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Refinancing allows you to consolidate your existing student loans — you trade multiple loans for one student loan payment. When you refinance, you may be able to lower your monthly payments, reduce your interest rate, shorten your repayment terms, save money, and even add or remove a cosigner.

It’s a good idea to ask yourself, “Why refinance student loans?” before you start searching for the right private lender for you. Read on for a list of the benefits that may come your way when you refinance your student loans.

What Is Student Loan Refinancing?

Student loan refinancing involves consolidating your student loans with a private lender. In the process, you receive a new loan with a new rate and term. Moving forward, you’d make payments to that private lender on that one loan only.

It’s worth noting that refinancing is not the same as consolidating through a Direct Consolidation Loan. A Direct Consolidation Loan means that you combine multiple federal loans into one federal loan through the U.S. Department of Education. You usually don’t save money with a Direct Consolidation Loan, because the resulting interest rate is a weighted average, rounded up to the nearest ⅛ of a percent.

You may be able to refinance your federal student loans and private student loans all at once. However, it’s important to remember that refinancing your federal student loans means that you lose access to federal benefits and protections like income-driven repayment plans, some deferment and forbearance options, and loan forgiveness programs for certain borrowers, such as Public Service Loan Forgiveness. Federal student loans come with benefits and repayment options unique to them.

Is Refinancing Your Student Loans Worth It?

Is refinancing student loans a good idea for you? There are some benefits of refinancing student loans, like securing a lower monthly payment or a more competitive interest rate.

Continue reading for more information on when refinancing your student loans may make sense for your specific situation. Remember that not everyone will benefit from each of these advantages — it depends on your own needs.

1. Lower Monthly Payments

Refinancing may lower your monthly payments because you may lower your interest rate.

Or refinancing can lower your monthly payments if you lengthen your loan term. Extending your loan term, however, means you may pay more in interest over the life of the new loan. Some private lenders may offer lengthier repayment terms, varying from five to 25 years.

2. Reduced Interest Rates

In the context of reduced interest rates, refinancing student loans is probably worth it, especially if you choose a shorter loan term. That said, it’s important not to assume anything. It’s a good idea to take all calculations and factors into consideration before you pull the trigger on a refinance.

Private student loan lenders may offer both variable and fixed interest rates. Variable interest rates fluctuate depending on the situation in the broader market. They may begin at a lower rate but increase over time. In contrast, fixed interest rates stay the same throughout the life of your loan. If you are planning to pay off your loan quickly, you may consider a variable interest rate refinance.

3. Shorter Repayment Terms

Your repayment term refers to the number of years that you spend repaying your loan. A shorter repayment term may save you money because you’ll pay interest over a fewer number of years. In general, loans with a shorter repayment term come with lower interest costs over time but higher monthly payments. On the other hand, loans with a longer repayment term usually come with lower monthly payments.

It’s important to calculate your monthly payment and decide whether a higher monthly payment can fit into your budget.

4. Opportunity to Save Extra Money

Qualifying for a lower interest rate and either shortening your repayment term or keeping your current loan term may allow you to save money. Not only that, but when you don’t have several student loan payments to juggle, it may be easier to budget by lessening the confusion of having to make multiple loan repayments.

5. Consolidating Loan Payments

The perks of refinancing aren’t all money related. As mentioned earlier, you can simplify your loans and eliminate the confusion of having to make several loan payments every single month. Organizing your loan payments can go even further than this. Simplifying all of your bills (not just your student loans) may even give you some of the same psychological benefits of a Marie Kondo tidy-up, such as improving mental health, time management, and productivity.

Simplifying could also help you avoid missing payments, which can affect your credit score.

6. Adding or Removing a Cosigner

Applying for a cosigner release removes a cosigner from loans.

Why might you want to remove a cosigner from your loans through refinancing? You may no longer want a cosigner to remain responsible for repaying your debt if you were to default. Cosigning can also have implications for a cosigner’s debt-to-income (DTI) ratio, the ratio between the amount of debt they have related to their income. Their credit will show the extra debt they took on when they cosigned for you.

Learn more about refinancing student debt without a cosigner.

