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Ideally, you would never carry credit card debt, and you’d pay off your statement balance in full every billing cycle, by the due date. Unfortunately, that doesn’t always happen. Emergencies come up. Budgets get derailed.
If you’re having trouble paying off your credit cards, know that you’re not alone.

According to the New York Fed, as reported by NerdWallet, Americans carried an average revolving credit card debt of $6,849 at the end of 2019.

It’s not necessarily a problem to have a balance on your credit card—as long as you pay it off every billing cycle. In fact, using credit cards for rewards or to build credit can be a financially healthy choice. And getting into the habit of paying off your statement balance in full by the due date is important.

But if you start to carry a credit card balance, you’re not just paying for your purchases, you’re paying hefty interest charges on top of what you’ve spent. In fact, the average household with credit card debt paid $1,162 in interest in 2019 .

The problem is when you don’t completely pay off your credit card balance each cycle, the debt can quickly pile up, even if you’re making the required minimum payments. Understanding how credit card interest and penalties compound can help you understand how to reduce your credit card debt.

How Credit Card Interest, APR, Works

When you applied for a credit card, you likely read about the fees, terms, and annual percentage rate. The APR, which for credit cards is usually stated as a yearly rate, is the approximate interest percentage you will pay on balances not paid in full by the statement due date. APRs vary across credit cards and depend on your credit history, but on average, credit card APRs range from around 13% to 23% .

Most credit cards charge compounding interest, which means that you end up paying interest on the interest you accrue. Essentially, if you don’t pay your statement in full each billing cycle, interest is calculated continually and added onto your balance, which you then also pay interest on (in other words, it compounds).

For example, if you owe $100 and your interest is compounded monthly at 10%, then after the first month you’d owe $110. And after the second month, you’d owe $121.

Most credit card interest is compounded daily, so every day you owe money after the due date, the interest climbs. It’s easy to see how compounding interest can add up.

Interest compounds even if you make the minimum payments. That’s because if you just pay the minimum amount due on your monthly credit card bill, then the remainder of the debt still accrues interest, and it compounds until you pay the balance off completely.

If you are wondering how much interest you could pay on your debt, you can take a look at SoFi’s Credit Card Interest Calculator to find out.

What Happens When You Stop Paying Your Credit Card?

Unfortunately, you can’t just ignore credit card bills until they go away. If you stop paying your credit card, your balance can inflate quickly.

If you miss a payment or don’t make the minimum payment due on a bill, you will typically face a late fee or penalty. In addition, the amount you still owe on the credit card—whatever you haven’t paid—continues to accrue interest, and that gets added onto future bills.

If you miss more than two payments, then your interest rate will likely increase to a higher penalty interest rate . And once your credit card interest rate goes up to the penalty rate, it usually stays there until you make at least six on-time payments. Those details are laid out in your credit card contract, even if you didn’t read all the fine print.

If something does come up and you know you’re going to be late on a credit card payment, you should consider contacting your credit card company. Some credit card companies may offer plans to allow you to pay off just the interest or a portion of the payment due.

These options aren’t ideal, since the remaining debt still accumulates interest, but it may allow you to avoid having a delinquency on your credit report. After 30 days of being delinquent on credit card payments, you’ll be reported to all three major credit bureaus—and will be again, every 30 days thereafter, if you still haven’t paid.

As accounts become more and more past due, more fees can rack up and/or the credit card company could offer a settlement, or they could attempt to get a judgment against you for the total amount owed. They could also sell your debt to a collection agency as you get closer to the 120 days late mark.

To sum up: even if you always make the minimum payment due, if you’re not paying off the full credit card debt, then the remainder will accrue compounding interest. That can still add up, and the debt can start to feel insurmountable. But there are ways to lower your interest rate and get rid of your credit card debt before it ever spirals totally out of control.

Getting Ahead of Credit Card Debt

While it can seem like a steep, uphill climb, getting out of credit card debt is possible. It might take some serious planning and commitment, but with the right tools, it’s an achievable goal.

Sometimes it can help to break it down into smaller steps so the process doesn’t seem as overwhelming. Here are some ideas for getting ahead of credit card debt:

Limiting the Use of Credit Cards

If you’re carrying credit card debt, you can try to avoid using the card while you’re getting the balance under control. Eliminating the use of your credit cards can be challenging.

Using credit cards means you’re still adding to your overall debt total, which can make it feel like you’re constantly treading water to stay afloat, instead of making progress toward eliminating your debt. One way to avoid this is to limit the use of your credit card while you take control of your debt.

Budgeting for Debt Repayment

To get serious about repaying your credit card debt, create a plan that will help you get there. One place to consider starting is revamping your budget. If you don’t have one, you may want to think about making one.

