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On January 9, 2026, President Trump announced on social media that he is calling for a one-year 10% credit card interest cap to help address high interest rates and make credit more affordable for consumers.

With Americans carrying a record $1.233 trillion of credit card debt, and the average credit card interest rate at 23.79%, the Trump credit card interest cap has generated a lot of attention. It’s also created a lot of debate. While the cap could reduce the cost of borrowing for many consumers and save them money, it may also make credit less available for those who need it most, according to bankers and financial analysts.

In this guide, we dig into the proposed 10% credit card cap to find out how it might work, and the way it may affect consumers, including the potential benefits and drawbacks. Here’s what you need to know about the Trump credit card interest cap and what it could mean for your finances.

What Is the Proposed Trump Credit Card Interest Cap?

President Trump has called for a cap of 10% on credit card interest for one year, beginning on January 20, 2026. That’s far below the average credit card APR (annual percentage rate), which is hovering above 23%.

However, the President does not have the authorization to mandate credit card interest caps on his own — typically, a bill would need to be passed in Congress for such a cap to take effect. While Trump could issue an executive order for the 10% interest rate cap, it’s uncertain whether it would be enforceable. Under the 2010 Dodd Frank Act, which introduced sweeping financial regulations, the Consumer Financial Protection Bureau is prohibited from setting interest rate caps without legislation from Congress.

Notably, there is some bipartisan support in Congress to cap credit card rates at 10%, including a bill in the Senate that was introduced in 2025 by Senators Bernie Sanders (I-VT) and Josh Hawley (R-MO).

How Does the Trump Credit Card Interest Cap Work?

Specific details about the Trump credit card interest cap have not yet been released, but theoretically, it might work something like this: Credit card issuers would not be able to charge more than 10% interest on credit cards for one year, starting on January 20. It’s not clear whether the 10% rate would apply to existing credit card accounts or only to accounts opened after the cap goes into effect.

If Trump’s interest rate cap does apply to existing credit card accounts, it would lower APR on credit cards and possibly allow borrowers to pay off their debt faster, and at a lower rate, which could save them money.

Why Is the Trump Credit Card Interest Cap Being Proposed?

The 10% cap is a way to potentially lower credit card debt. It’s also a means of addressing affordability, which 80% of Americans have indicated is a key concern, according to at least one survey.

Forty-six percent of adult credit card holders carry credit card debt, and many struggle to pay it off. Credit card interest rates have been rising over the past 20 years, adding to the cost burden for consumers.

The average credit card interest rate in the U.S. is 23.79% as of January 2026. If the rate was lowered to 10%, consumers could save $100 billion a year, or almost $900 in interest per person, a 2025 report from researchers at Vanderbilt University found.

For those looking for ways to become debt-free, a lower credit card interest rate could be a helpful starting point.

Recommended: Cash-Back vs. Low-Interest Credit Cards

Pros and Cons of the Trump Credit Card Interest Cap

The 10% interest rate cap proposed by President Trump could provide certain benefits to consumers, but it also has potential drawbacks, according to financial professionals. These are some of the advantages and disadvantages to be aware of.

Example Scenario of the Trump Credit Card Interest Cap

If the 10% credit card cap is enacted, here is an example of how it might impact what borrowers owe.

Let’s say an individual has a credit card balance of $5,000 and an interest rate of 20%. That means they are charged $82.85 in interest per month. If they make payments of $100 monthly, it would take them more than nine years to pay off their debt, and during that time they would pay $5,840 in interest — which is more than their principal balance.

However, if their credit card interest rate was capped at 10%, they would be charged $41.26 in interest per month, pay off their debt in just under five-and-a-half years, and pay just $1,494 in total interest.

As you can see, dropping the interest rate could potentially save consumers a lot of money. But again, it’s not known whether the credit card interest rate cap will apply to existing accounts. In addition, the proposed 10% cap is for one year, according to President Trump. In the above scenario, a 10% interest rate for one year on a balance of $5,000 would save a borrower $495 in interest over the course of that year.

Recommended: Credit Card Promotional Interest Rates

Strategies for Paying Off Credit Card Debt

Whether or not Trump’s 10% cap on credit card interest rates happens, there are techniques you can use right now to help get out from under credit card debt. These are some methods to consider.

•  Pay more than the minimum. When you pay only the minimum amount due each month, interest that accrues on the credit card balance rolls over from one month to the next. If the interest compounds, which is often the case, it’s added to your balance, meaning you end up paying interest on the balance and the interest. One way of avoiding interest on credit cards is to pay off your balance in full each month if you can.

•  Request a lower rate. If you’ve been using credit cards responsibly and your credit is solid, you may be able to get a lower interest rate by calling your issuer and asking for a better rate.

•  Know how your interest rate works. Credit cards may have fixed or variable interest rates. Fixed rates remain the same over time, while variable rates fluctuate based on certain economic indexes. Variable interest rates carry more risk than fixed — the rates can go up, which means your payments rise. Of course, they can also go down, which would lower your payments.

