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Whether you need to pay your rent or make a large purchase, a money order can be a payment option for completing the transaction. Usually, you must use cash or a debit card to buy a money order. But, if you’re in a financial bind or have some other motivation, using your credit card is sometimes an option.

However, be forewarned: Buying a money order with a credit card can involve getting a cash advance and come at a hefty cost. Here’s what you should know about trying to buy a money order with a credit card.

What Is a Money Order?

A money order is essentially a prepaid check. In terms of how a money order works, it allows one person to securely transfer funds to another person.

•   When you send a money order, you must purchase the total amount upfront and specify the person or business receiving the funds. This way, the value is guaranteed to the exact person you intend to receive the money. In other words, the payment won’t bounce since the money is already accounted for.

•   When the person receiving the fund picks up the money order, they must show a valid ID to prove their identity and verify the name of the person sending the money order. Requiring this information ensures the money gets into the hand of the correct recipient. Also, it makes it less likely that a thief could take the funds. However, if they do, money orders have receipts so you can track the whereabouts of the funds and potentially recover the money.

How to Use Money Orders

When paying bills or making large purchases, people who don’t have checking accounts can use money orders as an alternative to checks or debit cards. For instance, some people may use a money order to pay rent. In some cases, payees may require you to use a money order as your form of payment.

Since checks have all of your information written on them, some people are wary of financial fraud when using checks. Using a money order may offer peace of mind from knowing their information is not being exposed to fraudsters.

Another use for a money order is to send funds internationally to a friend or family member. Because many money order sellers have locations across the globe, you can usually send funds to plenty of locations worldwide. But, if you choose to send a money order internationally, make sure the person or payee is close to a location where they can receive the funds.

Pros and Cons of Money Orders

There are both pros and cons to money orders. It’s important to weigh both sides when deciding whether a money order is the right solution for you.

Pros

Money orders can come in handy for a variety of reasons. Specifically, their upsides include:

•   Offers a secure form of payment: If you send a money order through the mail, it doesn’t provide your private banking details the way a personal check would. Also, not just anyone can take a money order to the bank and cash it like they could if you sent cash through the mail. Further, money orders are more secure than carrying around a large sum of cash, which could be lifted.

•   Provides a form of payment for people who don’t have a bank account: For those who don’t have access to a checking account (what’s known as being unbanked), a money order can help them pay bills or complete other transactions. In some cases, payees may require a money order or cashier’s check to guarantee payment. For example, you may use a money order when selling your car to a private party.

•   Has recovery options if lost or stolen: Because money orders are traceable, there are processes to recover them if they are lost or stolen. However, depending on the situation, you may have to pay an extra fee to recover the lost or stolen funds. Still, that’s usually better than losing all of your money.

Cons

While money orders have benefits, they also come with some downsides, including:

•   Lack of convenience: Unlike other purchases, you must buy a money order in person. So, if you’re in a time crunch, a money order might not be a viable solution. Also, there are limits for the amount you can send via money order. For example, the USPS and most banks limit money order purchases to $1,000. But, you can purchase additional money orders if you need more than the maximum amount. Remember, though, that you will have to pay a fee for each money order you buy.

•   High cost: No matter how you decide to purchase a money order, you must pay a fee. If you get a money order from the bank or the USPS, you can expect to pay about $0.50 to $2 per money order.

If you get one from your credit card company, it may be considered a cash advance (more on this in a moment). You can expect to pay a fee of about 5% or $10, whichever is greater. So, if you take out a $1,000 money order, you could pay $50 just for the transaction. Also, you’ll likely have to pay a higher credit card APR for the money order total, even if you have a good APR for a credit card.

•   Common scam practice: In some cases, a criminal will send a fraudulent money order for a large sum of money and then request a portion of the proceeds. Before you realize you’ve been duped, the excess funds may have already been deposited in the thief’s checking account.

Can You Buy a Money Order With a Credit Card?