If you do have a budget, but it’s currently gathering digital dust in a spreadsheet or going unchecked in an app, it may be time to update it. Tallying up your monthly expenses and your monthly income is a good first place to start.

If you’re budgeting with a partner, including their information as well may help your budget realistically reflect your household finances. Then comes the hard part. What patterns do you see when you look at your spending habits?

To eliminate your credit card debt you may have to make some changes to your regular spending. Identifying areas where you can cut back may help you see those trouble spots. Are impulse orders on Amazon dragging you down? Overspending on new clothes? Food? Whatever it is, understanding your spending vices can help you get them under control.

As a part of this improved (or new) budget, detail your plan for reducing your debt. There are a few strategies, including the “debt avalanche” and the “debt snowball” methods.

In order to accelerate the debt repayment process, both methods encourage debt holders to overpay on certain debts each month, while making the minimum payments on all other debts.

The main difference is how each strategy organizes the debts. In the debt avalanche method, the debts are organized by interest rate. The idea here is to focus on the debt with the highest interest rate. When that debt is paid off, you’d roll the payment previously allocated to it into the payment for the debt with the next highest interest rate. You’d do this until the debts are repaid completely.

In the debt snowball method, the debts are organized by balance amount. Here, efforts are focused on the debt with the smallest balance. When that is paid off fully, payments previously allocated to that debt are rolled into the debt with the next smallest amount. Continue until all the debts are paid in full.

Both strategies have pros and cons, so consider which method you’ll be most able to stick with and create a strategy that will work for you.

Finding Help (If You Need It)

If you’re still struggling with credit card debt, consider getting help from a qualified professional. A debt or credit counselor may offer resources to put you in a better position to repay your debt. They may be able to offer personalized advice or help you create a plan to achieve your goal.

How Do You Lower Your Credit Card Interest?

In addition to crafting a debt repayment plan, if you’ve accumulated a large amount of credit card debt, then it might make sense to consolidate it all with a lower-interest loan or credit card.

Balance transfer credit cards allow you to transfer your credit card debt onto a lower-interest or no-interest card, usually for a promotional period of six to 12 months, and then pay off that card.

However, these cards often come with fees and a much higher interest rate that kicks in after the promotional period has ended. So essentially, you may be setting yourself up to face the same problem all over again unless you can pay off your debt within the promotional period.

Another option is to take out an unsecured personal loan with (ideally) a lower interest rate. Essentially, you’d use the personal loan to consolidate and/or pay off your credit card(s) balances, and then you’d pay off the personal loan.

You could choose a fixed interest rate on most personal loans, which means the interest won’t compound and the rate won’t change over the life of the loan. Personal loans just require you to make one simple monthly payment, over a set period of time (no revolving debt here); you can typically work with the lender to find a repayment timeline that works for you.

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.

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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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’re having trouble getting out of credit card debt, you’re not alone. According to the Federal Reserve Bank of New York’s Center for Microeconomic Data , household debt is higher than ever before. In the last quarter of 2019, household debt increased by $193 billion (1.4%). This marked the 22nd quarter in a row that household debt increased.

The current total is $1.5 trillion more than the country’s previous household debt peak in the third quarter of 2008. And credit card balances increased by $46 billion.

While these statistics provide a snapshot-view of what’s happening in many households across the United States, what probably matters most to you is finding ways to manage your own debt. To help, this post will provide some answers to frequently asked questions about credit cards and associated debt.

What Are (some of) the Benefits of Having a Credit Card?

There are a variety of advantages when it comes to credit cards, including that you:

•   don’t need to carry as much cash with you
•   can track your purchases
•   can make larger purchases
•   can benefit from reward programs and other discounts
•   can build your credit score with responsible use
•   have access to emergency funds when needed
•   can use your card to secure a hotel room, rental car, and so forth

Although this is not intended as a complete list of benefits, and credit cards are not for everyone, it does contain many of the significant advantages of having a credit card.

What Are (some of) the Disadvantages of Having a Credit Card?

Although the convenience of credit cards is significant, it’s possible for these cards to become a little bit too convenient. Some people believe that as long as they can make their minimum monthly payments on their credit card debt, they’re in good financial shape. In reality, though, making minimum payments isn’t usually enough. Typically, it can cause debt to increase because of compounding interest.

For example, let’s say you’ve got a balance of $5,000 on your credit card; the interest rate is fixed at 16.71%, and you’re paying $100 monthly. At that pace, it would take you five years-plus to pay off your original debt of $5,000, with an additional $3,616 in interest alone. That’s a simplified hypothetical, but if you’d like to get an idea of how much you may be paying back on your own credit card debt, you can use SoFi’s credit card interest calculator.