Tips for Finding a Lender

Ready to find a lender? Start by getting quotes from a few lenders, which usually just takes a few minutes online. Once you have several estimates, compare rates among lenders. Make sure you look at annual percentage rates (APRs), which represent the true cost of borrowing — they include fees as well.

Beyond getting a low-interest rate, you also want to look carefully at repayment terms. Are you looking at a shorter- or longer-term length? Choosing your current term length or a shorter term can help you save money.

Using a calculator tool for refinancing student loans can also help you estimate how much money you may save and give you a sense of what your monthly payments might be.

Life Changes That Can Make Student Loan Refinancing Worth It

Certain life changes and situations can also make refinancing worth it. For example, if you want to raise your credit score, save more money, or buy a house, you may want to consider refinancing.

•   Higher credit score: Making payments on time helps boost your credit score. One refinanced student loan payment is much easier to keep track of than multiple student loan payments. Simplifying can help prove that you’re a reliable borrower.

•   Save money for other things: If you want to save for a new living room set or for your child’s college fund, for example, refinancing can change your interest rate and help you save money over the long term.

•   Lower your debt-to-income (DTI) ratio: When you’re on the hunt for another type of loan, such as a mortgage loan to buy a home, you may discover that you need to lower your DTI. Refinancing your student loan debt can help you pay off your loans faster and therefore lower your DTI more quickly.

Learn more in our guide to refinancing student loans.

Explore SoFi’s Student Loan Refinancing Options

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. And lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

Photo credit: iStock/stockfour

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.

SoFi Student Loan Refinance
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.

According to data from The College Board, college graduates from the class of 2021 graduated with an average of $29,100 in student loan debt. The amount of student loan debt a person takes on can vary based on factors like the type of school they attended, whether or not they pursued an advanced degree, and whether they received any scholarships or not. Read on for more information on average student loan amounts.

Average Student Loan Debt After College

As of March 2023, the total amount of student loan debt was approximately $1.78 trillion , and according to EducationData.org, there are 45.3 million borrowers in the country.

That means there are a lot of us trying to understand and navigate the student loan landscape. How much are we borrowing? And what can we do to decrease the amount we owe?

As earlier mentioned, The College Board found that cumulative debt levels upon graduation — meaning the debt students had accumulated over the four years of undergrad — was $29,100 per borrower for those graduating in 2021 (the latest stats available). And in 2020 – 2021, 54% of graduates carried student loan debt.

How Average Student Loan Debt Has Changed in the Last 10+ Years

It’s no secret that college is expensive and has only gotten more expensive in the last 10 years. According to data compiled by U.S. News, the cost of attending college with in-state tuition at public national universities increased by nearly 175% from 2002 to 2022.

Over roughly that same period of time (from 2010 to 2020), total outstanding student loan debt grew from $845 billion to $1.7 trillion in order to cover those costs. Though as of the third quarter of 2022, the total outstanding federal student loan debt is $1.6 trillion. This student loan debt crisis is taking a financial toll on graduating students, potentially affecting their credit and home-buying prospects.

Recommended: Scholarship Search Tool

Average Student Loan Debt

There is good news, though: the growth of student loan debt is starting to decline. The average cumulative student debt was $29,900 for 2011 graduates (with bachelor’s degrees) and $32,100 for 2016 bachelor’s degree recipients. For the undergraduate class of 2021, the average was $29,100.

Public vs Private Four-Year Schools Student Loan Debt

The College Board’s annual survey of trends in student aid found that 2021 graduates of public four-year institutions had an average college debt of $21,400, compared to private, non-profit school borrowers, who graduated with an average debt of $22,600.

It should be noted that numbers for for-profit schools are harder to come by, but what is true across analyses is that students at for-profit schools take out more in student loans and default at higher rates.

Recommended: College Finder Tool

Undergraduate vs Graduate Student Debt

Let’s look at this from a different angle. How does undergrad debt compare to grad school debt? The College Board’s annual survey of student aid trends found that on average, undergraduates took out $3,780 in federal loans in the 2021-2022 school year. That same year, graduate students took out $17,680 in federal loans.