So, can you buy a money order with a credit card? Well, possibly. Some major credit issuers will allow you to buy a money order with your credit card. However, the credit issuers may not treat the money order as they would a usual purchase. Instead, the issuer may treat it as a cash advance, which involves a higher than normal APR.

Recommended: How to Send Money Using a Credit Card

Should You Buy a Money Order With a Credit Card? And How to Do It

Whether you should buy a money order with a credit card depends on your situation. But, before you buy a money order from your credit issuer, it’s wise to understand the drawbacks that come with purchasing a money order from a credit card.

•   High cost: As mentioned, you will usually spend 5% or $10 per money order (whichever is greater) depending on the credit card issuer. So, for a $500 money order, you’ll likely pay close to $25. Also, you may have to pay the “cash advance APR,” which is usually higher than your normal purchase APR on a credit card.

•   No grace period: With everyday purchases, you usually have a grace period before interest accrues — an essential part of how credit cards work. This usually isn’t the case with cash advances, however. Interest will typically begin accruing right away, meaning your outstanding balance will grow immediately.

•   No rewards: Unlike everyday purchases, you won’t receive any bonus points or cash back rewards when you take a cash advance.

•   Potential to become a big financial burden: Credit card issuers determine how they allocate your minimum credit card payment. So, let’s say your outstanding balance includes purchases and a cash advance. If your minimum credit card payments are first allocated to purchases, only making the minimum payment may make it almost impossible to repay your total bill since your interest is constantly accruing on the cash advance portion.

After careful consideration, you may decide that buying a money order from a credit card is the most viable option. To do so, you can request a cash advance from your credit issuer. You also can get a cash advance at your local ATM, bank branch, or a loan agency like CashnGo Loans. Make sure you have your PIN if you decide to use a loan agency.

Your credit issuer may also let you use a convenience cheque, which is an option that transfers money from your credit card to your checking account. Essentially, it works similarly to a regular check, except the funds come from your line of credit instead of your bank account.

Once you have the funds from your cash advance, you can go ahead and purchase a money order at an establishment that offers them.

Where Can You Buy a Money Order With a Credit Card?

In the past, companies such as Western Union and 7-Eleven used to let you purchase a money order with a credit card. Now, no company lets you purchase a money order directly with a credit card — even if it’s somewhere that generally accepts credit card payments.

However, Western Union gives you the option to transfer money with a credit card. This means that you can send money through the Western Union app online or in person. Before you send money through Western Union, make sure to check to see if there are other fees associated with this transaction.

You can also get a money order by using your cash advance to purchase one from several establishments such as:

•   The USPS

•   Select banks, such as Wells Fargo

•   Check-cashing stores

•   Payday loan locations

•   Retailers or grocery stores

Keep in mind that in addition to the fees for the cash advance, you will have to pay the fee for the money order.

What Are the Costs of Getting a Money Order With a Credit Card?

With a cash advance, you usually have to pay a higher rate than the average credit card interest rate on the amount you take out, which will begin accruing right away. Also, your card issuer may apply extra fees, usually 5% of the total amount or $10, whichever is the more significant amount.

You will also have to pay the money order fee since no establishment directly accepts a credit card payment for a money order.

The Takeaway

Money orders can be a safe and secure alternative to cash or personal checks. Some recipients prefer receiving money orders because they won’t bounce and they come with a receipt. However, it’s typically not possible to buy one directly with a credit card. Instead, you would likely have to get an expensive cash advance on your credit card to fund the money order. It’s wise to think twice about using your credit card this way.

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.

FAQ

Can you buy a money order with a credit card at Walmart?

No, you can’t directly purchase a money order from Walmart with a credit card. Instead, you must purchase a Walmart money order with cash or a debit card. However, you can take a cash advance from your credit card company and use the proceeds to purchase a money order.

Can buying money orders with a credit card raise your credit utilization?

Since taking a cash advance requires you to use your line of credit, it will increase your credit utilization rate. Keep in mind if your credit utilization ratio exceeds 30%, your credit score might be negatively affected.