When it comes to choosing fixed vs. variable interest rate credit cards, it’s a matter of personal preference. If you prefer the stability of a known thing, a fixed interest rate is likely the better option for you. If you’re comfortable with some risk in return for a possible reward, you might opt for a variable rate.

•  Make extra payments. Instead of making the standard one payment per month, some borrowers use the 15/3 credit card payment method, which involves making two payments monthly. This strategy can help you pay off debt faster, since you’re making extra payments. It can also lower your credit utilization ratio, which can help a borrower build their credit score.

•  Consolidate debt with a personal loan. How debt consolidation works is that you combine your existing debt into one new loan and use the new loan, which has a fixed interest rate, to pay off your debt.

Consolidating credit card debt by taking out a personal loan could potentially help borrowers get a lower interest rate. The average interest rate for a personal loan for a borrower with good credit is 14.48%, while the average credit card interest rate is 23.79%, as noted above. The lower rate could help you pay down your debt sooner and pay less in total interest.

Recommended: Personal Loan vs. Credit Card

The Takeaway

President Trump’s proposal to cap credit card interest rates at 10% could help borrowers save money on interest and potentially pay off debt faster. But banks and financial analysts warn there might be unintended consequences, such as limiting credit card availability. For now, it’s uncertain whether the proposed rate cap will be enacted without legislation passed by Congress.

In the meantime, there are a number of ways to tackle credit card debt, including paying more than the minimum balance due, making extra payments, requesting a lower rate from your lender, or consolidating debt with a personal loan. Exploring the options and putting a plan in place can help borrowers take charge of their money.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

FAQ

Is Trump trying to reduce interest rates?

Yes, President Trump is trying to reduce credit card rates. On January 9, 2026, he took to social media to call for a 10% cap on credit card interest rates for one year, starting on January 20. It is not yet clear if his proposed interest rate cap will happen.

What is the cap on credit card interest?

Currently, there is no federal cap on general credit card interest rates. Rates are set by lenders based on such factors as a benchmark rate called the Prime Rate, and a borrower’s creditworthiness. That said, there are a couple of exceptions: Active military service members and their dependents have their credit card interest rates capped at 36%, and federal credit union members have their rates capped at 18%.

President Trump has proposed a one-year 10% cap on credit card interest rates to begin on January 20, 2026. It’s not yet known whether his proposal will take effect.

What is the maximum interest rate allowed on a credit card?

Generally speaking, there is no federal interest rate cap on credit cards, and no such thing as a maximum interest rate allowed. However, rates are capped for active military service members and their dependents at 36% under the Military Lending Act. In addition, federal credit unions must cap their rates at 18% for their members.

Is 30% interest rate legal?

Yes, 30% interest rates are legal for credit cards because there is no federal law that sets a cap on these rates. While many states do have interest rate caps, these laws often don’t apply to credit cards, or there may be certain exemptions for the institutions that issue credit cards.

Is there a legal limit on credit card interest?

No, there is no federal law that limits general credit card interest. However, the Military Lending Act sets a 36% interest rate cap for active military service members and their dependents, and there is an 18% interest rate cap for federal credit union members. President Trump has called for a 10% credit card interest rate cap for one year, though it’s not known if it will be enacted.

What does Trump’s credit card cap mean?

Trump’s credit card cap calls for a 10% limit on credit card interest rates for one year, starting on January 20, 2026. So far, his cap is a proposal; it has not been enacted.

Photo credi: iStock/Muhammad Labib Adilah

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Starting a new business requires a good idea, customers who want your product or service, and money to get you off the ground. A personal loan to start a business can be one option for funding your business, especially if you don’t yet qualify for a small business loan.

Let’s walk through the difference between personal loans and business loans, the advantages and disadvantages of using a personal loan for business, and some alternative options to explore.

What Is a Personal Business Loan?

Personal loans for business are offered by some banks, credit unions, and online lenders. While many loans will specify what you can spend the money on — a mortgage must be used to buy a house, for example — the sum you receive from a personal loan can be used in several ways. That said, it’s important to confirm with your lender whether its personal loans can be used for business expenses, as some lenders do not allow this.

Your personal loan interest rate is based on various financial factors, including your financial history, income, and credit score. Generally, the higher a person’s credit score, the more likely they are to receive a personal loan with favorable terms and interest rates. Applicants with lower credit scores may have more difficulty qualifying for low interest rates. Lenders tend to see them as at greater risk of defaulting on their payments. To offset that risk, they might charge a higher interest rate.

Personal Business Loans vs Small Business Loans

Borrowing money to pay for business expenses is a decision that takes some consideration. There are different reasons you might want or need a business loan, many lenders to choose from, and different lending options to compare. Some things to think about if choosing between a personal loan for business or a small business loan include:

Recommended: Business Loan vs. Personal Loan: Which Is Right for You?

Benefits of a Personal Loan for Business

Taking out personal loans for business purposes can offer several advantages over other financing options.