If you are planning to get an advanced degree, prepare for a potential mortgage-sized debt load. As an example, over half of people with law degrees have at least $150,000 in student loan debt according to the American Bar Association’s 2021 Law School Student Loan Debt survey.

The Average Student Loan Debt for Borrowers Under 25

There are about 6.9 million people under the age of 24 with student loan debt. As a group, they owe just over $101 billion, according to the U.S. Department of Education’s Q3 2022 report .

Average College Debt by State

When we look at the average student loan debt broken down by school and region, it also becomes clear there is a range of highs and lows across the country. The Institute for College Access and Success (TICAS) puts together a comprehensive report on national student debt, using numbers self-reported to college guide publisher Peterson’s from thousands of colleges and universities.

The numbers reported by schools vary but it does allow for a geographic look at the average student loan debt by state.

According to EducationData.org’s report (updated in April 2022) , the highest debt states (including Washington DC) in 2021, the last year for reported numbers, were Washington DC ($54,945), Maryland ($42,861), Georgia ($41,639), Virginia ($39,165), and Florida ($38,459). The states (including Puerto Rico) where college graduates had the lowest average debt were South Dakota ($30,954), Iowa ($30,464), North Dakota ($28,604), and Puerto Rico ($28,242).

Average Student Loan Payment

A borrower’s monthly student loan payment can vary quite a bit depending on the amount of debt they carry and the type of payment plan they have selected. According to data from the Federal Reserve, typical payments for student loans can range from $200 to $299. Though, as noted, your monthly payments may be more or less depending on factors like your loan amount and payment plan.

How Long It Takes to Pay Off Student Loans

But even as the growth of new student loan debt is slowing, there continue to be outstanding student loan amounts that haven’t yet been paid off — which helps to explain why the total loan balances are hitting record highs.

If you have a federal loan when you graduate, you can choose a repayment plan. The default option is the Standard Repayment plan, which is 10 years of fixed monthly payments.

Recommended: Student Loan Repayment Options

There are a few other options that extend the repayment term or allow you to repay on an income-driven plan. Many graduates take longer than 10 years to pay back their loans, and about a third of borrowers have gone into student loan default in the past 20 years, according to survey data from The Pew Charitable Trusts .

Though, it’s worth noting that the U.S. Department of Education announced in April 2022 that it would eliminate the negative consequences for those with defaulted student loans as a part of the student loan pause that began due to Covid-19 and was extended by the Biden-Harris administration.

There isn’t a lot of data on exactly how long it takes students to pay off their student loans, partially because it varies based on how big your loan amount is and partially because some numbers count consolidation as loan repayment — when in reality you’ve taken out a new loan with different terms.

The U.S. Department of Education lists the maximum repayment timelines for Direct Consolidation loans, which for borrowers holding between $20,000 and $40,000 in student loan debt is 20 years. Direct Consolidation loans allow borrowers to consolidate their federal loans into a single loan.

Recommended: Student Loan Options: What is Refinancing vs. Consolidation?

But it is worth noting: the sooner you pay off your loan, the more you save in the long run because you aren’t accruing interest for as long. Part of the reason so many students struggle to make payments is that their student loan payments are large in comparison to their incomes.

The interest rate can be a big factor in that. While interest rates on federal student loans are fixed and set annually by the government, interest rates on private student loans are based on a number of factors and are updated as needed. Use SoFi’s student loan calculator to figure out how your monthly payments could change at different interest rates.

Refinancing Student Loans With SoFi

Those looking for options to manage student loan payments might consider student loan refinancing. This process involves borrowing a new loan from a private lender. Lenders review applicant credit history and earning potential (among other financial factors) to determine the new loan terms, with a new, hopefully, lower interest rate.

Borrowers who refinance student loans with a private lender may also be able to adjust their repayment term. Extending the term could lower monthly payments but may end up making the loan more expensive over the life of the loan.

Those who want to continue to take advantage of federal loan benefits like income-based repayment may not want to refinance with a private lender, because all federal student loan benefits are lost when a federal student loan is refinanced.

