Jan
30
2026
A man in glasses sits in front of a laptop with papers spread around him, peering intently at the screen.

What Happens If Your Bank Account Goes Negative?

By | Budgeting & Goals, Financial Independence, money | Comments Off on What Happens If Your Bank Account Goes Negative?

A negative account balance can happen all too easily: An automatic bill payment might hit when your account doesn’t have enough to cover it. Or maybe you lost track of purchases made with your debit card and overextended yourself.

The resulting negative bank balance can have a serious impact, leading to overdraft fees, declined transactions, and even account closure. Read on to learn more about a negative bank account balance, including ways to avoid the problem, and what to do if you wind up with a negative balance.

Key Points

•   Having a negative bank balance can result in costly fees, declined transactions, and (potentially) account closure.

•   A negative balance occurs when you make payments that exceed the funds in your account.

•   Miscalculating how much is in the account, automatic payment delays, and pending transactions are some reasons a bank account might go negative.

•   Overdraft protection can help cover the difference, but it comes with fees.

•   To avoid a negative bank balance, monitor your account, set up alerts, and consider linking accounts.

What Does a Negative Balance Mean?

A negative account balance, also known as an overdraft, occurs when you spend more money than you have in your bank account, causing the account to dip below zero. This happens when a bank allows a transaction to go through even though there are insufficient funds. The bank is effectively lending you money to cover the difference, often at the cost of an overdraft fee. The bank may also charge other fees until the balance is restored to zero or positive.

To help you visualize this, here’s an example:

•   Imagine you have $500 in your account, and you write a check for $515, because you thought you had a balance of $600.

•   If the bank pays the $515, you end up with an account balance of minus $15. That’s the difference between how much money you had in the account and how much the bank paid the person that cashed your check. The bank made up the difference.

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Common Causes of Negative Balances

Your balance goes negative when you have withdrawn more than you have in your account. This can happen if you make a transaction — such as ATM withdrawal, or debit card purchase — for an amount that exceeds the balance in your checking account.

This is when overdraft protection, if you have it, kicks in. Instead of rejecting the transaction, the bank will cover the overage, allowing your account to go negative. Typically, you repay a negative balance with the next deposit of funds.

Here’s a closer look at how a negative bank balance can occur.

Miscalculation/Mistakes

Overdrafts can happen with miscalculations and mistakes. For instance, you might overestimate how much is in your account and spend more than you actually have. Or you may forget to record a bill you paid, which could take your balance down into negative territory.

Pending Transactions and Auto-Pay Delays

It’s possible you’re not exactly sure what checks you’ve written have been cashed and what incoming checks are still pending and haven’t yet cleared. You may unwittingly make a payment or ATM withdrawal thinking you’re good, but discover you’re not.

Or perhaps you experience an auto-pay delay, when your automatic bill payment doesn’t process on the exact date it should because the due date is on a weekend or a holiday, or the transaction is taking longer than usual. If sufficient funds aren’t sitting in your account the date the payment finally processes, that could result in a negative bank account balance.

Overdraft Fees Compounding the Balance

Your bank can charge you an overdraft fee whenever you don’t have enough in your account to cover a transaction. The amount varies by bank, but the fee may be as much as $35 per transaction. Since overdraft fees may be charged per transaction, they can multiply quickly, adding even more charges to the negative balance in your account.

The Risks of Ignoring a Negative Balance

Ignoring a negative bank account balance could lead to serious consequences that could cost you money and potentially damage your financial profile. Here are some of the issues ignoring a negative bank account can trigger.

Accumulating Daily Fees

If your bank covers a transaction that puts your account in negative territory, as noted above, it will typically charge an overdraft fee — and it might continue to do so daily or every time you make a transaction. If you make multiple transactions, and/or a number of days go by before you realize you have a negative balance, these fees can add up to a significant sum.

Involuntary Account Closure

If you don’t fix your negative balance by depositing money into your account, or if you overdraw your account too often, your days as a bank customer may come to a close. The bank can opt to shutter the account, and it can be difficult to reopen a closed bank account.

ChexSystems and Credit Score Impact

If the bank closes your account due to an ongoing negative bank account balance, it will likely report the closure to ChexSystems, a consumer reporting company banks use to screen customer accounts. A negative report by this agency will stay on your record for up to five years, which could make it difficult for you to open a new bank account.

Also, a bank that closed your account due to unpaid overdrafts might sell your debt to a collection company. That, in turn, could negatively impact your credit profile and your credit score.

How Long Can a Bank Account Stay Negative? (The Timeline)

How long a bank account can stay negative depends on the specific bank and its policies. Some banks offer a 24-hour grace period for you to bring your balance back up before they charge an overdraft fee; other banks may allow you to be overdrawn for one or two days up to a certain amount (like $50.)

The 30 to 60-Day Risk Window

If you have a negative bank balance for five to seven days, some banks charge extended overdraft fees, which add even more to what you owe. After about 30 to 60 days, many banks will close down the account. At this point, they may send your account to a debt collection agency.

When Does it Get Reported to ChexSystems?

When a bank closes an overdrawn account for a negative unpaid balance, they also typically report the closed account, and the reason it was closed down, to ChexSystems. A negative report by this company can stay on your record for up to five years making it difficult to open a new bank account. In that case, your only option might be a second chance checking account.

Overdraft vs NSF: What’s the Difference?

An overdraft fee is not the same thing as a non-sufficient funds (NSF) fee. Here’s a look at the difference when it comes to overdraft vs NSF fees:

•   An overdraft fee is what a bank or credit union charges you when they have to cover your transaction when you don’t have enough funds available in your account. This fee is around $35.

•   When a financial institution returns a check or electronic transaction without paying it, they may charge a non-sufficient funds fee. It’s usually about $18. The difference is, with a non-sufficient funds fee, the bank is not covering the shortfall; they are essentially rejecting the transaction and charging you for doing so.