Ease of Qualification

If your business is brand new, it can be tricky to get a startup business loan and may be easier to qualify for a personal loan. Banks offer personal business loans based on your personal income and credit score.

By contrast, you’ll be asked for a lot of information during the business loan application process, including your personal and business credit score, annual business revenue and monthly profits, and your length of time in business. The longer your business has existed, the more likely you are to have a record of revenue and profit — and the more likely you are to qualify.

Faster Funding

The length of time it takes to get approved for a personal loan and receive funding will vary by lender. Online lenders are typically faster than traditional banks and credit unions. You are likely to receive funding within seven business days.

By contrast, the process for a business loan can be much slower. For example, it can take 30 to 90 days to receive funding from a Small Business Administration (SBA) loan.

Potential for Low Interest Rates

If you have strong credit, personal loans can have lower annual percentage rates (APRs) than other financing products — such as credit cards. While it can be useful to have a business credit card, you’ll pay a relatively high rate if you carry a balance from month to month.

Small business credit cards may also have penalties and fees that personal loans may not have. These often include penalty APRs that go into effect if you make a late payment, over-limit fees if you spend more than your credit limit, annual fees, and more.

Flexibility and Versatility

Personal loans have few restrictions on how you’re allowed to use the money you borrow. You can use them for anything from debt consolidation to home repairs to a veterinary bill.

Disadvantages of a Personal Loan for Business

Despite the potential advantages of using a personal loan to help you start your business, there are drawbacks.

Some Lenders Don’t Allow Personal Loans for Business

Some lenders place restrictions on how personal loans can be used. It’s wise to be transparent about your intention to use the personal loan for business expenses and confirm if the lender permits it.

In some cases, it may not be. However, it’s far better to be honest about how you plan to use a loan than risk breaching the loan agreement. If you end up using a loan in a prohibited way, your lender could force you to immediately repay the full amount of the loan with interest.

Lower Loan Amount Limits

Personal loans generally offer borrowing limits as low as $1,000. They can go as high as $100,000 for larger personal loans. For small businesses, this might be plenty. But if you own a larger business that needs more money, you might benefit more from a loan specifically designed to meet business financial needs. Small business loans generally have lower interest than personal loans.

Shorter Repayment Terms

Lending periods for personal loans vary. Typically, you can find loans with term lengths of 12 months to five years. Compared to some small business loans, this is a relatively short period. Consider that for SBA loans, maximum terms can be as much as 25 years for real estate, 10 years for equipment, and 10 years for working capital or inventory.

Potential to Affect Personal Credit Score and Assets

If you take out a personal loan and can’t make monthly payments, you are putting your personal credit at risk. Missed payments may harm your credit score, which can make it more difficult for you to access funding in the future.

Recommended: What Is Considered a Bad Credit Score?

Fewer Tax Deduction Opportunities

Generally, the interest you pay on a personal loan is not tax deductible, unlike the interest paid on business loans. However, there’s an exception if you use the proceeds of a personal loan for business purposes.

However, this can get a bit tricky, as you may only deduct interest on the portion of the loan used for business expenses. So if you use any of that money to remodel the primary bathroom in your home, for example, interest on that portion can’t be deducted.

How to Get a Personal Loan for Business

Securing a personal loan for business purposes involves several key steps. The process looks like this:

1.    Assess your finances: Begin by looking at your personal credit score, income, and overall financial health. This will give you insight into the likelihood of qualifying for a personal loan and the interest rates you might get.

2.    Choose a lender: Look for banks, credit unions, and online lenders that offer personal loans suitable for business purposes. Make sure they allow you to use personal loan funds for business expenses. Compare interest rates, loan terms, and fees to find the best lender for your needs.

3.    Prepare your documents: Gather documents like proof of income, tax returns, identification, and any business-related information required for your application.

4.    Submit your application: Complete the loan application process with your chosen lender. Be honest about your intention to use the loan for business expenses. This transparency helps avoid potential issues in the future.

5.    Review loan terms: Once your application is approved, carefully review the loan terms, including the interest rate, repayment schedule, and any associated fees. If everything looks good to you, accept the loan terms to move forward with the funding process.

What to Consider Before Applying for a Personal Loan for Business

When analyzing the benefits and risks of this approach, consider these factors.

•   Your personal creditworthiness: Using a personal loan for business mixes your individual finances with the company’s risk. Think about the effects this move might have on your personal credit score and future loans.

•   Your business revenues: You’ll want to be sure your business will bring in enough money to cover your monthly personal loan payments. Run the numbers to be sure that paying the costs for this loan won’t force you to skimp on other needed business expenditures.

•   The loan’s true cost: Beyond the loan’s interest rate, lenders may charge fees for loan origination, late payments, loan processing, or account maintenance.

•   Timing: Funding for a personal loan may be processed faster than for a business loan. That’s an advantage over SBA loans, which can take up to three months to come through, possibly costing you a current opportunity.

•   Usage restrictions: Some personal loan agreements forbid using funds for business, so double check that your prospective lender permits it.

