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First you take out a credit card because it has a great airline rewards program. Then you take out a card because it gives you a fabulous discount at your favorite retail spot.

Maybe you had some bills you couldn’t pay off right away, and so you decided to open up another card to cover those costs. And on and on you went, until suddenly you have a wallet full of credit cards—and a hard time keeping track of them.

If you find yourself in this situation, you may want to stop and assess to be sure you haven’t set yourself up to overspend, forget to make payments, and run up a heap of credit card debt. Consolidating your cards can sometimes provide a solution, allowing you to ditch keeping track of your excess cards and focus your energy on just one bill.

How Credit Card Consolidation Works

Credit card consolidation is the practice of combining your credit card balances with one new loan from a financial institution or another credit card company. Ideally, the new loan or credit card consolidation terms will allow for multiple credit cards—perhaps some with sky-high or variable interest rates—to be consolidated with one loan, ideally at a more manageable interest rate.

If you’re not quite sure how that could help your debt management, think of it this way: We all have that one closet or drawer that is just filled to the brim with random stuff—knick-knacks, boxes, childhood toys, and clothes that you just don’t have room for. It gets so bad that either you’re too afraid to open your closet, or the closet is so full that you physically can’t open it.

That closet represents your credit card debt. You might have one, two, three, or four or more cards—and you may even be making minimum payments—but with so many cards to juggle, you may not be paying attention to details on the bill, like how much interest and fees you’re accruing.

It may seem easiest to put this debt out of sight and out of mind. This feeling is understandable; credit card debt can be overwhelming to the point that it seems easier to just keep the closet door closed.

When you consolidate your credit cards, instead of having to remember multiple payment deadlines (and accruing multiple separate fees and interest balances), you’ll only have one payment.

Not only is debt easier to manage and pay off when you only have one loan, consolidating your credit card debt may mean that you could also get a lower interest rate, which may help reduce how much you pay over the long-term.

This factor may be especially helpful considering that the average credit card interest rate hovers around a whopping 17%.

Here’s a look at some of the common methods you may consider using in order to consolidate your cards.

Consolidating with a Credit Card Balance Transfer

One common way to consolidate your credit card debt is with a credit card balance transfer that puts all of your credit card debt onto one new card. In fact, many credit card companies will offer low interest—or even 0% interest—transfers for a certain period of time to encourage you to use a balance transfer for consolidation.

However, if you’re considering this route, there are a few things to remember. First, as mentioned, the low or 0% interest rate may only be introductory rates, which means you’ll have a limited amount of time to take advantage of them.

After the introductory period, rates my skyrocket, perhaps becoming even higher than your interest rates from before. So, this strategy may work best if you have a manageable amount of debt and could pay it off within the introductory period or shortly thereafter.

You may also have to pay a balance transfer fee, which may be a fixed fee or a percentage of the amount that you owe. If you carry a high balance on your cards, this fee could be prohibitively expensive.

Additionally, new purchases on this card may not be treated the same way as your transferred debt. For example, you may have to start making interest payments on new debt immediately.

Using a Debt Consolidation Loan

Your bank may offer a specific debt consolidation loan that allows you to corral your credit card debt—and even medical debt or personal loan debt—under one loan. One single loan can simplify your payments, and may even carry a lower interest rate than your credit cards.

As with credit card balance transfers, beware the teaser rate with these loans. Low interest rates may only last a short period of time before your bank hikes your interest rate. Consider the cost of fees to take out the loan as well.

Another important factor to consider is the term of the loan. While your interest rates may be lower, the length of time over which you’ll be paying may actually increase the amount of money you pay over time.

Taking out a Personal Loan

You may also want to consider a personal loan to help you consolidate your debt. Banks and lenders typically offer these unsecured loans. Interest rates may be lower than those you are currently paying, but you may want to consider that, depending upon your credit history and the lender’s criteria, the lowest interest rates may not be offered to you. Also, personal loans may come with origination fees, which may be between 1% and 8% of your loan.

Potential Benefits of Credit Card Consolidation

Credit card consolidation is an option to help make your debt more manageable. While it won’t magically whisk away your debt, better terms may give you the confidence, organization, and time you need to get rid of it altogether.

A credit card consolidation loan may help you pay the debt off sooner, or at a lower interest rate, and give you emotional and financial relief.

And because with consolidation all of your debt will be combined into one new loan, you’ll only have to remember one payment deadline, helping to reduce the likelihood of late payments and fees.

Unlike filing for bankruptcy or defaulting, although credit card consolidation may have an initial negative effect, if you do pay off your debt you may be able to raise your credit score in the long run. It may provide you with a tangible solution to tackle your credit card debt head on.

Should You Consider Credit Card Consolidation?

If you have a large amount of high-interest debt and want a simple, more streamlined way to manage your credit card payments, you may want to consider credit card consolidation via a fixed-rate, unsecured personal loan.