How to Clear a Negative Bank Balance

If you have a negative bank balance, it’s important to take action as soon as you can. The following steps can help you get back on track.

Step 1. Audit Your Transaction History

Determine what went wrong and triggered the overdraft. Check your bank account online or via your bank’s app and also see what charges haven’t been paid or received. Then, do the math. This will give you an idea of where you stand and how soon you may be back in the positive zone for your balance.

Step 2. Stop All Automatic Payments Immediately

Automating your finances can be a convenient tool, but if you are in overdraft, automatic payments could keep popping up and derailing your efforts. Stop these payments right away for all your bills so they don’t keep adding to your negative balance.

Bring the Balance to Zero

Once you understand your situation, take action. Deposit enough money to bring your account balance to zero — and even better, deposit funds to put your balance firmly in the positive zone again. Ideally, put in enough to give yourself some cushion to help protect from future overdrafts.

Recommended: Savings Goal Calculator

Ask for Fee Forgiveness

Make a request to your bank to have your fees waived. They may be feeling generous, particularly if this is your first offense.

If your bank won’t waive the fees, go ahead and pay what you owe. If you don’t, you’ll just make your situation worse, meaning the bank could close your account and turn the matter over to debt collection. Taking action sooner rather than later to protect your bank account is usually best.

How to Prevent Future Negative Balances

There are ways to avoid a negative bank account balance. Try these strategies:

Set Up Low-Balance Alerts

Set up account alerts to let you know when your account balance reaches a certain number. If you know your account is getting low, you can take steps to avoid going into the negative balance zone. In addition, consider setting alerts to notify you before automatic deductions are made (many banks offer this option). That way, you can monitor your bank account and its balance to make sure you can cover the debit.

And be sure to check your balance regularly. “Waiting until the end of the month to check in on accounts leaves you at risk of excess spending and potentially overdrawing your checking account, “ says Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “Checking in once a week leaves time to self correct and adjust your budget to help balance the numbers.”

Link a Backup Savings Account

Explore what overdraft protection your bank offers. And then carefully consider: Do you need overdraft protection? It can keep a transaction from being declined if you don’t have enough money in your account, but the overdraft fees —as much as $35 per transaction — can add up.

Instead, you may be able to link a savings account to your checking which can be tapped to cover overdrafts. It may cost you a fee for that transfer, but it’s likely not as steep as an overdraft fee. While you don’t want overdrafts to be a regular occurrence, you do want to be protected in case they crop up.

Switch to a No-Fee Bank

Another option is to look for a no-fee bank, which may not charge overdraft fees, and set up a no-fee checking and savings accounts. A growing number of banks are offering no-fee accounts, especially no-fee checking accounts, so shop around and see which one offers the best option for your needs.

The Takeaway

Having a negative bank balance means you overdrafted your account. This often triggers pricey overdraft fees, and it can lead to other financial issues such as having your account closed down if the situation isn’t remedied. To help prevent a negative balance, keep tabs on your bank account balance, set up low-balance alerts, link a savings account to your checking account for extra coverage, or consider switching to a no-fee bank.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

Does a negative bank balance affect my credit score?

A negative bank balance could potentially affect your credit score if the negative balance isn’t resolved. For example, your bank might close your account due to an unpaid negative bank account balance and sell your debt to a collection company which could negatively impact your credit score.

Can a bank take my whole paycheck to fix a negative balance?

If you don’t remedy an overdrawn account, it’s possible that a bank could eventually choose to sue you and take legal action to garnish your wages. They would typically need a court order to do this, and it’s probable that they could only take a portion of your wages rather than your entire paycheck. But it’s wise to consult a legal professional about your specific situation.

How much does it cost to have a negative balance?

Having a negative balance typically costs about $35 per transaction in overdraft fees, though the exact amount can vary by bank. The costs can add up quickly, especially if you have a negative balance for several days.

Can I open a new bank account if I have a negative balance?

You may be able to open a new bank account if you have a negative balance, but it might be challenging, depending how long you’ve had the negative balance. If it’s been more than 30 to 60 days, your current bank may close your account and report it to ChexSystems, a banking reporting agency. A negative report can stay on your record for up to five years, making it difficult to open a new account. An option to consider in this case is a second chance bank account, a type of checking account for people with a negative banking history.

What is a “forced closure” of a bank account?

A forced closure means a bank shuts down a bank account without the account owner’s consent, usually for a policy violation such as repeated overdrafts, unpaid fees, or suspicious activity. If this happens to you, contact the bank to find out the reason for the closure. Ask what can be done to remedy the situation. For example, in the case of repeated overdrafts, find out how much you owe and how to go about repaying it to avoid having the account sent to collections, which could impact your credit.

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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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Jan
28
2026
A man wearing glasses sits at a desk, working on his laptop and trading forwards.

What Is a Forward Contract?

By | Growing Wealth, invest, Investing | Comments Off on What Is a Forward Contract?

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

A forward contract, also referred to as a forward, is a type of customizable derivative contract between a buyer and a seller that sets the sale of an asset at a specific price on a specific future date. Like all derivatives, a forward contract is based on an underlying asset.

Forward contracts are similar to options, as discussed below, but there are some key differences that investors will need to know if they plan to use forwards as a part of their investing strategy.

Key Points

•   A forward contract is a customizable derivative setting a specific price and date for an asset trade.

•   Forwards are settled once at expiration, unlike daily-marked futures.

•   These contracts are traded over-the-counter, offering flexibility but higher risk.

•   Typically, no upfront payment is required to enter a forward contract (though some may include collateral requirements).

•   Forward contracts are typically used by institutional investors due to high risks and lack of transparency.

How Do Forward Contracts Work?

Forwards are similar to options contracts in that they specify a price, amount, and expiration date for a trade. However, most options give traders the right, but not the obligation, to trade. With forward contracts, the transaction must take place at expiration.