•   Repayment details: If you do get the green light, you may want to have on hand a solid business plan (showing revenue model and expenses, for example) to show how the loan will be repaid.

There are funding alternatives that could cost you less or give you added flexibility. Those are detailed in the next section.

Alternatives to Personal Business Loans

Personal loans might not be ideal for everyone and aren’t the only funding option for your small business. It may be worth considering small business loans or other types of business loans as alternatives.

Small Business Loans

Small business loans are offered through online lenders, banks, and credit unions. There are various options available, each designed for specific purposes. For example, a working capital loan is designed to help you finance the day-to-day operations of your business. Equipment financing can help you replace aging technology and buy new tools and machinery.

SBA loans are guaranteed by the Small Business Administration, whose aim is to help small businesses start and grow. If you aren’t able to make your payments, the SBA will step in and cover up to 85% of the default loss. By reducing risk in this way, the organization helps businesses get easier access to capital.

Shopping around for the best small business loan rates is a good way to compare lenders and find the one that works best for your unique financial needs.

Business Lines of Credit

A business line of credit is revolving credit, similar to a credit card. You have a set credit limit and only pay interest on the amount you’re currently borrowing, making it a more economical option than a term loan for some business owners. As you repay the funds, they are available to borrow again.

Another advantage to a line of credit over a term loan is the ability to use a check to pay vendors who do not accept credit cards.

Business Credit Cards

Business credit cards can be useful for separating personal and business expenses. They also usually have higher credit limits than personal credit cards, which gives you more flexibility to make larger business purchases. Plus, they may offer rewards, perks, and bonuses. It’s important to keep in mind, however, that credit cards tend to have higher interest rates than other types of business financing.

Recommended: Can You Get a Business Credit Card Before You Open Your Business?

Merchant Cash Advance

A merchant cash advance (MCA) is an alternative form of financing for businesses that get revenue through credit card sales. With an MCA, a business can borrow a lump sum of money and repay the lender with a percentage of future credit card transactions. The repayment amount is larger than the advance, since the lender charges a fee. In some cases, MCA fees can significantly exceed interest rates on other types of business loans.

The Takeaway

Can you use a personal loan to start a business? Perhaps. Taking out a personal loan may be one way to fund your small business needs. However, some lenders do not allow a personal loan to be used for business purposes. It’s a good idea to explore alternatives, such as a small business loan or line of credit.

If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.

FAQ

Can a personal loan be used for business?

Yes, you can use personal loans for business if the lender allows it. It’s important to check with the lender to ensure there are no restrictions on using the loan for business expenses.

Can I write off a personal loan if used for my business?

You can typically write off the interest on a personal loan used for business purposes, but only the portion directly related to business expenses. Personal loan principal repayments are not tax-deductible.

Does the SBA offer personal loans?

No, the Small Business Administration (SBA) does not offer personal loans. The SBA provides various loan programs designed specifically to support small businesses, such as SBA 7(a) loans and SBA 504 loans.

What are the risks of using a personal loan for business purposes?

Funding your business with a personal loan can present a number of risks. The overall risk is that such a loan puts your individual creditworthiness on the line, as personal loans always require a personal guarantee. This means:

•   Any missed payments could hurt your individual credit history.

•   Even if you pay on time, you’d miss the opportunity to build your business credit score.

•   Defaulting on a personal loan could cause lenders to take legal action, meaning you’d probably have to pay for a lawyer to represent you.

•   Negative consequences from a lawsuit could include a lien on your home or garnishment of your wages.

Can startups qualify for a personal loan for business?

Generally, the answer is no. Many lenders disallow the business use of a personal loan, for one thing. For another, lenders ordinarily approve or deny loans based on the borrower’s ability to manage repayments — and given the high rate of startup failure (roughly 20% in the first year), both personal and business loans to new entrepreneurs are often seen as too risky.

Photo credit: iStock/fizkes

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If you’re married and struggling to pay off multiple debts, you might consider applying for a debt consolidation loan jointly with your spouse. This approach allows you to roll multiple loan payments into a single monthly payment, which can simplify your household finances, reduce stress, and potentially save money.

Depending on your — and your spouse’s — income and credit score, getting a debt consolidation for married couples could help you qualify for a lower rate and/or better terms compared to applying on your own. However, there are also some downsides to consolidating debt when you get married. Here’s what you need to know.

What Are Debt Consolidation Loans?

A debt consolidation loan allows you to combine your outstanding debt balances into one loan, leaving you with a single monthly payment. In other words, you take out a new loan and use the proceeds to pay off your existing debt.

You can use a debt consolidation loan to combine different types of debt, like credit cards, personal loans, and medical debt. It won’t erase your debts, but it can make things easier by simplifying your payments. If you can qualify for a debt consolidation loan with a lower interest than what you’re paying on your current debts, you could also save money.

Typically, debt consolidation loans are unsecured personal loans, meaning they don’t require collateral. However, some people choose to use secured loans, like a home equity loan, to consolidate debt. Either way, the goal is to reduce the complexity of managing multiple debts and, ideally, save on interest.

