

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Photo credit: iStock/zamrznutitonovi

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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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.

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