It takes just a few minutes to get a quote to see what refinancing with SoFi could do for your student loans. The application is entirely online and there are no fees.

FAQ

Is $50,000 a lot of student debt?

Yes, $50,000 is a lot of student loan debt. According to data from The College Board, the average amount of debt a 2021 graduate carried was $29,100.

How many people have student loan debt in the US?

In the U.S. as of Q3 2022, there are approximately 42.8 million people who have student loan debt, according to data from the U.S. Department of Education.

What is the average someone pays a month for student loans?

The average someone pays per month for student loans will vary based on factors like the total loan amount and the repayment plan they have selected.

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.

SoFi Student Loan Refinance
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.

The U.S. Navy offers service members a proud and venerable tradition, having patrolled the seas since its inception in 1775.

Almost 250 years later, the Navy still offers its sailors a remarkable life experience, a chance to serve the country, and a host of benefits that make life somewhat easier for military personnel.

One perk that may appeal to Navy members is the Navy Loan Repayment Program, the cornerstone of the service’s student loan relief and forgiveness efforts.

The Navy Loan Repayment Program can pay up to $65,000 toward a service member’s student loans. That makes it well worth a closer look for Navy members looking for help paying down their college loan debt.

Who Qualifies for the Navy Program?

The Navy Loan Repayment Program is designed to pay up to $65,000 of federally guaranteed student loans for Navy personnel who qualify. The program is offered to members of the service’s Delayed Entry Program who eventually enlist in the Navy full time.

The Delayed Entry Program, also known as the Delayed Enlistment Program or inactive reserves, is meant to provide an onboarding experience before official enlistment. In the case of the Navy, a future sailor who signs on to delayed entry agrees to report for active duty in the next year. Currently, delayed-entry members can remain on inactive duty for 365 days. At that point, they must enlist for active duty in the Navy to receive student loan aid.

The Delayed Entry Program is only one hurdle Navy members must clear before becoming eligible for the loan repayment program. Service members must also meet the following criteria.

•   They must be “first time” military service members (meaning applicants have never served in the U.S. military before).

•   They must have a high school diploma.

•   They must have achieved a minimum score of 50 on the Armed Forces Qualification Test, which the Navy uses to measure a potential sailor’s IQ and aptitude. A test score of 35 will get an applicant into the Navy, but a higher score of 50 is needed to qualify for the loan repayment program.

•   They must have a student loan that is not in default.

How Navy Student Loan Repayment Works

Through the program, the Navy will pay 33.3% of a service member’s outstanding loan balance or $1,500 — whichever is higher — for each year of naval service, up to three years. If the student loan balance falls below the 33.3% threshold and the borrower is in good standing with the Navy, the Navy will pay the remaining student loan balance in full.

Only specific federal student loans qualify for the loan repayment program. They are as follows:

Stafford Loans, subsidized or unsubsidized. Also known as Direct Stafford Loans, these low-interest loans are made to qualified borrowers for tuition and other college expenses. The funds come directly from the U.S. Department of Education.

Federal PLUS Loans. Otherwise known as Direct PLUS Loans, these loans are offered by the U.S. government to undergraduate and graduate students to cover tuition and college costs. In many cases, Direct PLUS Loans offer funds to college students to cover expenses not covered by other financial aid programs.

Consolidation Loans. Consolidation loans bundle multiple federal loans into a single loan, streamlining the repayment process.

Perkins Loans. Perkins Loans are low-interest loans geared toward college students (both undergraduate and graduate) who demonstrate financial need. Congress stopped making Perkins student loans in 2018, but naval personnel may still have outstanding Perkins loan debt and thus are eligible for help from the Navy Loan Repayment Program.

A future Navy member may apply for the loan repayment program early in the service enrollment process. A Navy applicant is given the option to enroll in the program at the Military Entrance Processing Stations.

MEPS, the stations funded by the U.S. Department of Defense to enroll military service members, handle their applications and assess their physical, mental, and emotional health to see if they’re fit for military service.

For student loan relief purposes, the Navy recruiter on hand (also known as the MEPS classifier) will process all of a Navy recruit’s paperwork, including loan repayment application documents, and submit them for processing.