Benefits of Debt Consolidation for Married Couples

Debt consolidation offers several advantages for married couples looking to streamline their finances and reduce financial pressure. Here’s a look at the key benefits:

Simplified Financial Management

Managing multiple debts as a couple can be overwhelming, especially when you’re juggling other financial responsibilities like bills, savings, and investments. Consolidating your debts into one loan, and one monthly payment, can make it easier to stay on top of your monthly bills.

A simplified approach to paying off your combined debts can also reduce stress, make it easier to set (and stick to) a household budget, and enable you to work together to achieve your financial goals, whether it’s buying a home, building an emergency fund, or planning for retirement.

Potential for Lower Interest Rates

One of the reasons why many people consolidate debts is to save on interest. This not only saves you money over time but can also help you pay off your debt faster.

When you apply for a debt consolidation loan as a couple, the lender will use your combined income and credit profiles to determine if you qualify and, if so, what your interest rate will be. Applying with your spouse might help you qualify for a lower rate, especially if they have better credit than you. Reducing the overall interest rate on your combined debt can result in significant savings over time.

Recommended: Debt Payoff Guide

Types of Debt Consolidation Loans

There are several types of debt consolidation loans for married couples, each with its own benefits and drawbacks. The right choice will depend on your needs and financial situation.

Personal Loans

A personal loan is one of the most common forms of debt consolidation. These loans are typically unsecured, meaning they do not require collateral like a house or car. With a personal loan, individuals or couples can consolidate various types of debt into one loan with a fixed interest rate and a set repayment term.

A personal loan for debt consolidation can be a smart way to consolidate debt if you qualify for a low interest rate, enough funds to cover your combined debts, and a manageable repayment term. Because these loans are unsecured, your rate and terms will largely depend on your and your partner’s credit profile.

💡 Quick Tip: Everyone’s talking about capping credit card interest rates. But it’s easy to swap high-interest debt for a lower-interest personal loan. SoFi credit card consolidation loans are so popular because they’re cheaper, safer, and more transparent.

Home Equity Loan

If you and your spouse own your home and have built up significant equity, you might consider using a home equity loan to consolidate your debts as a couple. This allows you to borrow against the equity in your home and use the funds to pay off other loans and/or credit card balances.

Home equity is the difference between the appraised value of your home and how much you owe on your mortgage. Depending on the lender, you may be able to borrow up to 85% of the equity you own.

Since home equity loans are secured against the value of your home, lenders can often offer competitive interest rates, usually close to those of first mortgages. However, this type of debt consolidation loan is secured by your home. If you and your spouse are unable to keep up with payments, you could lose your home.

Student Loan Consolidation

In the past, the government allowed married borrowers to combine their federal student loans into one joint consolidation loan, but that program ended in 2006.

Currently, the only way to consolidate federal student loans with a spouse is by using a private lender. With private student loan consolidation or refinancing, you can combine your federal and/or private student loans into a single private student loan at a new interest rate.

If you apply jointly with your spouse, the lender will look at your combined household income and both of your credit scores. If your spouse has better credit or a higher income than you, refinancing with your spouse may allow you to qualify for a lower interest rate than you’d get on your own.

However, not all lenders offer spouse student loan consolidation, which can limit your options. Also keep in mind that refinancing federal loans with a private lender means giving up federal loan benefits and protections, including the ability to enroll in an income-driven repayment plan and eligibility for loan forgiveness programs.

Recommended: How to Use a Personal Loan for Loan Consolidation

Factors to Consider Before Consolidating Debt

Before committing to a debt consolidation loan as a married couple, it’s important to consider the potential complications and drawbacks of this decision.

Different Money Management Styles

When you take out a debt consolidation loan with your spouse, you’re both on the hook for the payments. So it’s worth thinking about how you handle money as a couple and if you’re okay sharing the debt. Are you both ready to commit to making monthly payments and following a budget together? If managing money together seems challenging, you might want to look into other options like consolidating your debts separately.

Marital Breakdown

If you take out a loan as co-borrowers, you’re both 100% legally responsible for paying it back, even if things don’t work out and you separate. It doesn’t matter if your partner has been paying the loan all along and agrees to continue. If you separate or divorce and that partner stops making payments, the lender will look to you to repay the debt.

Also keep in mind that you can’t remove your name from a joint loan without the lender’s permission. If approval was based on your joint personal loan application, the lender may not be willing to do that. Should your marriage break down, you might end up with payments you can’t afford to make.

Credit Score Impact

Even after you get married, you and your spouse still have separate credit reports. When you apply for a new loan as co-borrowers, the lender will do a hard credit pull on both of your credit reports, which can cause a small temporary dip in your scores. And if either of you misses a payment or falls behind on the loan, it can hurt both your credit scores — even if it’s not your fault.

If you handle repayment responsibly, however, a joint debt consolidation loan for married couples could positively influence your individual credit histories over time.