Another disadvantage of credit cards is that your account numbers can be stolen, leading to potentially serious identity theft problems. Plus, these thieves can use your account information to rack up charges and it can be a real hassle to address this issue.

Choosing the Right Credit Card for Your Situation?

Those who use a credit card responsibly might find it worthwhile to check around to find a card that offers the rewards they’d use and benefit from. These rewards can include frequent flyer miles, loyalty points, cash back, and so forth.

If you don’t typically pay off your balance in full each billing cycle, however, then credit card rewards might not be worth it since they typically have higher rates or annual percentage rates (APRs).

If you often carry a balance on your credit cards, then it could make sense to shop around for the best interest rate. These cards probably won’t have all of the extras that come with reward cards, but they could help you accrue less interest.

If you’re just building your credit or need to repair your credit score, a secured card may be worth considering. This functions like a typical credit card except that you’d need to put a deposit into the bank to serve as a backup.

If you close the account with your credit in good standing or you improve your credit to the degree that you’d qualify for an unsecured credit card, then the deposit is returned.

As another option, you can load a prepaid credit card with a certain amount of money, through cash, direct/check deposits, or online transfers from a checking account. You can use that card until the funds are used up.

Although this can make sense in certain circumstances, perhaps because of a challenging credit history, this type of card doesn’t help you to build or repair credit, and can come with plenty of fees.

Fees for prepaid credit cards can include a monthly fee, individual transaction fees, ATM fees, reload fees, and more. If you go this route, compare options to get the best deal.

Here’s the bottom line on this FAQ. What’s most important is to find a credit card that dovetails with your needs and usage patterns.

Using a Balance Transfer Credit Card

Balance transfer cards can allow you to consolidate your credit card debt onto a card that, for an introductory period, comes with a low or zero-interest rate. Sometimes, these low-to-no-interest credit cards make good sense.

For example, if you have a balance on a high interest credit card and you are anticipating a bonus or tax return in a couple of months, then it can make sense to pay off the high interest card with a zero-interest one, and then pay off that credit card with your bonus or tax return before the introductory period is up.

Or, if you want to make a larger purchase and have planned your budget in a way that allows you to pay off the balance during your zero-interest period, that might also work out well.

Problems with no-interest credit cards can include that, if you don’t pay off the balance in your introductory period then the card reverts to its regular interest rate that can be quite high. Plus, in some cases, if you don’t pay off the entire balance within the introductory period, you’ll owe interest on the original balance transfer amount.

Sometimes, there are balance transfer fees that can make this strategy more expensive than if you hadn’t transferred a balance in the first place.

If you have outstanding credit card debt that you aren’t paying in full each month—and if a balance transfer credit card doesn’t seem like the right strategy for you—here’s another idea to consider: a credit card consolidation loan.

What Is a Credit Card Consolidation Loan?

A personal loan, sometimes referred to as a credit card consolidation loan, is an unsecured installment loan with fixed or variable interest rates. It is ideally repaid in the short term (e.g., three to five years), and it can be used to consolidate credit card debt and hopefully offers a lower interest rate than your current credit card(s)interest rate. Your loan payments include both principal and interest.

OK, a credit card loan’s correct name is a credit card consolidation loan, which is just another name for an unsecured personal loan. How is a personal loan different from other types of loans?

A personal loan is an unsecured loan. Unlike a mortgage, there is no collateral attached to or “secured” for a personal loan. For example, if you take out a mortgage loan, your home becomes the collateral for your mortgage. If you default on your mortgage, your lender can then own your home.

With most personal loans, there is no underlying collateral required. When a loan has no collateral, it means it’s unsecured. Since the lender assumes more risk with an unsecured loan (given there isn’t a home to repossess should a borrower default), the interest rate on a personal loan is usually higher than the interest rate on a secured loan.

Considering a Personal Loan?

If you have credit card debt and want to lower your monthly payments and get a better interest rate than you currently have, a personal loan can be worth considering, since it can enable you to consolidate your credit card debt. Instead of paying off multiple credit card balances, consolidating your credit card debt into a personal loan means you can just make one convenient monthly payment.

Over the last year, the average credit card interest rate has hovered around 10% is just a small bump, however, and taking on more debt is not typically ideal—especially if you start adding to the credit card(s) balance(s) you zeroed out with a personal loan. . Personal loans can come with lower rates, especially for borrowers with strong credit histories and income, among other factors that vary by lender.

Credit scores are typically one of the main factors considered by lenders when reviewing applications for personal loans. So, it can make sense to know your score before you apply; in general , a FICO® Score between 740-700 is considered “very good” while 800-850 is considered “exceptional.” .