Unlike futures contracts, another type of derivative, forwards are only settled once on their expiration date, but specific terms may vary based on the agreement between parties. The ability to customize forwards makes them popular with investors interested in self-directed investing, since the buyer and seller can set the exact terms they want for the contract.

Many other types of derivative contracts have predefined contract terms.

There are four main aspects and terms to understand and consider before entering into a forward contract. These components are:

•   Asset: This refers to the underlying asset associated with the forward contract.

•   Expiration Date: This is the date that the contract ends, and this is when the actual trade occurs between the buyer and seller. Traders will either settle the contract in cash or through the trade of the asset.

•   Quantity: The forward contract will specify the number of units of the underlying asset subject to the transaction.

•   Price: The contract will include the price per unit of the underlying asset, including the currency in which the transaction will take place.

Investors trade forwards over the counter, or OTC, instead of on centralized exchanges, which may make them less accessible to individual investors. Since the two parties custom-create the forwards, they may be more flexible than other types of financial products. However, they carry higher risk due to a lack of regulation and third party guarantee.

Recommended: What Are Over-the-Counter (OTC) Stocks?

What’s the Difference Between Forward and Futures Contracts?

Futures and forwards have many similarities in that they are both types of investments that specify a price, quantity, and date of a future transaction. However, there are some key differences for traders to know, including:

•   Futures are standardized derivative contracts traded on centralized exchanges, while forwards are customized contracts created privately between two parties.

•   Futures are settled through clearing houses, making them less risky and more guaranteed than forwards contracts, which are settled directly between the two parties. Parties involved in futures contracts almost never default on them.

•   Futures are marked to market and settled daily, meaning that investors can buy and sell them whenever an exchange is open.

•   Forwards are only settled on the expiration date. Because of this, forwards don’t usually include initial margins or maintenance margins like futures do.

•   It’s more common for futures to be settled in cash, while forwards are often settled in the asset.

•   The futures market is highly liquid, making it easy for investors to buy and sell whenever they want to, whereas the forwards market is far less liquid, adding additional risk.

Forward Contract Example

Let’s look at an example of a forward contract. If an agricultural company knows that in six months they will have one million bushels of wheat to sell, they may have concerns about changes in the price of wheat. If they think the price of wheat might decline in six months, they could enter into a forward contract with a financial institution that agrees to purchase the wheat for $5 per bushel in six months time in a cash settlement.

By the time of the expiration date, there are three possibilities for the wheat market:

1.    The price per bushel is still $5. If the asset price hasn’t changed in six months, the contract may expire without a financial settlement.

2.    The price per bushel has increased. Let’s say the price of wheat is now $5.20 per bushel. In this case, the agricultural producer must pay the financial institution $0.20 per bushel, the difference between the current market price and the price set in the contract, which was $5. The agricultural producer must pay $200,000.

3.    The price per bushel has decreased. Let’s say the price is now $4.50. In this case, the financial institution must pay the agricultural producer the difference between the spot price and the contract price, which would be $500,000.

Pros and Cons of Trading Forwards

Forwards can be useful tools for traders, but they also come with risks and downsides.

Pros of Trading Forwards

There are several reasons that investors might choose to use a forward:

•   Flexibility in the terms set by the contract

•   Hedge against future losses

•   Useful tool for speculation

•   Large market

Cons of Trading Forwards

Investors who use forwards should be aware that there are risks involved with these financial products. Those include:

•   Risky and unpredictable market

•   Not as liquid as the futures market

•   OTC trading means a higher chance of default and no third party guarantees or regulatory oversight

•   Details of contracts in the market are not publicly available

•   Contracts are only settled on the expiration date, making them riskier than futures contracts that are marked-to-market regularly

Who Uses Forward Contracts?

Typically, institutional investors and day traders use forwards more commonly than retail investors. That’s because the forwards market can be risky and unpredictable since traders create the contracts privately on a case-by-case basis. Often the public does not have access to the details of such agreements. Forward contracts are typically not accessible by retail investors; they are primarily used by institutional investors.

Institutional traders often use forwards to lock in exchange rates ahead of a planned international purchase. Traders might also buy and sell contracts themselves instead of waiting for the trade of the underlying asset.

Traders also use forwards to speculate on assets. For instance, if a trader thinks the price of an asset will increase in the future, they might enter into a long position in a forward contract to be able to buy the asset at the current lower price and sell it at the future higher price for a profit.

How Do Investors Use Forwards?

Traders use forwards to hedge against future losses and avoid price volatility by locking in a particular asset price or to speculate on the price of a particular asset, such as a currency, commodity, or stock. Forwards are not subject to daily price volatility. These strategies involve types of trades that aren’t typically available to individuals.

The trader buying a forward contract is taking a long position, and the trader selling is going into a short position. This is similar to options traders who buy calls and puts. The long position profits if the price of the underlying asset goes up, and the short position profits if it goes down.

Locking in a future price can be very helpful for traders, especially for assets that tend to be volatile such as currencies or commodities like oil, wheat, precious metals, or natural gas.

Recommended: Why Is It Risky to Invest in Commodities?

The Takeaway

Forward contracts are a common way for institutional investors to hedge against future volatility or reduce exposure to potential losses. However, they are generally considered high-risk investments that may not be suitable for most retail investors.

Given the specialized nature of forwards contracts (and other types of options), the risks may outweigh the potential rewards for many investors. As such, it may be a good idea to consult a financial professional before dabbling with forwards, or incorporating them into a larger investing strategy.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

🛈 SoFi does not offer future or forward contracts at this time.

Frequently Asked Questions

What is a forward contract in simple terms?

A forward contract is a private agreement between two parties to buy or sell an asset at a set price on a future date. These contracts are often used to hedge against price changes.

What is the difference between a forward and future contract?