Irreversible Process

When you consolidate debts with a spouse, the process is permanent. You won’t have the opportunity to revert your former debts back to their original state. Once you use the proceeds of the new loan to pay off your existing loans, those accounts will be closed. This could be problematic if you consolidate federal student loans into a private consolidation loan, since you’ll lose your federal protections like forgiveness and forbearance.

Takeaway

Debt consolidation loans for married couples allow you and your spouse to combine multiple debts into one new loan. This can be an effective way to simplify your financial situation, reduce interest rates, and take control of your debt.

Before you jump in, however, it’s a good idea to discuss how a joint loan will affect your individual credit scores, who will make the payments, and how refinancing will impact your future financial goals.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

FAQ

Can a married couple consolidate their debt into one loan?

Yes, married couples can combine their debts into one loan if they qualify. The process typically involves applying for a personal loan or a home equity loan in both spouses’ names and using it to pay off one or both of their individual debts.

If your spouse has a stronger credit score than you, applying for a consolidation loan together could improve your chances of approval and potentially secure a better interest rate. However, both partners are equally responsible for repaying the loan, so it’s important to ensure that consolidating the debt benefits both parties.

How will debt consolidation affect credit scores?

Debt consolidation can impact credit scores in both positive and negative ways. Initially, applying for a new loan may result in a temporary dip in your credit scores due to a hard inquiry. However, if you use the loan to pay off high-interest credit card debt and make timely payments, it can improve your credit profile over time. Also, having just one payment can reduce the risk of missed payments, further benefiting your credit.

What are the alternatives to debt consolidation loans?

Alternatives to debt consolidation loans include:

•   Balance transfer credit cards: These cards may offer a low or 0% introductory interest rate for transferring existing credit card balances. This can help you save on interest if you are able to pay off the balance within the promotional period. Just be sure any transfer fees don’t negate the savings.

•   Debt snowball or avalanche methods: These strategies focus on paying off smaller debts first (snowball) or debts with the highest interest rates first (avalanche) without consolidating.

•   Debt management plans (DMPs): Offered by credit counseling agencies, DMPs help negotiate lower interest rates and consolidate payments without taking out a new loan.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

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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 repaying a variety of different debts to different lenders, keeping track of them and making payments on time each month can be time consuming. It isn’t just tough to keep track of these various debts, it’s also difficult to know which debts to prioritize in order to fast track your debt repayment. After all, each of your cards or loans likely have different interest rates, minimum payments, payment due dates, and loan terms.

Consolidating — or combining — your debts into a new, single loan may give your brain and your budget some breathing room. We’ll take a look at what it means to consolidate debt and how it works.

What Is Debt Consolidation?

Debt consolidation involves taking out one loan or line of credit (ideally with a lower interest rate) and using it to pay off other debts — whether that’s car loans, credit card debt, or another type of debt. After consolidating those existing loans into one loan, you have just one monthly payment and one interest rate.


💡 Quick Tip: Credit card interest rates average 20%-25%, versus 12% for a personal loan. And with loan repayment terms of 2 to 7 years, you’ll pay down your debt faster. With a SoFi personal loan for credit card debt, who needs credit card rate caps?

Common Ways to Consolidate Debt

Your options to consolidate debt depend on your overall financial situation and what type of debt you wish to consolidate. Here are some common approaches.

Balance Transfer

If you are able to qualify for a credit card that has a lower annual percentage rate (APR) than your current cards, a balance transfer credit card may be one option to consider and can be a smart financial strategy to consolidate debt if you use it responsibly.

Some credit cards have zero- or low-interest promotional rates specifically for balance transfers. Promotional rates are typically for a limited time, so if you pay the transferred balance in full before it ends, you’ll reap the benefit of paying less — or possibly zero — interest.

However, there are some caveats to keep in mind. Credit card issuers generally charge a balance transfer fee, sometimes 3% to 5% of the amount transferred. If you use the credit card for new purchases, the card’s purchase APR, not the promotional rate, will apply to those purchases.

At the end of the promotional period, the card’s APR will revert to its regular rate. If a balance remains at that time, it will be subject to the new, regular rate.

Making late payments or missing payments entirely will typically trigger a penalty rate, which will apply to both the balance transfer amount and regular purchases made with the credit card.

Home Equity Loan

If you own a home and have equity in it, you might consider a home equity loan for consolidating debt. Home equity is the home’s value minus the amount remaining on your mortgage. If your home is worth $300,000 and you owe $125,000 on the mortgage, you have $175,000 worth of equity in your home.

Another key term lenders use in home equity loan determinations is loan-to-value (LTV) ratio. Typically expressed as a percentage, the LTV is similar to equity, but on the other side of the scale: Instead of how much you own, it’s how much you owe. The percentage is calculated by dividing the home’s appraised value by the remaining mortgage balance.

Lenders typically like to see applicants whose LTV is no more than 80%. In the above example, the LTV would be 42%.

If you qualify for a home equity loan, you’ll typically be able to tap into 75% to 80% of your equity.