What Documents Do You Need To Apply?

All documents are available at the MEPS recruiting center or through specific U.S. government websites. You will need all of the following documents to apply:

•   A copy of the Loan Repayment Program Worksheet.

•   A copy of the Navy Enlistment Guarantee. The Navy Loan Repayment Program must be noted as a guarantee on the document.

•   A copy of the Statement of Understanding.

•   A copy of the Future Sailor’s National Student Loan Data System printout (available at the Department of Education’s website. When filing the data system form, the applicant will be assigned a PIN. By and large, it’s the same pin assigned to a financial aid applicant on the Free Application for Federal Student Aid. If the applicant doesn’t have a FAFSA® PIN, one will be assigned).

•   A copy of the Personalized Recruiting for Immediate and Delayed Enlistment.

•   A copy of DD Form 2475, Annual Application for Student Loan Repayment, completed by the student loan lender.

•   A copy of the lender’s promissory note for each Parent PLUS Loan, which clearly designates the student dependent on the note.

If you’re already serving in the military or served, Public Service Loan Forgiveness is a great option. The program is for those working for a qualified government organization (municipal, state, or federal) or many nonprofit organizations.

Filling Out the Loan Repayment Form

The key document when applying for the Navy Loan Repayment Program is DD Form 2475, which is broken down into four sections.

Section 1 is completed and approved by the recruiting officer (i.e., the verifying official). The section includes the naval office address and contact information so the lending institution can forward the proper paperwork. If the section is blank, the lender is under no obligation to complete the form. Basically, Section 1 includes the recruiter’s name and signature and the date.

Section 2 includes the applicant’s name, address, telephone number, email address, and Social Security number. This section is completed by the service member/applicant.

Section 3 includes the student loan data (including the borrower’s name, the loan amount, outstanding balance, the original date of the promissory note, the loan holder address, email and phone number, and the loan application number). The section also includes a box noting whether the student loan is in default or not, and asks for the name and address of the financial institution where the loan aid is to be sent.

Section 4 is a grid where more information on the loan can be included to expedite processing. Sections 3 and 4 are filled out by the student loan lending institution.

The Navy mandates that Form 2475 be completed, signed, and transmitted to the lending institution within 60 days of the recruit’s arrival in the Delayed Enlistment Program.

If the recruit/applicant doesn’t know his or her current student loan servicer, the U.S. Department of Education can lend a hand by phone or online.

Important Things to Know

Loan repayment program applicants may want to know several key features and rules governing the Navy student loan program.

Payment dates. Annual loan relief payments are issued to the service member on the original enlistment day during the first, second, and third year of enlistment in the Navy.

Payments are taxable. Any payments made by the Navy to the service member are taxed, as the Internal Revenue Service deems loan relief as taxable income in the year the money is paid out. Expect to have between 25% and 33% of the payment withheld in both federal and state taxes (the amount depends on the state where the applicant resides).

Lenders only. The Navy will not refund any loan amount that is paid out by other parties (aside from the qualified student loan lenders).

If a Navy recruit has any questions about the loan repayment program, the Navy urges him or her to contact the loan repayment manager at Naval Command. The manager is directly responsible for managing the loan program.

Contact the manager at:

Navy Recruiting Command
Attn: LRP
5722 Integrity Drive, Building 784
Millington, TN 38054

Email: [email protected]

Other Ways to Repay Student Loans

Former students who are on the fence about a military commitment or who may be struggling to make student loan payments, have alternatives to military-supported repayment.

One is student loan refinancing with a lender like SoFi®. Someone with a combination of private and federal student loans can refinance both types into one single loan with one monthly payment.

While there are many advantages to refinancing student loans, there are disadvantages, as well. If you are thinking of taking advantage of federal benefits like income-driven repayment or Public Service Loan Forgiveness, refinancing may not be right for you because you’ll lose your eligibility for federal programs.

Borrowers who do not plan on using federal benefits and choose to refinance may qualify for a lower interest rate or lower monthly payments. They’ll have only one payment a month and may be able to either lengthen or shorten the term. Note: You may pay more interest over the life of the loan if you refinance with an extended term.