Forwards are customizable contracts traded privately over the counter, while futures are standardized contracts traded on public exchanges. Futures typically have daily settlements and lower counterparty risk.

What are the benefits of a forward contract?

Forward contracts can help buyers and sellers lock in prices ahead of time, reducing exposure to market volatility. They also offer flexibility in terms and structure.

Do you pay to enter a forward contract?

Entering a forward contract usually doesn’t require an upfront payment. However, parties may face gains or losses at settlement depending on how the asset’s price changes over time.

Photo credit: iStock/fizkes

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

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.


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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Jan
26
2026
man in the library

What Is the Average Cost of College Tuition in 2026?

By | Student Loans, student_loan | No Comments

The average cost of college tuition varies widely based on location and whether the school is public or private. The average cost of college for in-state students at a four-year institution in 2024-25 is $11,610. Students at private nonprofit four-year institutions paid over $43,000, on average.

Read on for more information about average tuition costs and other expenses facing college students.

Key Points

•   Average tuition and fees for in-state students at public four-year institutions for 2024-25 are approximately $11,610 per year.

•   Tuition for out-of-state students at public four-year institutions averages $30,780 annually.

•   The average annual tuition and fees at private nonprofit four-year institutions are about $43,350.

•   College costs continue to rise annually, with rates depending on location, institution type, and other factors.

•   Ways to pay for college include cash savings, scholarships, grants, federal work-study, and federal and private student loans.

The Average Cost of College

According to the College Board’s annual “Trends in College Pricing” report, the average cost of attending a four-year college as an in-state student at a public university during the 2024-25 school year is $11,610. For an out-of-state student attending a public four-year college, the average rose to $30,780.

The average cost of attending a private four-year institution is $43,350. These averages are based on the published price at a college or university. This includes tuition, fees, and room and board.

Cost is a major factor for students deciding which school to attend. According to the annual Sallie Mae survey “How America Pays for College 2024,” 81% of parents and students eliminated a college based on cost.

Historical Average Cost of Tuition

The cost of tuition has increased dramatically over time. For the 2004-05 school year, the average cost of college tuition at a public four-year institution was $5,132 for a student receiving in-state tuition. In 20 years, tuition rose to $11,610 for the 2024-25 school year.

U.S. News reviewed tuition costs at 436 ranked National Universities, those universities included as part of the annual college rankings. According to their data, the average tuition and fees at private National Universities increased by 126% in 20 years from 2004 to 2024. During the same period, at four-year public National Universities, tuition for out-of-state students increased by 112%, and for in-state students it rose by 133%.

Average Total Cost of College

A traditional undergraduate college degree takes four years to complete, which means four years of tuition costs. According to EducationData.org, the cost of college has risen, on average, about 7.0% annually since 2000.

Year-over-year changes can fluctuate greatly, however, so it can be challenging to predict exactly how much a student will pay in tuition costs over the course of their degree. For example, the “Trends in College Pricing” report found that in-state tuition costs at public four-year institutions increased just 2.7% from the 2023-24 to the 2024-25 school year. For that same time period, tuition increased 3.9% at private nonprofit four-year institutions.

To get a rough estimate of how much college will cost in its entirety, you can take the current tuition rate and multiply it by four. Keep in mind this won’t account for any increase in the cost of tuition.

Average Additional College Expenses

Tuition generally makes up the majority of a student’s college expenses. But there are other fees and costs to factor in, including room and board, books, and other supplies. As you plan how to pay your tuition, students might also consider general living expenses.

What Is the Cost of Room and Board?

Some colleges charge “comprehensive fees,” which reflect the total for tuition, fees, and room and board. Other schools charge room and board separately from tuition and fees. The cost of room and board typically accounts for the cost of housing (i.e., a dorm room or on-campus apartment) and the meal plan.

The average cost of on-campus room and board for the 2024-25 school year is $12,917 for four-year public institutions for both in-state and out-of-state students, and $13,842 for four-year private nonprofit institutions.

The actual cost will vary depending on the type of housing you live in and the meal plan you choose. Housing can be another determining factor for students. About 73% of students attend college in their home state, and 36% live at home or with relatives to save on housing costs.

The Cost of Extra Classes

Tuition at some schools covers the cost of a certain number of credit hours. Your credit hours can vary each term depending on the classes you enroll in. If you exceed the number of credit hours covered by tuition, you may pay an additional fee.

Books and Supplies

On top of those expenses, don’t forget to budget for books and supplies. The average college student attending a public, four-year college spends $1,220 on textbooks per year.

Transportation

Transportation is another major category of expenses for college students. Will you have a car on campus? If so, plan to pay for gas, insurance, and a parking permit. How often do you plan to go home? Will a trip to visit your family require airfare?

Other Living Expenses

Then there are additional personal expenses like eating out, laundry, and your monthly cell phone bill. To get an idea of how much you’ll actually spend every month, it helps to review your current spending.

College may be the first time you’ve had to learn how to budget. Consider sitting down with your parents, an older sibling, or a trusted friend who has already navigated their first year of college to get an idea of the expenses you may encounter.

Paying for College

There are, of course, options available to help you finance your education. Whether you’re going to college for the first time or returning for further education, consider looking into the following options:

First Thing’s First: The FAFSA

A common first step for students interested in securing federal financial aid is to fill out the Free Application for Federal Student Aid (FAFSA®). As you get ready to apply, pay attention to deadlines, as they vary by school and state. After you fill out the FAFSA, you’ll receive an offer letter detailing the type of aid you qualify for. This may include scholarships and grants, work-study, and federal student loans.

Planning ahead is one way to set yourself up to successfully pay for college. If you’re not quite ready to fill out the FAFSA yet, you can use the Federal Student Aid Estimator at StudentAid.gov/Aid-Estimator/ to get an idea of how much aid you might qualify for.