To get a rough estimate of how much you might be able to save by consolidating your credit card debt with a personal loan, you can take a look at SoFi’s personal loan calculator.

In sum, a personal loan can help you by offering a lower interest rate than what you have for your existing credit card debt. The interest rates on personal loans are often much lower than the interest rates on credit cards.

This means that if you consolidate your credit cards into one lower-rate loan, for short and fixed term, you could reduce the total interest you’d pay on the debt and have an opportunity to pay off your debt more quickly.In some circumstances, adding a personal loan could also be beneficial for your credit score.

Why? Because having a mix of credit types can help your score; with the FICO® Score, for example, your “credit mix” accounts for 10% of your base score—and, if you consolidate your credit card debt (considered “revolving” credit) with a personal loan (“non-revolving” credit) and you keep your credit card open, you now have a mix of revolving and non-revolving forms of credit.

10% is just a small bump, however, and taking on more debt is not typically ideal—especially if you start adding to the credit card(s) balance(s) you zeroed out with a personal loan.

Borrowing a Personal Loan

Applying for a personal loan with SoFi is typically a simple and fast process. Loan eligibility takes into consideration a few different personal financial factors, including credit history and income . If you’re interested in applying for a personal loan with SoFi, you can review the eligibility requirements for more information—and see your rates in just two minutes, before you even apply.

SoFi offers loans up to $100,000 with low fixed interest rates, no prepayment penalties and no fees required. SoFi also offers unemployment protection to qualifying members who lose their job through no fault of their own. If you have questions while applying for a loan online, you can contact SoFi’s live customer support 7 days a week.

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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.

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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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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When a person takes on debt—whether it’s a student loan, mortgage, car loan, or credit card balance—they’re likely paying interest on that debt. This is a charge paid to the lender for the opportunity to borrow money. But interest rates aren’t all created equal.

In some cases, borrowers could find themselves stuck with high-interest debt, which can add up faster than they may realize. If you happen to be stuck with high-interest debt, don’t despair. The worst thing a borrower can do is ignore the situation and fail to make payments.

A borrower may have options for lowering interest rates and getting payments under control. Depending on the type of debt, that could mean consolidating debt, or perhaps even taking out a personal loan. Here’s what a borrower could do if they’re struggling with high-interest debt:

Identifying High-Interest Debt

The first step to tackling high interest debt is figuring out if you have it. Inputting every debt currently owed into a spreadsheet might be a good start. In the first column would be the current amount owed on each debt. In the next column could be the annual percentage rate (APR) for each debt. Then, the debts can be sorted from the one with the highest interest rate to the one with the lowest interest rate.

How High-Interest Debt Can Dent Finances

High interest rates can be sneaky. A borrower may have taken out a loan without paying close attention to the fine print. They may have signed up for a credit card with a 0% introductory interest rate, only to have the rate shoot up after the introductory period. Or they may have opted for a loan with a variable interest rate, which often starts out relatively low but can increase dramatically over time.

High-interest debt can seriously hurt finances. By sucking up any extra cash and increasing debt-to-income ratio, it can potentially prevent someone from achieving certain life goals, such as buying a home, saving for retirement, or traveling. If payments become unmanageable, a borrower may risk going into default, which could set them up for a hit to their credit score or even bankruptcy and garnished wages.

Options for Handling High-Interest Rates

Depending on the type of loan, here are some options for tackling those high-interest rates:

Student Loans

Whether it’s federal or private student loans, a borrower might be able to get a better interest rate if they refinance those loans, especially if they have a good credit score and solid income (among other factors that will vary by lender). Refinancing means consolidating all student loans—both private and/or federal—into a new loan with a (hopefully lower) interest rate through a private lender.

Keep in mind that refinancing federal student loans with a private lender means they will no longer be eligible for federal loan protections and perks like deferment or forbearance and income-driven repayment plans. So student loan refinancing won’t be right for everyone.

Credit Cards

Credit cards usually have the highest interest rates of all unsecured debt types—as of March 2020, the average APR for credit cards is above 21% . Borrowers who are stuck with a high balance on a credit card plus a high rate might want to consider a personal loan to pay it off.

An excellent credit score and steady employment might help a borrower qualify for a low-rate personal loan. Choosing a lender that doesn’tabove 21%
t charge origination fees or prepayment penalties could help to avoid extra charges.

Fixed (hopefully much lower) interest rates compared to credit cards and set repayment terms typical to personal loans can be helpful when looking for relief from the high-interest credit card debt burden, too.