SoFi offers an easy online application, no fees, and competitive rates. It takes just two minutes to see if you prequalify and checking your rate will not affect your credit score.

SoFi Student Loan Refinance
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.

If your credit isn’t stellar, you may find it challenging to get approved for a traditional unsecured credit card. One option can be a prepaid or secured credit card, which can be more easily available than an unsecured credit card. However, these cards come with a few key differences. Understanding how a prepaid card and a secured card vary can help you choose the right one for your specific situation.

When you apply for a secured credit card, you will put down a refundable security deposit. This serves as your initial credit limit, and you can borrow against that initial deposit. Your borrowing history on a secured credit card is typically reported to the major credit bureaus and will impact your credit score.

On the other hand, a prepaid card serves more like a debit card without being attached to your bank account. You load it with a given amount of money and can use it to pay for purchases without affecting your credit.

Learn more about the similarities and differences, including:

•   What is a prepaid credit card and how does it work?

•   What is a secured credit card and how does it work?

•   How are secured vs. prepaid credit cards the same?

•   How are prepaid vs. secured credit cards different?

•   How do prepaid credit cards vs. secured credit cards impact your credit?

What Is a Prepaid Credit Card?

A simple way to think about what prepaid credit cards are is that they are just debit cards that aren’t tied to your bank account. Worth noting: These aren’t truly credit cards because you aren’t being extended credit; no one is lending you funds. For this reason, you may hear them referred to as just “prepaid cards” (which is what you’ll see as you keep reading).

You purchase a prepaid card (often with an activation fee) and can then use the card to make purchases. Because prepaid cards are not considered a loan, their use is not reported to the major credit bureaus. This means that they do not have a positive or negative impact on your credit score or credit history.

How Prepaid Cards Work

When you buy a prepaid card, it comes loaded with a specific amount of money on it. Generally prepaid cards are issued by some of the major credit card processing networks (e.g. Visa or Mastercard). Once you have purchased the prepaid card, you can then use it anywhere that network is accepted. Some prepaid cards only have a certain amount loaded onto them that is fixed at purchase, and others allow you to reload the card at your convenience.

Pros and Cons of Prepaid Cards

One positive thing about using a prepaid card is that it can make purchases much more convenient. It can also be more secure than carrying cash for all of your purchases.

However, a potential downside to using them is that, if you are wondering, “Do prepaid cards help build credit,” the answer is a hard no. So if you are looking for an option that can help improve your credit score, you’ll need to look elsewhere.

What Is a Secured Credit Card

If you’re looking for an alternative to a traditional unsecured credit card, you will also probably want to understand what secured credit cards are. A secured credit card is a type of credit card that requires you to apply (which likely involves a credit check). If approved, you put down an upfront security deposit to the lender. This upfront deposit will serve as your initial credit limit, and it determines the amount of money you can spend on your card.

How Secured Credit Cards Work

With an unsecured credit card, you will put down an initial deposit. Some secured credit cards have a specific amount that you must put down, and other secured cards may allow you to put down more of a deposit. As you spend money on your secured credit card, your available credit decreases. However, you can likely increase your credit line by making payments or additional deposits.

Pros and Cons of Secured Credit Cards

One of the biggest pros of a secured credit card can be that your usage is reported to the major credit bureaus. In other words, if you use it responsibly, the card can help build your credit.

Many banks that issue secured credit cards also provide a pathway to automatically increase your credit line and help you transition from a secured to a unsecured credit card. One thing to watch out for is that some secured credit cards come with high interest rates and/or fees, so it can be worthwhile to pay your balance in full each month, whenever possible.

Recommended: Secured vs. Unsecured Credit Card: What’s the Difference?

Secured vs Prepaid Cards

Here is a quick look at how prepaid cards compare to secured credit cards in a few key areas:

Is One Better for Establishing Credit?

If you’re looking to establish your credit, a secured credit card is definitely your better option. Prepaid cards are not considered loans so they are not reported to the major credit bureaus. This means that using a prepaid card will not have any impact on building your credit. Using a secured credit card responsibly can help you build credit, but it can take a while to build credit with a secured credit card.