Understanding whether this is the right avenue for you also depends on your personal financial situation. Here are a few hypotheticals:

You…

Have a plan to pay off your debt.

Is credit card consolidation right for you?

Credit card consolidation isn’t a quick fix. It typically works best if you have a long-term debt management plan that includes budgeting and a plan to cut spending.

You…

Have manageable debt.

Is credit card consolidation right for you?

One possible way to figure out if your debt is manageable is if you answer “yes” to either of the following questions: Can you pay off your debt in five years? Is your debt less than half your yearly income?

You…

Are serious about paying off your debt.

Is credit card consolidation right for you?

Sometimes credit card consolidation can boost your confidence a little too much, resulting in a more relaxed approach to debt payoff. You can potentially avoid this pitfall by taking your debt payment plan seriously and committing to making the necessary payments (at least the minimums) each month.

You…

Can pay off your credit card debt in six months or less.

Is credit card consolidation right for you?

Probably not. If you can pay off your debt that quickly, then the savings you’d receive from consolidating your credit card debt would likely be minimal.

Potential Cons, and Other Factors to Consider

When you consolidate your credit cards, it’s easy to feel like you have a new lease on life. But in taking out a consolidation loan (or balance transfer), you are still taking on debt and will still need to make payments on time to avoid late fees and damaging your credit. Avoid simply kicking the proverbial can down the road by making a plan to pay off your new loan.

Lenders take your credit history, income, and other factors into account when considering you for a personal loan to consolidate your credit card or other debt.

If you’ve been making on-time payments, meet income criteria, and have a credit history that meets the lender’s eligibility requirements, then consolidating your credit card debt might be worth looking into. The sooner you can set yourself up to pay off your debt successfully, the better (generally), and credit card consolidation can be one way to go about it.

With a SoFi personal loan, you can check your rate and terms without affecting your credit score1 and if you like what you see you can apply to consolidate your credit card debt into a new loan with no origination, prepayment, or late fees—and that could help give you that confidence, organization, and time you need to get a better handle on your debt.

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.

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 .

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’re trying to pay off debt, you’ve probably looked into the variety of options that could help. If so, you’ve likely come across debt consolidation programs—and may be wondering what they are.

Debt consolidation programs can help borrowers who may be overwhelmed by debt payments by combining multiple loans into a single payment. Typically these programs are offered by credit counseling organizations. These organizations may offer guidance and financial planning in addition to helping consolidate debt.

A reputable credit counseling organization will likely incorporate guidance to help with managing debts, along with providing educational material, workshops, and other ways to help borrowers work to develop a realistic budget.

A legitimate debt consolidation program should feature counselors who are certified and trained in offering advice on consumer finance issues in order to create a personalized plan, whether it’s to address credit card debt, bad credit, or other needs.

Consolidating debt typically results in a refinanced loan, with a lower or more manageable interest rate and modified repayment terms.

According to the Federal Trade Commission , it is recommended to find a local debt consolidation program offering credit counseling in person.

You may find these accredited, nonprofit programs are offered through channels like credit unions, universities, religious organizations, military bases, and U.S. Cooperative Extension Service branches .

(It’s important to note that everyone’s debt payoff needs differ, so your mileage may vary.)

What Is a Debt Consolidation Program?

Debt consolidation programs can play two roles. For one, they help borrowers combine multiple loans into a single payment, which can make repayment less overwhelming. For another, they act as credit counselors.

With tools for loan repayment strategies and debt management, they can help lower and/or simplify monthly debt payments. These types of programs are usually managed by credit counseling companies.

It’s good to note the difference between debt consolidation programs and an actual loan opened to consolidate debt.

Qualifying consumers can use a debt consolidation loan (typically an unsecured personal loan) to combine multiple debts into a new single loan as well, possibly with a lower interest rate. But there is no counseling offered during the loan application process, and paying down the debt remains entirely the burden of the borrower.

The services outlined above can make a debt consolidation program different from other methods of consolidation or interest reduction, such as a balance transfer for a credit card, or a personal installment loan from a banking institution or lender.

Keep in mind that debt consolidation is also different from debt settlement, which is a process used to settle debts for less than what is owed.

When enrolled in a debt management program, which is one part of a debt consolidation program, a single monthly payment is sent to the credit counseling agency, which then distributes an agreed-upon amount to each credit card or loan company. The goal of the program is to act as an interlocutor for the debt between the borrower and creditor.

While most debt consolidation program companies are nonprofit organizations, nonprofit status does not guarantee services are free, or even affordable.

These organizations can, however, reach out to the lenders on behalf of the borrower to find an affordable repayment plan, which could take shape in the form of waived fees or penalties, lowering interest rates, in exchange for a specific timeline of usually three to five years for the debt(s) to be repaid.

These programs are not loans, which would come from financial institutions. Perhaps most importantly, debt consolidation programs do not make any promises to reduce the amount of debt owed.

Those are debt settlement programs, run by outside companies who negotiate payments with creditors, and can be for-profit, predatory, or may not act in the best interest of the borrower.