Mortgages

If average mortgage interest rates have fallen, it may be a good idea to look into refinancing a mortgage. If eligible for mortgage refinance, a borrower may be able to lower their interest rate or pay off a mortgage faster. Shopping around for the best rate and considering lenders with cash-out refinancing options might be a good start.

Common Debt Repayment Strategies

No matter the interest rate, it’s often in a borrower’s best interest (get it?) to pay down debts in an effort to lead a debt-free lifestyle. Of course, if multiple debts are looming, it can be an overwhelming challenge to tackle.

Instead of giving up and declaring debt unconquerable, a borrower can follow one of the common debt repayment strategies listed below.

The Avalanche Method

With the avalanche method, a borrower can review the debt spreadsheet mentioned above to identify high-interest debts. While making minimum payments on all debts as required, a borrower can funnel extra money toward the debt with the highest interest rate first until it’s paid off, and then allocate that extra money to other debts in subsequent order of interest rate until those are paid off.

The logic behind this method is that, by saving money on the high interest rates, it should be easier to pay off lower-interest debts (and meet other financial goals) more quickly, even though the highest-interest debt may not be the loan with the largest balance. And while that’s a solid strategy, there is another common method that might sound better. (Yes, it also has a snow-related metaphor.)

The Snowball Method

The debt snowball method is another popular debt repayment strategy, but this one takes a different tack than the avalanche method above. Whereas the avalanche starts with the highest-interest loan, the debt snowball starts with the loan with the lowest total balance.

For instance, if a borrower has a credit card with just a few hundred dollars on it, then they’d start with that before moving onto the bigger debts, like student loans or a mortgage.

The logic behind this method is all about internal motivation. Reaching a money-related goal might make it easier for borrowers to motivate themselves to stick to an overall debt repayment plan. Since a smaller debt is a more manageable goal in the short term, paying off the smallest debt first could be a good way to get the snowball rolling, so to speak.

It might also be a more realistic strategy if a borrower doesn’t have a lot of extra money to throw at making large payments toward the highest-interest debt (but will still make all required minimum payments, of course).

Debt Consolidation: How Does It Work?

In some ways, debt consolidation might sound counterintuitive, because it does involve taking out more debt when a borrower already has multiple existing loans.

Basically, debt consolidation is a debt repayment method in which a borrower takes out another line of credit or debt with the express purpose of paying off existing debts. For example, instead of paying separate credit card bills, a borrower could take out a personal loan that would cover the balances on all other debts and pay them in full, then the borrower would repay only the personal loan.

This could be a significant financial improvement for a number of reasons. For one thing, it’s simply easier on a logistical level: When you’re dealing with multiple debts that are all due at different times of the month, it’s all too easy to accidentally miss a payment and fall behind.

But aside from keeping stress at bay every few weeks, debt consolidation could actually save you money. Let’s take a closer look at the example we outlined above, in which three existing debts are consolidated.

One common way to go about debt consolidation is to take out an unsecured personal loan in an amount that will cover existing debts. (There are other methods, however; for instance, some people perform a balance transfer from existing high-interest credit cards to a new credit card offering a promotional 0% interest rate.)

SoFi offers personal loans with competitive rates and, unlike many other lenders, SoFi loans don’t come with a bevy of hidden fees. That said, debt consolidation isn’t the only option when it comes to finding a way to ease a debt burden. After all, an unsecured personal loan is still a debt, although ideally a debt with better rates and terms than a credit card.

Refinancing

Instead of taking out another line of credit to cover multiple existing loans, with refinancing a borrower is taking out a new loan to cover one specific debt, often a mortgage or a student loan.

The power behind this financial move is pretty simple: If a borrower’s credit score or other qualifying factors have improved since the time they took out the original loan(s), they could be eligible for a loan with a more reasonable monthly payment or a lower interest rate. That could make it easier and/or faster to go through the snowball or avalanche methods described above, or simply to save up more money for other financial goals.

SoFi offers student loan and mortgage refinancing, as well as a broad range of other financial products that could help money woes back on track.

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

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Applying for a personal loan can be a little scary. After all, lenders don’t hand out cash willy-nilly, even when they’re being paid interest.

When applying for a personal loan, you will normally need to show that you have a good credit score and a high enough income to ensure that you’ll be able to handle your monthly payments (among other requirements). It’s good to note that loan qualifying criteria around minimum credit score required and sufficient income may vary between lenders and even loan programs. It is recommended that you do your research to discover which loan program offers the best fit for you.

Luckily, if your credit score isn’t quite perfect or you’re still waiting on that raise, you may be able to leverage a co-borrower to help get the personal loan you want with the repayment terms you need.

Even if you haven’t heard of a loan co-borrower before, you may have already used one. If you, for example, had your Aunt Mavis sign on as a co-borrower with you for a private student loan or as a guarantor for your first post-college apartment, you have seen the power of the co-borrower to help get your loan or lease approved.