Is a Secured or PrepaidCard Right for You?

Deciding whether a secured or prepaid card is right for you depends on what your overall goals are. If you’re just looking for a convenient and secure way to make purchases without impacting your credit, a prepaid card can be a great choice.

But if you’re looking to build or establish your credit, you might consider a secured credit card. Of the two, a secured card is the only one where your usage and payment history is reported to the major credit bureaus.

Recommended: Tips for Using a Credit Card Responsibly

The Takeaway

Prepaid cards and secured credit cards are both options that allow people with limited or poor credit histories to make secure and convenient payments. Both options allow you to easily pay for purchases wherever their issuer (e.g. Mastercard or Visa) is accepted. But usage of prepaid cards is not reported to the major credit bureaus, so it won’t have an impact on your credit score. If you’re looking to build your credit, you will be better off with a secured card.

Once you have established a solid credit history, you might consider a credit card that lets you earn cashback rewards with every eligible purchase. If you’re in the market for a new credit card, you might apply for a credit card like the SoFi Credit Card. With the SoFi Credit Card, you can earn cash-back rewards, which you can then use for travel or to invest, save, or pay down eligible SoFi debt.

The SoFi Credit Card: So simple, so rich in perks.

FAQ

Are prepaid cards more secure?

Prepaid cards are typically issued by one of the major card issuers, like Mastercard or Visa. Each of these issuers is known for payment security. One thing to watch out for with a prepaid card is that it works just like cash — if you lose your card, you’re likely to lose all of the money that is stored on your card.

What is one disadvantage of a prepaid card?

One disadvantage of a prepaid card is that your usage is not reported to the major credit bureaus. This means that using a prepaid card will not appear on your credit report and will not have any impact on your credit score. If you’re looking to build your credit, however, you’re better off getting either a traditional credit card or a secured credit card.

What are the downsides of getting a secured credit card?

A secured credit card can be a good option if you’re looking to build your credit and are having trouble getting approved for a traditional unsecured credit card. One downside of a secured credit card to keep in mind is that you will have to put down a security deposit upon being approved. Many secured credit cards also come with higher-than-average interest rates and fees, so make sure you watch out for that as well.

Photo credit: iStock/Elena Uve

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


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Many people are sidestepping cash lately. According to one Pew Research Center report, more than four in 10 Americans say they don’t pay for any purchases in cash in a typical week.

But does that mean everyone should forego cash once and for all? Not necessarily. In fact, some financial experts say that a cash-only system may be a wise money move in certain situations.

An exclusively cash lifestyle may help you follow your budget, sidestep overspending, and avoid the high cost of overdraft, interest, and other fees that can be incurred when you pay by check, debit, and/or credit card.

But going all-cash has its downsides, too. It may not be convenient or as secure as other ways of paying.

To figure out what’s right for you, read on.

Pros of Cash-Only Living

Spending money the old-fashioned way can offer some significant perks. Here are some benefits that come with paying with cash for all your transactions.

Using Cash Only Can Help You Budget–and Save

When spending is invisible, it can be all too easy for people to forget that real money is actually going out the door–and all too easy to get in over their heads.

Using a cash-only payment system, even if it’s just for a month or two, can be a great way to see exactly how much you’re spending each day and week, and help you learn how to live within your monthly budget.

That’s because with cash accounting you only take out the amount you’ve allotted to spend for a certain period of time. When you’re out of bills, you’re done.

And if you use the envelope system (more on that below), you’ll be able to set aside specific amounts for all of your spending categories, such as rent, food, and entertainment.

You can then only use the cash you’ve withdrawn for those expenses, which can keep you from spending outside of those pre-set limits.

Cash-Only Living Can Help You Maintain Privacy and Security

Every debit or credit card transaction leaves a digital paper trail, and enables companies to know exactly what you buy, when you buy, and precisely how much you spend.

A more troubling concern can be the potential for data leaks of your personal and credit card information, which can result in identity theft.