A debt management program, on the other hand, could help set borrowers up for future success, when it comes to how to budget and manage money, educating consumers about cutting expenses or ways to increase income in order to gradually eliminate debt.

Pros and Cons of Debt Consolidation Programs

Debt consolidation is typically most beneficial to those struggling with high monthly debt payments. Paying just the minimum balance on debts every month means it could take a long time to pay off the debt, and interest costs could continue to add to the balance. Getting rid of high-interest debts can help make it easier to pay off the principal amount of the loan.

While having a lot of debt is certainly stressful, it’s worth weighing the pros and cons of any debt consolidation program before signing up. Here are some pros and cons to ponder:

Pros
•   Multiple payments are combined into one payment, likely making it easier to pay on time.
•   Credit counseling could help a borrower get back on track with tools like budgeting and other financial advice.
•   Some programs can help negotiate lower interest rates, fees, possibly creating a more affordable payback plan. (Note: Because lowering interest rates may extend the amount of time borrowers would pay their debt off, they may end up spending more on interest in the long run.)

Cons
•   Debt consolidation programs do not reduce the principal amount of debt owed.
•   Can easily be confused for more predatory programs offered by some debt consolidation settlement companies.
•   Some programs might charge fees.

Many of the legitimate counseling companies tend to follow a similar setup process, which typically includes an interview with a counselor to go over things like income, expenses, and current bills and loans. The counselor might suggest areas where spending could be reduced and offer educational materials.

The program may also help set up a budget and will send the proposal out to creditors to agree to any new monthly payments, fees, payment schedules, interest rates or other factors, Reputable programs should only charge for set-up and a monthly fee.

It is generally recommended to take extra care with any for-profit organizations requiring a lot of upfront fees, memberships, or fees for each creditor they work with on negotiation.

There is no magic pill to reduce debt, so spending less and budgeting more have been key pillars of a healthy financial foundation.

No company should promise a quick turnaround for becoming debt-free overnight. Historically, credit repair has been a market tainted by fraud, so it’s recommended to tread carefully and do the research before signing on to any program.

Selecting a Debt Consolidation Program

One common and simple way to sign up for this type of debt management program is to contact a reputable nonprofit credit counseling agency. The U.S. Department of Justice offers a list of approved credit counseling agencies by state.

Along with ensuring the agency you’re considering is on this list, you may want to consider doing further research by asking your state attorney general and checking local consumer protection agency websites.

Debt settlement companies often try to sell themselves as the same service, so be wary and check to be sure the organization is offering financial counseling and not making promises to reduce the amount of debt owed.

Based on the interview and assessment of current income and debt, the counselor could either recommend a debt management program, or another solution which could be a personal loan, bankruptcy, or some other form of settlement.

The company should not promise any sort of quick fix or short-term solutions.

The National Foundation for Credit Counseling is responsible for certifying many of these counselors, who must complete a comprehensive training program certifying them to help and educate consumers regarding their finances.

Because most nonprofits are certified, it helps to read consumer reviews of these programs as well, to see how the company operates.

The next step is to check what services are offered and what fees will be charged, such as an initial sign-up fee and recurring monthly fee. Understanding the costs upfront is important, and can help someone avoid a possibly predatory, for-profit business.

Something else you may think to look out for: A settlement company may charge more fees initially on the promise to arrange a reduced lump sum payment of debts.

These companies often instruct consumers to stop making payments entirely on their debt, which could affect credit rating and even may cause the creditor to send the debt to a collection agency. A legitimate program should offer financial advice and counseling on ways to help reduce debt.

Paying Off Debt Independently

Rather than looking into a debt consolidation program to alleviate unwieldy monthly payments, one alternative worth considering is an unsecured personal loan, which could help reduce the overall amount of interest payments and possibly save money on interest in the long run.

While a personal loan doesn’t normally come with the counseling services offered by some consolidation programs, SoFi members also get access to complimentary appointments with SoFi Financial Planners.

This service for SoFi members can cover some of the ground offered by the certified debt counselors under the debt consolidation programs, with an initial call to talk about goals and personal finances.

The SoFi Financial Planner may cover things with members like take-home pay, monthly budgets and spending, loans and debt, and savings, and come up with some next steps.

By consolidating high-interest debt into one lower-interest personal loan, borrowers might find having a fixed monthly payment is a simpler way for them to manage debt. For someone interested in debt consolidation loans, SoFi personal loans offer various term lengths, and come without fees—unlike many debt consolidation programs.

Consolidating your debt with a personal loan can potentially allow you to pay off your debt at a lower interest rate. An unsecured personal loan could make it easier to focus on just paying down the one loan, with a single monthly payment at a fixed rate and payment amount.

Financial wellness can start with having a plan to be debt-free, and debt consolidation, whether through a certified program or a personal loan, can be one place to start.

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 .

SOPL20004

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.

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’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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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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