Recommended: Important FAFSA Deadlines to Know

Scholarships and Grants

Scholarships and grants can be immensely helpful when it comes to paying for college, since that money doesn’t need to be repaid. In addition to filing the FAFSA, you can check to see if there are any other scholarships for which you may qualify. There are also online resources and databases that compile different scholarship opportunities.

The federal work-study program is another form of aid that can help students pay for college. If you are eligible for work-study and receive it in your financial aid award, you may still have to find your own employment at your university. Check with your school’s financial aid office to find out if your school participates and whether they will place you or if they have a work-study job board.

Of course, other jobs for college students are available, but students will have to pursue those on their own.

Recommended: Grants for College

Student Loans

Student loans offer another avenue for students to finance their college education. Unlike scholarships and grants, however, student loans must be repaid. There are two kinds of student loans — federal and private.

Federal Student Loans

Applying for student loans requires filling out the FAFSA. Federal loans for undergraduates can be either subsidized or unsubsidized. With a subsidized loan, borrowers won’t be responsible for paying the interest that accrues on the loan while they are actively enrolled in school at least half-time. With an unsubsidized loan, borrowers are responsible for paying the accrued interest during all periods.

Whether subsidized or unsubsidized, loan repayment generally doesn’t begin until after graduation (or a student drops below half-time) and a grace period.

Most grace periods for federal loans are six months. Interest rates on federal student loans are set by the government and are fixed for the life of the loan.

Federal loans aren’t guaranteed to cover your undergraduate or graduate school tuition costs. There are borrowing limits that restrict the amount of federal loans a student can take out each year. For example, a first year undergrad, dependent student is currently allowed to borrow $5,500 in federal loans. In some cases, private student loans may be used to fill in the gaps.

Private Student Loans

Private student loans are offered by banks, credit unions, and online lenders. Terms and conditions of a private student loan are set by the individual lender.

Private lenders will likely review a borrower’s credit history and other financial factors in order to determine what type of loan they may qualify for. If an applicant is applying with a cosigner, private student loan lenders will look at their financial background as well, which might include things like their credit score and current income.

While federal student loans come with fixed interest rates, private student loans can have fixed or variable interest rates. Variable interest rates may start lower than fixed rates, but they rise and fall in accordance to current market rates.

Private student loans don’t carry the same benefits and protections offered by federal student loans — such as income-driven repayment and loan deferment options. Some lenders may offer their own benefits, though.

The Takeaway

The average cost of college tuition for the 2024-25 school year was $11,610 for students paying in-state tuition at a four-year public institution. For out-of-state students, the average was $30,780. At a private four year institution it was $43,350. Paying for college usually requires a combination of financing options, including savings, scholarships, grants, work-study, federal student loans, and even private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.


Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

How much does four years of college cost on average?

The average cost for four years of college varies based on the institution type. As of 2024, attending an in-state public college averages around $108,000, including tuition, fees, and living expenses. Private colleges are significantly higher, averaging over $230,000 for four years. Costs can vary further by location and program.

How much has college tuition increased in 2024?

In the 2024-2025 academic year, average tuition and fees increased by 2.7% for in-state students at public four-year institutions and by 3.9% at private nonprofit four-year institutions. These increases are below the general inflation rate of 3.1% for the same period.

What are ways to save money on college expenses?

There are many ways to save money on college expenses, including by attending in-state public colleges, starting at a community college, or enrolling in accelerated degree programs. You can apply for scholarships, grants, and work-study opportunities, use tax-advantaged 529 savings plans, minimize textbook costs through rentals or e-books, and reduce living expenses by commuting or sharing housing.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., Puerto Rico, U.S. Virgin Islands, or American Samoa, and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 4/22/2025 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.


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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23
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Credit Card Debt Forgiveness: What It Is and How It Works

Credit Card Debt Forgiveness: What It Is and How It Works

By | Credit, Debt Payoff, Financial Independence | Comments Off on Credit Card Debt Forgiveness: What It Is and How It Works

If you’re overwhelmed by credit card debt, you might consider credit card debt forgiveness, which can involve paying less than you owe. This type of credit forgiveness is rare, however, and it usually comes with some financial consequences.

Still, if you’re unable to repay your credit card balance, it may be an option worth exploring. Read on to learn how to get credit card debt forgiven and what options there are to credit card forgiveness.

Key Points

•   Credit card debt forgiveness, where a debt collector accepts less than the full amount owed, is rare and can come with financial consequences.

•   The amount of debt that is forgiven is typically considered taxable income, which you must report on your tax return.

•   The credit card forgiveness process could hurt your credit score, depending on your terms and circumstances.

•   It’s best to contact your creditor when you start to fall behind on payments to discuss options, such as a potential hardship plan.

•   Alternatives may include working with a third party debt settlement group or declaring bankruptcy, but you may find debt relief through debt management planning or securing a personal loan with a lower-interest rate and fixed terms.

What Is Credit Card Debt Forgiveness?

Credit card debt forgiveness occurs when a portion of your credit card debt is effectively erased. However, this rarely happens. And when it does, it usually comes at a high cost.

As part of the terms and conditions you agreed to when signing up for a credit card, you likely committed to repaying your credit card debt accrued from swiping your card to make purchases. For this reason, it’s unlikely the credit card company will forgive your debt unless you have a compelling reason for why you don’t have to repay it.

(If your identity was stolen and a fraudster ran up your credit card bill, for instance, you’re probably not responsible for repaying the outstanding balance. In this case, you may consider disputing a credit card charge.)

When you don’t pay your credit card bill for an extended time, the credit card company may sell your debt to a debt collector. At this point, the debt collector will reach out to try to get you to repay all or a portion of the debt you owe. However, if you agree to repay a portion of your debt, they may forgive the rest, resulting in credit debt forgiveness.

When Can Credit Card Debt Be an Issue?

Credit card debt can more technically be an issue when your credit utilization ratio — the percent of your available credit line used — is above 30%, which can signal to lenders you may be overextended. Practically, however, credit card debt is an issue when you’re unable to pay the minimums and struggling to pay down the balance.