Co-borrowers can help you secure a personal loan when your credit or income doesn’t quite match a lender’s requirements. Having a co-borrower might even help you get a more favorable interest rate on your personal loan. Here’s what to know about using a co-borrower to help secure a personal loan.

What Is a Personal Loan, Anyway?

Before we dive into tips on using a co-borrower, let’s take a step back: What is a personal loan and why might you want one?

A personal loan is an installment loan that is typically an unsecured loan. With an unsecured personal loan, you borrow from a lender with the agreement to pay it back, plus interest, in a set amount of time.

Unlike mortgages and auto loans, personal loans aren’t necessarily tied to a physical asset you put down as collateral, which is what “unsecured” means. However, personal loans can be offered as secured loans, so check the details when rate shopping.

Unsecured personal loans tend to carry slightly higher interest rates than secured loans. After all, the lender doesn’t have a secured asset to seize if you default!

Even though unsecured personal loans typically carry higher interest rates than other, secured loans or credit cards, they can be a useful financial tool to help you consolidate existing debts, fund major personal projects, and more.

And when you apply with a co-applicant (who, if you’re approved, would become your co-borrower), you may significantly increase your chances of qualifying, as well as achieving a lower interest rate or more generous loan repayment period.

What Is a Co-Applicant?

A co-applicant is an additional person who applies for a loan with you in order to help you qualify. Similar terms are “co-borrower” or “co-signer” (we’ll get into the differences below) and by having one, you may be able to secure better interest rates and repayment terms.

Whether a co-borrower or co-signer, the additional person’s credit score and financial history is considered along with yours when applying for a loan. That can be a big help if your own credit history is less than perfect, or if you’re young and haven’t had very much time to build up a robust credit score quite yet.

Differences Between a Co-signer and a Co-borrower?

Both co-signers and co-borrowers are considered co-applicants at first, but they serve different purposes. Whether you need a co-signer or co-borrower usually depends on your individual circumstances. Each type of co-applicant has specific requirements and potential benefits.

A co-borrower essentially takes on the loan with you. Their name will be on the loan with yours, making them equally responsible for paying back the loan. Co-borrowers are frequently used in situations where the loan received has benefits for both of you, whether through a business arrangement or a family arrangement.

An example: You and your partner want to take out a personal loan in order to renovate the garage into a nursery for a baby on the way. You may want to apply as co-borrowers for a loan to pay for the contractor. Because both partners’ incomes and credit scores are considered in approving the loan, this may increase your chances of approval and possibly even lower the interest rates you’re offered.

A co-signer, on the other hand, is someone who helps you qualify for a loan, but isn’t your partner on the loan, as in the case of a co-borrower. A co-signer typically is only responsible for making the loan payments if you are unable to make them, but has no usage or ownership rights. However, credit for both co-borrowers and co-signers will be negatively impacted if the main borrower misses payments.

For example, private student loans are often taken out with parents or other family members as co-signers, since most recent high school graduates haven’t built up a significant credit history.

Adding in mom’s or dad’s credit history may help these students qualify for the student loans they need to get started on their college journey, but it does mean putting their parents’ credit reputation on the line if they default.

Considerations when Applying for a Personal Loan With a Co-applicant

The biggest challenge you might face in securing a co-applicant for a personal loan is finding someone willing to sign on the dotted line. After all, if you find yourself unable to repay the lender, your co-borrower will be on the hook for payment.

That’s why many people who are looking for a co-applicant start with parents, siblings, and other family members who they feel comfortable asking. Blood runs thicker than water, after all, and your close family have likely been supporting you in one way or another since birth.

It is recommended that you have a heartfelt, upfront conversation about the responsibilities that come with being a co-borrower and be ready to present your potential ally with your plan for repayment. For instance, a co-borrower is likely to see a negative impact on their credit score if they fail to make a payment. Since a co-applicant becomes a co-borrower once a loan is funded, you’re in this together, so if paying back the loan does not go according to plan, you both would be equally affected.

If you’re looking for a co-applicant, you might already know exactly who you’ll ask. If it is a loan to benefit your family, such as making home improvements, it likely makes sense for your partner or spouse to serve in the position.

As with a co-signer, make sure to talk openly and clearly about the responsibilities that come with being a co-borrower, including the responsibility for making payments.

After you’ve found your co-applicant, make sure to research which personal loans accept co-applicants. Some lenders accept co-borrowers but not co-signers, and some lenders accept both. SoFi does not accept co-signers for personal loans, but will accept co-borrowers.

When Does It Make Sense to Take Out a Personal Loan?