After the home equity loan closes, you’ll receive the loan proceeds in one lump sum, which you can use to pay your other debts.

A home equity loan is essentially a second mortgage, a secured loan using your home as collateral. Since there is a risk of losing your home if you default on the loan, this option should be considered carefully.

Personal Loan

If you don’t have home equity to tap into or you prefer not to put your home up as collateral, a personal loan may be another option to consider.

There are many types of personal loans, but they are typically unsecured loans, which means no collateral is required to secure the loan. They can have fixed or variable interest rates, but it’s fairly easy to find a lender that offers fixed-rate personal loans.

Generally, personal loans offer lower interest rates than credit cards. So consolidating credit card debt with a fixed-rate personal loan may result in savings over the life of the loan. Also, since personal loans are installment loans, there is a payment end date, unlike the revolving nature of credit cards.

There are many online personal loan lenders and the application process tends to be fairly simple. You may be able to use a loan comparison site to see what types of interest rates and loan terms you may be able to qualify for.

When you apply for a personal loan, the lender will do a hard credit inquiry into your credit report, which may temporarily lower your credit score. The lower credit score may drop off your credit report in a few months.

If you’re approved, the lender will send you the loan proceeds in one lump sum, which you can use to pay off your other debts. You’ll then be responsible for paying the monthly personal loan payment.

A drawback to using a personal loan for debt consolidation is that some lenders may charge origination fees, which can add to the total balance you’ll have to repay. Other fees may also be charged, such as late fees or prepayment penalties. It’s important to make sure you’re aware of any fees or penalties before signing the loan agreement.


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

Is Debt Consolidation Right For You?

Your financial situation is unique to you, but there are several things you’ll want to keep in mind when trying to decide if debt consolidation is right for you.

Debt Consolidation Might Be a Good Idea If …

•   You want to have only one monthly debt payment. It can be a challenge to manage multiple lenders, interest rates, and due dates.

•   You want to have a payment end date. Using a home equity loan or a personal loan for debt consolidation will be useful for this reason because they are forms of installment debt.

•   You can qualify for a zero interest or low-interest rate balance transfer credit card. This may allow you to consolidate multiple debts on one new credit card and save interest by paying off the balance before the promotional rate ends.

Debt Consolidation Might Not Be For You If …

•   You think you’ll be tempted to continue using the credit cards you paid off in the debt consolidation process. This can leave you further in debt.

•   You’ll incur fees (e.g., balance transfer fee or origination fee). If the fees are high, it might not make sense financially to consolidate the debts.

•   Consolidating your debts may actually cost you more in the long run. If your goal is to have smaller monthly payments, that generally means you’ll be making payments for a longer period of time and incurring more interest over the life of the loan.

Recommended: Getting Out of Debt with No Money Saved

Credit Card Debt Relief: How to Get It

Some people seek assistance with getting relief from debt burdens. Reputable credit counselors do exist, but there are also many programs that scam people who may already be overwhelmed and are vulnerable.

Disreputable debt settlement companies may charge fees before ever settling your debt and often make bogus claims, such as guaranteeing that they will be able to make your debt go away or that there is a government program to bail out those in credit card debt.

Even if a debt settlement company can eventually settle your debt, there may be negative consequences to your credit along the way. What’s more, a debt settlement program may require that you stop making payments to your creditors. But your debts may continue to accrue interest and fees, putting you further in debt. The lack of payments may also take a negative toll on your payment history, which is an important factor in the calculation of your credit score.

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

Debt Relief: Is it a Good Idea?

What’s a good idea for some people may be a bad idea for others. Whether debt relief is a good idea for you and your financial situation will depend on factors that are unique to you. Working with a reputable credit counselor may be a good way to get some assistance that will help you get out of debt for good and create a solid financial plan for the future.

The Takeaway

Debt consolidation allows borrowers to combine a variety of debts, like credit cards, into a new loan. Ideally, this new loan has a lower interest rate or more favorable terms to help streamline the repayment process.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

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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Spending is on the rise — and so is consumer debt. Americans carry, on average, three credit cards and have $6,501 in credit card debt. Overall, U.S. credit card debt is $129 billion higher than it was one year ago.

That amount of debt can be a challenge to pay down along with regular monthly household expenses. Some people may choose to refinance their high-interest credit card debt in an effort to secure a lower interest rate or a lower monthly payment. Refinancing credit card debt can be one way to make progress toward eliminating it completely.

What Is Credit Card Debt?

If you’re putting more purchases on credit cards than you can pay off in a monthly billing cycle, you have credit card debt.

Interest will accrue on the balance that carries over to the next billing cycle. If you don’t pay at least the minimum amount due, you’ll likely also be charged a late fee. Since credit cards use compound interest, you’ll be charged interest on accrued interest and fees. That can add up quickly and make it more difficult to get out of debt.

Carrying a balance on more than one credit card can make the debt even more difficult to manage. If your goal is to be free of credit card debt, refinancing can be one way to achieve that.