Credit card interest rates averaged 22.30% in November 2025, and tend to be higher than other types of loans. Since credit card interest is often compounded daily, debt can snowball rapidly. In response to high rates, a bipartisan bill proposed a temporary 10% cap on credit card interest rates in early 2025, and more recently President Trump made headlines for his proposed 10% credit card cap. However, there are other options available, such as a fixed, non-revolving credit line, for pursuing lower interest rates and debt relief.

How Does Debt Forgiveness Work for Credit Cards?

If a debt collector forgives your debt, you’ll generally still have to pay off a portion of the amount you racked up. Here’s a look at how credit card debt forgiveness works:

•   Say that you owe $10,000 in outstanding credit card debt. If you haven’t paid your bill for the last six months — not even your credit card minimum payment — your credit card company may have sold the debt to a debt collector.

•   At this point, you’ll no longer communicate with your credit card company about debt negotiations since the debt collector is now responsible for recouping the loss.

•   If you agree to repay $5,000 of the debt, your debt collector may require you to make a lump sum payment or installment payments over a set period of time.

•   This means that the other $5,000 of your outstanding credit card balance is now forgiven, meaning you don’t have to pay it.

While this may seem like a relief, here’s one important point to note: You’re still responsible for paying taxes on the amount of credit card forgiveness you receive in most cases. Essentially, you will claim the forgiven debt as taxable income and report it on your tax return.

Recommended: Charge Card Advantages and Disadvantages

When Does Credit Card Debt Forgiveness Work Best?

When you’ve fallen behind on your credit card payments and your creditor sells your debt to a debt collector for a fraction of the total balance, this is usually the best time to request credit forgiveness. Typically, debt collectors are more willing to settle some of your debt since they purchased your debt for a portion of what you owe. In other words, any debt you agree to pay back will help the debt collector make a profit from the transaction.

However, if your debt has not yet gone to a debt collector and the creditor is about to charge-off your account, you could still consider credit card forgiveness. A charge-off means that the creditor is accepting your debt as a loss. Therefore, they can recoup the funds by selling your debt to a debt collector. So, before they sell the debt, they might be willing to negotiate credit card debt forgiveness with you.

How Credit Card Debt Forgiveness May Affect Your Credit

The most significant financial implication of credit card debt forgiveness is the negative impact it can have on your credit. When you don’t pay your credit card bill for an extended amount of time, the creditor may report this as a charge-off to the three major credit bureaus (TransUnion, Equifax, and Experian). A charge-off indicates that you didn’t follow through with your financial commitments to a lender, and it can stay on your credit report for up to seven years.

Because credit bureaus use this information to calculate your credit score, a charge-off could lower your score for a while. A lower credit score may make it challenging to qualify for future loans or credit cards. And if you do qualify, you may have to pay a higher than average credit card interest rate, which can make borrowing more expensive.

To avoid this situation, it’s best to contact your credit card issuer as soon as you get behind on payments. Credit card companies may be willing to help you if you’ve fallen on hard times. They may offer a hardship plan, which can lower your monthly payments or reduce your interest for a set amount of time and ultimately help you get back on your feet. This is only a temporary solution though, so if your financial issues are more significant, you may need to explore another solution.

💡 Quick Tip: Credit card interest caps have become a hot topic, as the total U.S. credit card balance continues to rise. Balances on high-interest credit cards can be carried for years with no principal reduction. A SoFi personal loan for credit card debt may significantly reduce your timeline, however, and could save you money in interest payments.

Pros and Cons of Credit Card Debt Forgiveness

If you can’t make your credit card payments, credit card forgiveness might be a viable option. But, while getting your debt forgiven can help alleviate the financial burden, it also can harm your credit and cost you financially.

Here’s a breakdown of the pros and cons of pursuing credit card debt forgiveness.

Pros

 Cons
Potentially avoid bankruptcy Can harm your credit score
Repay only a portion of the debt you owe Will remain on your credit report for up to seven years
Pay off debt in a shorter time frame Must pay income tax on forgiven debt

Alternatives to Credit Card Debt Forgiveness

An alternative to credit card debt forgiveness may make more sense for your financial situation. Exploring all of your options in advance can help ensure that you make the best decision for your needs.

Debt Management

Third-party credit counseling agencies offer debt management plans that help you establish a plan for debt repayment. Working with one of these agencies may help you lower the fees you owe as well as your interest rate. However, you usually must agree to repay the total amount of outstanding debt before moving forward.

With a debt management plan, you’ll make one monthly payment to the credit counselor, who will then distribute the funds among the creditors you owe. Most plans help you repay your debt within three to five years. During this time, your account will still accrue interest, though your creditor might be willing to offer a lower rate.

To use one of these plans, you usually have to close your credit card account. This can negatively impact your credit score since it lowers your total credit card limit, thus increasing your credit utilization rate. Your credit utilization ratio is one of the most significant factors credit bureaus use when calculating your credit score.

Also, you will likely have to pay a monthly fee to your credit counselor. If considering this option, carefully vet the counselors you are considering and make sure the one you are working with has a good reputation.

Debt Settlement

Working with a debt settlement company can help you to lower the amount of debt you owe. For example, if you owe $10,000 as your credit card balance, the credit debt settlement company may try to help you settle your debt for $5,000 instead. But, of course, this strategy will only work if the creditor would rather have some of your debt repaid instead of having you default on the account.

Debt settlement also can harm your credit. Usually, debt settlement companies require you to stop making credit card payments while they negotiate with your creditor. At this time, your payments will go toward the debt settlement company so they can offer your creditor a lump sum payment as an incentive to settle your debt. However, pausing payments can negatively impact your debt since payment history is another factor used to calculate your credit score.