Given the risks that both you and your co-applicant assume in taking out a personal loan, you may wonder if this move is ever financially savvy.

After all, the conventional wisdom is to avoid debt at all costs, and unsecured personal loans tend to carry higher interest rates than loans for which you put down collateral, like a mortgage.

However, personal loans can be a sound financial tactic, for example, for the purpose of debt consolidation. That’s when you pay off multiple existing debts with one larger loan, which can simplify bill repayment and save on interest.

For instance, if you’re making payments on two or three credit cards with different interest rates and different due dates, it might be difficult to keep track of everything—let alone get ahead.

However, taking out one personal loan large enough to pay those debts off, generally means only one monthly payment and one interest rate, which could possibly save you money in the long run as well as making your life a little easier. Personal loans can also help you fund home improvements or even cover unexpected medical bills.

If you qualify to borrow money through a personal loan with SoFi, there are no prepayment penalties or origination fees. And as a SoFi member, you’ll have access to member benefits like career counseling and community events.

Plus, we make it easy to find out if you (and your co-applicant) prequalify online. You’ll fill out a bit of personal information and SoFi will run a soft credit check (which doesn’t impact your credit score1). It takes just minutes to see what you may qualify to borrow and what your interest rate could be.

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.

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

SoFi 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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Imagine this: Your friends text you, let’s go skiing! And you want to say yes. Who wouldn’t want to glide down a mountain and enjoy an apres ski in a cozy lodge? And no worries, you say, I’ll just put it on the card! Or this: Your best friend plans a destination wedding to France.

Of course you’re going to RSVP yes—you couldn’t miss out on witnessing such a momentous day. And hey, when you use your credit card you’ll earn a few rewards.

Or even this: Your little sister needs a dress for prom, and asks if you’ll cover the cost. It’s a once-in-a-lifetime experience, you think as you hand over your card.

It’s easy to say yes in the moment, offer up your credit card, and think about the cost later. But the shock and stress of looking at your credit card statement after a month of spending can be overwhelming. And when your spending goes unchecked or your balance doesn’t diminish, credit card debt can rack up quickly.

When used responsibly, credit cards can provide the opportunity to do things like build credit and earn rewards points or cash back that can be used for other purchases. When used with abandon, however, careless spending on credit cards can lead to debt—which may feel insurmountable.

It’s no secret that credit card debt is a problem that plagues many Americans. According to the Federal Reserve, consumer debt in 2019 exceeded $4 trillion , over $1 trillion of which is credit card debt.

Nearly 55% of Americans who have a credit card are in credit card debt. The average credit card balance during the first quarter of 2019 was $6,028 , according to Experian. That balance can grow quickly, considering that annual percentage rates (APRs) for credit cards can be quite high (the average APR has hovered around 17% for some time).

Common Ways to Deal with Credit Card Debt

If you’re currently dealing with or have dealt with credit card debt in the past, you know how hard it can be to dig yourself out of the hole. While it can feel like an impossible problem to solve, there are strategies and resources available which may put you on a path toward eliminating your credit card debt once and for all.

When taking action on your credit card debt, it is generally recommended to put a plan in place. There are plenty of strategies that are touted for their ability to help you crush debt. Creating a debt reduction plan might provide the structure you need to meet your goal of debt repayment.

For some, the avalanche method, which organizes debts based on interest rate so the debt with the highest interest rate is targeted first, may make the most sense. For others, the built in reward of the snowball method, which targets debts with the smallest amount first may be preferred.

Regardless of the method you choose, it’s considered best practice when using these programs to try and stick with the debt repayment plan you’ve developed unless you see a compelling reason to switch. It can also be an opportunity to check in with your spending to determine what habits have gotten you into debt. You may find you’ll need to make a few changes to your spending habits to truly eliminate credit card debt from your life.

Beyond aggressively making payments on your debt, there may be other strategies worth considering. For some, it may be helpful to find a way to consolidate your credit card debt into better repayment terms.

One option for this is to use a balance transfer credit card. In concept, these are pretty straightforward. Basically, you open a new no- or low-interest credit card and transfer the balance of your existing credit card to it. You’re then able to pay off your debt with a lower interest rate as long as the balance is repaid within the given timeframe.

This, in theory, could put you on the path to pay off your credit cards in a more timely manner because you may not face high interest payments. But the low interest rate on balance transfer credit cards is usually only offered for an introductory period, commonly anywhere between six and 18 months. After that period expires, the rates usually increase.

If you can pay off the balance transfer card before the low initial rate expires, it could be an avenue worth pursuing. However, balance transfers often come with a fee—usually 3% to 5% of the total amount you’re transferring.