💡 Quick Tip: Credit card interest rates average 20%-25%, versus 12% for a personal loan. And with loan repayment terms of 2 to 7 years, you’ll pay down your debt faster. With a SoFi personal loan for credit card debt, who needs credit card rate caps?

What Are Some Benefits of Refinancing Credit Card Debt?

Credit cards are revolving debt and typically have variable annual percentage rates (APRs).

Refinancing credit card debt with an installment loan that has a fixed interest rate, such as a personal loan, will mean you’ll have a fixed end date to your debt and will have the same APR for the entire term of the loan.

If you’re refinancing multiple credit card balances into one new loan or line of credit, you’ll have fewer bills to pay each month. That could potentially make monthly budgeting a simpler task.

Recommended: What Is a Good APR for a Credit Card?

How Might Debt Refinancing Affect Your Credit Score?

Something to keep in mind when your goal is to pay down debt is that it’s a long game.

That being said, in the short term your credit score can decrease slightly when you apply for new credit and the lender looks at your credit report. During the formal application process, the lender will perform a hard inquiry into your credit report, which may result in a slight temporary drop of your credit score.

If you’re comparing multiple lenders, and they offer prequalification, they’ll do a soft inquiry into your credit report, which won’t affect your credit score.

Building your credit — or rebuilding it — through refinancing credit card debt can be possible if you make on-time, regular payments on the new loan. Reducing your credit utilization can be another positive result of refinancing credit card debt. Both of these can potentially increase your credit score.

It’s important not to overuse the credit cards you refinanced into a new loan, however, or you might accumulate even more debt than you started with.

Will Canceling My Unused Credit Cards Affect my Credit Score?

After you’ve refinanced your existing credit card debt into a new loan, you might be tempted to cancel those credit cards. But that strategy could negatively affect your credit score.

Whether it’s a good idea to cancel a credit card really depends on the card. If you’ve had the credit card for a long time, closing it would shorten your credit history, which could result in a credit score drop. But if it’s a card you genuinely don’t have a reason to keep, such as a retail card for a store you no longer shop at or a card that has a high annual fee that can’t be justified with your current spending habits, closing the account might be the right step for you.

If you plan to keep a credit card open, it may be a good idea to use it for a small, recurring charge so the card issuer doesn’t close it for inactivity. Setting up autopay can make this a convenient way to ensure the card stays open but is paid in full each month.

What Are Some Options for Refinancing Credit Card Debt?

Your overall creditworthiness will be a determining factor in finding available refinancing options. Lenders will look at your credit report and credit score, paying attention to how you’ve handled credit in the past and how much total debt you have in relation to your income.

Balance Transfer Credit Card

If you can qualify for a low- or no-interest credit card, you could use it to transfer a balance from another credit card. You’ll typically be charged a balance transfer fee equal to a percentage of the balance you’re transferring. The promotional rate on these types of cards is temporary, sometimes lasting up to 18 months or so, but can be as short as 6 months.

If you pay the transferred balance in full within the promotional period, you may not pay any interest at all, or a minimal amount. However, if you still have an outstanding balance on the card when the promotional period is over, the APR will revert to the card’s standard rate for balance transfers.

Home Equity Loan

A potential source of refinancing funds might be your home, if you have equity in it. Funds from a home equity loan can be used for just about anything, even things unrelated to your home. You can calculate how much equity you have in your home by subtracting the amount you owe on your mortgage from the current market value of your home.

In addition to the amount of equity you have in your home, lenders will typically also look at your income and your credit history to determine how much you might qualify for. It’s common for lenders to limit a home equity loan to no more than 80% to 85% of the equity you have in your home. There are typically closing costs with a home equity loan including appraisal fee, title search, origination fee, or other fees, and can be between 2% and 5% of the loan amount.

A home equity loan is a second mortgage secured by your home. If you fail to repay the loan, the lender can foreclose on your home.

Debt Consolidation Loan

Some lenders offer loans specifically for debt consolidation. These are actually personal loans, the funds from which can be used to pay off your existing credit card debt. Then, you’ll be responsible for repaying the debt consolidation loan. There may be fees charged on this type of loan, so be sure to look over the loan agreement carefully before signing it.

For a credit card consolidation loan to be as effective as possible at reducing your debt, it will ideally have a lower APR than you’re paying on your credit cards. In this way, you would be paying less in interest over the life of the loan. If a lower monthly payment is your goal, you may opt for a longer-term loan, but may pay a higher interest rate.

Recommended: How to Get a Debt Consolidation Loan with Bad Credit

The Takeaway

If your credit card debt is piling up and you’re finding it challenging to pay it down, you may be considering refinancing. Some credit card refinancing options include balance transfer credit cards with a promotional APR, a home equity loan, or a debt consolidation loan.

Whether or not you agree that credit card interest rates should be capped, one thing is undeniable: Credit cards are keeping people in debt because the math is stacked against you. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. SoFi offers lower fixed rates and same-day funding for qualified applicants. See your rate in minutes.

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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