While debt settlement may sound good in theory, you should use it as a last resort option before filing bankruptcy. This solution is risky since it doesn’t guarantee that you’ll settle your debt. Your creditor could reject the offer.

Debt Consolidation

If your credit isn’t damaged too much, you might be able to qualify for a debt consolidation loan. While this isn’t technically a debt relief option, it can help you to consolidate your debt and potentially lower your interest rate, allowing you to save money.

To consolidate your debt, you’ll apply for another loan, ideally one with better terms than your existing debt. You’d use the loan to pay off your outstanding credit card debts. Then, you will make installment payments to the lender instead of paying the creditors.

Before you apply for a debt consolidation loan, compare your options to identify the loans with the most competitive terms and interest rates. While credit card APRs are usually higher and variable, personal loan APRs, for example, are generally lower and fixed, offering predictable payments.

Declaring a Chapter 7 or Chapter 13 Bankruptcy

Depending on your situation, declaring Chapter 7 or Chapter 13 bankruptcy may make the most sense. For instance, if you can’t make the payments with a debt management or debt settlement plan, bankruptcy could be an option to avoid going deeper into debt. But before you declare bankruptcy, consider speaking with a bankruptcy attorney to weigh out the pros and cons of this solution.

Bankruptcy should be one of your last resorts since it can drastically harm your credit. Also, it will stay on your credit report for up to 10 years after the filing date. To settle your debts with bankruptcy, you may also be forced to sell some of your assets.

The Takeaway

Credit card debt forgiveness involves paying less than the full amount you owe. While this prospect may sound great in theory, in reality it can harm your credit and end up costing you financially. If you find yourself starting to struggle with debt repayment, contact your credit card company to see if they will offer a hardship plan. If they’re unwilling to help or your financial troubles require a more long-term solution, you can explore credit debt forgiveness and other alternatives.

While credit cards can land you in a heap of debt, they can also be a great financial tool when used responsibly.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.


Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.


Enjoy unlimited cash back rewards with fewer restrictions.

FAQ

How long does it typically take before a debt is forgiven?

Depending on the route you go, the time frame for debt forgiveness may vary. For example, bankruptcy can take four to six months, while debt settlement can take 36 months or more.

Does debt forgiveness hurt your credit score?

Yes, once you become delinquent on payments, your credit score can be negatively impacted. Then, when your credit card company sells your debt to a debt collector, they may report your balance as a charge-off or a complete loss, which can also impact your credit drastically.

How do you get your credit card balance forgiven?

Usually, once a creditor sells your outstanding debt to a debt collector, the debt collector may agree to forgive some of your credit card debt. But, you must agree to repay a portion of the debt for this to happen.

About the author

Ashley Kilroy

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.


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.

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

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.

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

SoFi Credit Cards are 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.

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Jan
23
2026
Fixed vs Variable Credit Card Interest Rates: Key Differences

Fixed vs. Variable Credit Card Interest Rates: Key Differences

By | Credit, Family Finances, money | Comments Off on Fixed vs. Variable Credit Card Interest Rates: Key Differences

Anyone who’s ever had a credit card knows they have an interest rate, which represents the cost consumers pay for borrowing money. What you may not know is that interest rates come in two forms: fixed and variable interest rates.

Fixed interest rates stay the same over time and are generally tied to your creditworthiness. Variable interest rates, on the other hand, may change over time and are connected to economic indexes. Read on to learn how to determine if the interest rate of a credit card is fixed or variable, as well as why it’s important to know.

Key Points

•   Fixed interest rates usually remain the same, tied to creditworthiness, while variable rates fluctuate with benchmark economic indexes like the U.S. prime rate.

•   Fixed rates can still increase if payments are late, missed, or your credit score drops.

•   Variable rates offer risk and reward: they can increase or decrease based on an underlying benchmark. Issuers are not required to notify you when these rates shift.

•   Credit card interest rates are generally influenced by your creditworthiness (history and score), current interest rates, and the specific card type or promotional offers.

•   When credit card APR increases, late fees, and missed payments lead to increasing debt, lower-interest personal loans may help you pay down your debt sooner.

What Is Credit Card APR?


A credit card’s annual percentage rate, or APR, represents the cost a consumer pays to borrow money from credit card issuers, represented as a yearly cost.

When a cardholder doesn’t pay off their credit card balance in full each month, they’ll owe credit card interest charges on the remaining balance, with the rate based on their APR.

Credit card APRs vary among credit card issuers, individual cardholders, and credit card categories. Currently, the average credit card interest rate stands at 22.8% APR.

Recommended: Pros and Cons of Charge Cards?

Types of Credit Card APRs


Your credit card payment is impacted by what type of APR your credit card has. Let’s have a look at how a fixed rate credit card and a variable rate credit card may affect your credit experience.

Fixed Interest Rate


Fixed rate credit cards have an interest rate that generally doesn’t vary over the course of your credit card contract. Rather than being tied to economic indexes, fixed interest rates are generally determined based on payment history and creditworthiness, as well as any ongoing promotions.

However, just because the term “fixed” is used, doesn’t mean a fixed interest rate can never change. While a fixed rate credit card’s interest rate won’t change based on factors like the prime index, increasing credit card APR can occur if payments are late or missed or if your credit score dips. If that occurs, the credit card company must notify the cardholder at least 45 days before the adjusted rate takes effect.

While fixed rate credit cards offer the benefit of predictability, one downside is that their rates are, on average, higher than variable credit card rates.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Variable Interest Rate


A variable rate credit card offers interest rates that can shift over time. There’s a reason for that, as variable card rates are tied to major benchmark interest rates, like the U.S. prime rate.

Since major benchmark rates change, so will variable interest rates. That’s why banks and other major financial institutions often shift rates for things like credit cards, home mortgages, auto loans, and student loans. When major interest indexes change, the rates for loans change with them.