If someone steals your identity, they could potentially empty your accounts and obtain new credit cards and credit lines in your name.

Using a cash-only payment system reduces the odds of a breach.

Cash-Only Living Can Help You Save on Interest and Fees

Credit cards often come with annual, as well as late payment fees.

And some stores and service providers, especially small and local businesses, may charge an extra fee to take a credit card payment, since they have to pay for the transaction.

In addition, if you don’t pay your credit card balance in full, you’re likely to end up paying exponentially more. Why? Those high credit card interest rates, which in May of 2023, were topping 20%.

Cons of Using Only Cash

Using cash-only can also come with risks and disadvantages. Here are some of the drawbacks.

Cash Living Can Come With Costs

Some ATMs charge fees for withdrawing cash, which can be troublesome if you find yourself suddenly out of money and need to use an ATM outside of your own bank.

By using credit cards instead of depending on ATMs, you may be able to avoid those costs.

Cash Living Can Have Security Concerns of Its Own

Keeping cash on your person or in your home comes with vulnerability.

You could be a victim of theft, you could lose some money, or the cash stashed in your home could be destroyed by a flood or fire. While not highly likely, it can happen.

A lost or stolen credit card, on the other hand, can be reported and you can often successfully dispute any instances of fraudulent charges.

Recommended: Types of Bank Account Fraud

You Fail to Build Up a Credit History

There’s something ironic about the way lenders look at credit history: If you haven’t borrowed much in the past, lenders may be reluctant to lend to you now.

Opening a credit card account is one way you can build up a credit history (other forms of credit, such as student or car loans, count as well).

A strong credit score is based in part on the average age of your account (the older the better), as well as a history of paying your bills on time, and how much debt you have in relation to the amount of credit available to you.

Your credit score is an important factor if you’d like to take out a loan in the future, such as an auto loan or home mortgage.

If you pay for everything exclusively in cash and never use credit (which is often hard to pull off), you may have trouble showing that you have the credit history to qualify.

Tips for Living a Cash-Only or a Cash-Mostly Life

If you decide to switch to an all, or largely, cash life, here are some strategies to help make the shift as seamless as possible.

Choosing Which Categories to Switch to Cash

Certain payments and bills, such as a mortgage or your student loan, need to be paid digitally or by check.

But you may want to switch groceries, entertainment, clothing, and eating out to cash-only to keep better tabs on the outflow.

Cutting Back on Debit/Credit Card and Check Use

For your cash-only categories, it may be a good idea to stop using your credit card (and even your debit card and checkbook) to pay for anything in those categories. That way, you can really track your cash.

Setting up a System for Tracking Cash Flow

To keep cash for different categories separate, you might consider using the envelope budget method.

With this system, you set a certain amount of cash to spend in each budget category. These pools of money are kept separate in different envelopes.

To keep track of the flow, you can put receipts in the same envelopes as you spend.

The goal is to make the cash last all month. Once the envelope is empty, you’ll either be done for the month or will need to take cash out of a different envelope, potentially short-changing another category.

Recommended: 7 Different Budgeting Methods

Establishing a Time to Take Out Cash

Whether it’s a certain day each week or month, you’ll want to make sure that you go to the ATM on a regular basis to get the full amount of cash that you’ll need until the next ATM trip.

Planning Shopping Trips in Advance

It’s generally better not to carry a load of cash around, so you may want to know ahead of time what errands you’ll be running, and how much you’ll need for each outing.

As a bonus, this can also curb impulse purchases.

The Takeaway

If you’re looking to fix or improve your everyday spending habits, nothing works quite like a cash-only lifestyle.

By forcing you to stick to pre-set spending limits (and actually see where your money is going), this approach may be able to help you keep your monthly spending within your budget.

While cash-only living can take away from efforts to build credit and can have some security issues, this method of spending can also help you save on credit card fees and interest.

If you’d like to pay in cash more often, but still want to earn a competitive return on your money, SoFi Checking and Savings Account might be a good option for you.

SoFi Checking and Savings lets you spend and save in one convenient place. Plus, members can enjoy access to their money at 55,000+ fee-free ATMs worldwide.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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

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