If it’s a large debt, you may end up paying a hefty fee, which may make this option a less attractive method. Another option is borrowing a personal loan for credit card debt consolidation. While it may seem counterintuitive to take out a new debt to help get out of an old debt, it could be worth considering.

FAQs: Paying Off Credit Card Debt with an installment Loan

For some, paying off credit card debt with a personal loan (which is an installment loan) might be a helpful strategy for getting out of credit card debt. Here are some commonly asked questions about debt consolidation loans:

Why use a personal loan to pay off credit cards?

If you have a lot of high-interest credit cards, you can rack up debt much more quickly if you don’t pay off the entire monthly balance, which ultimately might hold you back from building a solid financial future.

Carrying a balance from month to month means you’re not only paying for the upfront cost of your purchases, you may also be paying a hefty fee in interest. On average, households with a revolving balance of credit card debt paid $1,141 in interest.

If you’re in this situation, using an unsecured personal loan to pay off credit card debt can be an avenue worth exploring.

Ways to use a loan to pay off credit card debt

Instead of owing money on multiple credit cards, some people take the total amount owed among all their cards, consolidate that debt into a single loan amount to pay off the credit cards. That is what’s known as an installment loan known as a personal loan.

By doing this, you would then start making payments toward one single personal loan instead of payments to multiple cards. The hope would be that the interest rate on the personal loans would be lower than any combined interest rates on any credit cards you might have.

Is using a personal loan to pay off credit cards the right option for you?

Whether consolidating your credit card debt through a personal loan is right for you is based on different factors.

For instance, what are the balances and terms on your current credit card debt vs the terms you could obtain on a new debt consolidation loan? Try utilizing a debt calculator to help you gather some estimated numbers. If you qualify for a lower interest rate, paying off credit debt with a personal loan has a number of potential advantages. For one thing, consolidating or refinancing debt can help simplify your payment plan, turning multiple bills into one.

Taking out a personal loan to pay off debt can be one way to take advantage of better financing terms such as lower interest rates, which could help save you money in the long run.

Benefits of Taking Out a Personal Loan to Pay Off Credit Cards

Debt consolidation loans can be particularly useful for consolidating debt on multiple credit cards that may have less than favorable terms, and it’s easy to see why. Debt consolidation loans can potentially help you streamline your finances. Making a lower fixed payment on a single loan every month may also help reduce the chances of missing payments.

It is worth noting that some credit card interest rates can vary based on factors such as the type of transaction, purchase, or cash advance, whether the rate is fixed or variable, qualifying criteria, and more.

According to Bankrate.com the average interest rate on a variable credit card is running around 17% and sometimes reaching as high as 29.9% APR if you miss payments. One tool to help you understand how much interest you might be paying is our Credit Card Interest Calculator.

Personal loans, on the other hand, can typically be found at a lower interest rate. A lower interest rate could potentially reduce the amount of interest the borrower is required to repay over the life of the loan.

Depending on your circumstances, a percentage point or two off could make enough of an impact on your interest payments to place you on the path to paying off your credit cards in a more timely manner.

When you take out a personal loan it can be used for almost anything that’s a personal expense, such as general consumer/household purpose, home renovations, and debt consolidation; theoretically, you could use a personal loan to pay for anything from a wedding to an elephant (although good luck finding a low APR on that one).

Potential Considerations Before Taking Out a Loan to Consolidate Credit Card Debt

When considering a personal loan, one way to start could be by making a chart of your debts and their respective interest rates, and calculate how long it could take you to become debt-free.

Also, consider whether you have explored all options in determining how best to position your outstanding debt into better financing terms.

Once you’ve done the initial legwork, a good next step is to compare that credit card repayment plan with a personal loan, and see which is better for your budget.

Check the math and review the loan terms and interest rate to confirm you’d actually end up with a preferable repayment plan. For instance, a lower monthly payment might seem great, but if it ultimately extends the length of your repayment, depending on the rate and term, you might end up paying more in interest than you realize.

Consider your current and future financing terms: whether it’s simply peace of mind in the form of one monthly bill, or saving the maximum amount of money, what works best for one person may not be great for you. If you’re still in doubt about how to best get ahead of your debt, consider asking for help from a professional.

Those professionals could offer some valuable insight to help you create a personalized plan that can help you find the best path toward your financial goals, like living in a debt-free future.

Taking an intentional step toward tackling your debt can be challenging, but with a little creativity and discipline, you can work on managing your debt without letting it slow your financial plans for the future.

With SoFi, you may qualify to consolidate your high interest debt into one single unsecured personal loan, with loan amounts up to $100,000 and fixed interest rates with no origination fees or prepayment penalties.

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 .

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

SoFi 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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