What does that mean for a cardholder? For starters, there’s more risk with variable interest rates. Rates can go up, and credit card payments increase when interest rates rise. Conversely, variable rates may go down, which works in favor of the credit cardholder, who will then pay less in interest.

Credit card consumers should check their credit card contracts for the specific conditions that can trigger a variable rate change. Credit card issuers don’t have to notify you of interest rate changes with variable rate cards, so it’s up to the consumer to keep a sharp eye out for changing interest rates.

Recommended: When Are Credit Card Payments Due

When Do Variable APRs Change?


As mentioned, the interest rate on a variable rate credit card changes with the index interest rate, such as the prime rate. If the prime rate goes up, so will your credit card’s APR. Similarly, if the prime rate goes down, your APR will drop.

How often your interest rate changes will depend on which index rate your lender uses as a benchmark as well as the terms of your contract. As such, the number of rate changes you may experience can vary widely, often multiple times a year.

Details on how a card’s APR may fluctuate over time will appear in a cardholder’s agreement, which you can generally find on the card issuer’s website. If you’re unable to locate it, you can request a copy from your card issuer.

Differences Between Fixed and Variable Credit Card Rates


Both fixed and variable credit card rates have pros and cons. Here’s a look at the major differences with a credit card with a variable or fixed interest rate.

Fixed Interest Rate Variable Interest Rates
The interest rate usually remains the same Variable rates change on an ongoing basis
Fixed rates are calculated with payment histories in mind Rates are based on a benchmark index, like the U.S. primate rate
The card provider is required to let you know when the rate does change (usually for late or missed payments) The credit card issuer is not required to let you know when rates shift

How Credit Card Interest Rates Are Determined


Credit card interest rates are generally determined based on your creditworthiness — meaning, your payment history and credit score — as well as prevailing interest rates and the card issuer and card type.

For instance, a basic card may have a lower rate than a premium rewards card. Additionally, credit cards can have different types of APRs, such as an APR that applies for credit card charges and another rate for cash advances or balance transfers.

Another factor that can impact credit card rates is promotional offers. Sometimes, credit card issuers may offer low or no interest periods. After that period ends, the card’s standard APR will kick in, and the card’s rate will go up.

Once determined, how and why a credit card’s interest rate changes over time depends on whether the interest rate is fixed or variable. A fixed rate will generally stay the same, though it may increase if payments are late or missed, or if the cardholder’s credit score takes a dive. Meanwhile, variable rates fluctuate depending on current index rates.

Recommended: Tips for Using a Credit Card Responsibly

Reducing Interest Charges on Credit Cards


Perhaps the easiest way to reduce interest charges on credit cards is to pay your statement balance in full each billing cycle. By doing so, you’ll avoid incurring interest charges entirely.

Of course, this isn’t always feasible. If you may end up carrying a balance and want to decrease how much a credit card costs, there are ways to do so. For one, you can call your credit card issuer and request a lower rate. Of course, for this to be successful, you’ll likely have needed to stay on top of payments and have a history of responsible credit card usage.

Perhaps the surest way to secure a better interest rate on your credit card is to build your credit score. In general, lower interest rates are awarded to those who have higher credit scores and follow the credit card rules, so to speak.

You can build your credit score by making your payments on time, every time, and by keeping your credit utilization ratio (how much of your available credit limit you’re using) well below 30%. You might also avoid applying for new credit accounts, which results in hard inquiries and temporarily lowers your score.

And if you simply feel in over your head with credit card debt and a skyrocketing APR, you may choose between credit card refinancing or consolidation as potential solutions.

💡 Quick Tip: Credit card interest rate caps have recently been proposed in response to rising interest rates. However, one option already available to borrowers is securing a fixed, lower-interest rate loan. A SoFi credit card consolidation loan may offer a lower interest rate, set terms, and a transparent pay-off plan.

Fixed vs Variable Interest Rate Cards: Which Is Right for You?


In a word, choosing between a fixed rate or variable rate credit card comes down to whether you prefer stability or risk versus reward.

A fixed rate credit card offers a known quantity — a rate that stays the same over time, as long as you pay your credit card bill on time. On the other hand, a variable rate credit card offers an element of risk and reward. If the rate goes up, the cardholder usually spends more money using the card. If card rates go down, however, the cost of using the card usually goes down, too, as interest rates are lower.

Of course, cardholders can largely negate the impact of credit card interest rates by paying their bills in full every month. Of, for those who don’t quite feel ready to tackle the responsibility, there’s always the option of becoming an authorized user on a credit card of a parent or another responsible adult.

The Takeaway


As you can see, it’s important for a number of reasons to know whether a credit card is fixed or variable. Fixed interest rates offer more predictability (though there’s no guarantee they’ll never change), but rates also tend to be higher compared to variable rates. With variable rates, your interest rate will fluctuate over time based on market indexes.

As you shop around for credit cards, interest rate is critical to pay attention to. It can have an impact on your ability to pay your credit card bill and use credit responsibly.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.


Looking for a new credit card? Consider credit card options that can make your money work for you. See if you're prequalified for a SoFi Credit Card.


Enjoy unlimited cash back rewards with fewer restrictions.

FAQ

Do all credit cards have fixed interest rates?


No, actually most credit cards come with variable interest rates tied to major interest rate indexes. That connection to interest rate changes enables card companies to keep rates competitive on a regular basis.

How do I get notified of an interest rate increase?


By law, credit card companies must notify cardholders in writing at least 45 days ahead of an interest rate change taking effect. Card companies are not allowed to change interest rates during the first year an account is open.

Can I control whether I have a fixed or variable interest rate?


Yes, you can opt for a fixed or variable rate credit card, but know that most credit cards come with variable rates. It’s tougher to find a fixed rate card, but banks and credit unions, which are more likely to offer both, are a good place to start your search.

Photo credit: iStock/AlekseiAntropov

SoFi Credit Cards are 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.

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.

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

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Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

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

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