Does paying the minimum balance count toward a cash advance every month?

Not necessarily. Every credit issuer determines how to distribute your minimum monthly payment. Therefore, your credit issuer may choose to put your minimum payment amount toward new purchases before putting funds toward repaying the cash advance. Doing such may make it more challenging to repay your outstanding balance.

How can you get cash from your credit card?

You can get cash from a credit card by requesting a cash advance through an ATM, bank branch, or convenience check. However, take note: Your credit card issuer may apply a fee and a higher APR for the cash advance.

Photo credit: iStock/sturti

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.

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

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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.

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.

Recommended: Charge Card Advantages and Disadvantages

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.

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.

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.

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.

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.

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.

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.

Photo credit: iStock/damircudic
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When you die, your credit card debt does not die with you. Rather, any remaining debt you have must be paid before assets are distributed to your heirs or surviving spouse. The debt is subtracted from your estate, which is the sum of your assets. If your debts exceed your assets, then your estate is considered insolvent. That could mean your loved ones don’t receive any funds at all.

Read on to learn what happens to credit card debt after death, including who is responsible for credit card debt after death and what steps you should take after a cardholder dies.

Who Is Responsible for Credit Card Debt When You Die

An unfortunate part of understanding how credit cards work is grasping who is responsible for credit card debt after death. Typically, relatives aren’t responsible for paying a family member’s credit card debts upon death.

However, you may be responsible for paying your deceased loved one’s credit card debt if you cosigned for a credit card, given the responsibility cosigning carries. Joint account holders also can be held responsible for credit card debt left after death since both account holders are equally responsible for paying the credit card balance.

Authorized users, on the other hand, are not usually responsible for the outstanding balance on a deceased person’s account — unless, that is, you live in a community property state. These states, which typically hold spouses responsible for each other’s debts, include:

•   Arizona

•   California

•   Idaho

•   Louisiana

•   Nevada

•   New Mexico

•   Texas

•   Washington

•   Wisconsin

If you live in one of these states, you may have to pay your spouse’s credit card debts if they die, even if you were only an authorized user on their card.

Next Steps After a Cardholder Dies

If you have a relative or loved one who recently passed and left outstanding credit card debt, theses are the steps you should take to make sure their debt is properly handled:

1.    Ask for multiple copies of the death certificate. You’ll likely need to send official copies to various credit card companies and life insurance companies. It may also be needed for other estate purposes.

2.    If you’re an authorized user on the deceased person’s credit card, stop using that card upon their death. Using a credit card after the primary cardholder’s death is considered fraud. If you make any payments on the authorized user card, the credit company will accept the credit card payments and can claim that you have taken responsibility for the entire balance of the card. If you don’t have another credit card of your own, you may want to explore how to apply for a credit card.

3.    Make a list of the deceased person’s financial accounts, including their credit card accounts. A spouse or executor of the deceased can request a copy of the person’s credit report to check for all accounts. This way, you’ll know which accounts you’ll need to handle.

4.    Notify the credit card companies of the death. You’ll want to make sure to close any accounts that were in the deceased person’s name.

5.    Alert the three consumer credit bureaus of the death. You’ll also want to put a credit freeze on the person’s account. This can help prevent identity theft in the deceased’s name. Only the spouse or executor of the estate is authorized to report this information to the credit bureaus, which include Experian, TransUnion, and Equifax.

6.    Continue to make payments on any jointly held credit cards that you aren’t closing. Making the credit card minimum payment can help prevent a negative effect on your credit score.

Assets That Are Protected From Creditors

If a deceased relative’s credit card debt exceeds their total assets, don’t panic. In the instance the estate doesn’t have enough money to cover all of the deceased’s debt, state law will determine which debt is the highest priority.

Credit cards are considered unsecured loans, which are lower in priority for loan repayments after death. Mortgages and car loans are secured by collateral, so they are considered higher priority. Often, unsecured debt may not even get paid.

It’s also important to know that some types of assets are protected from creditors in the event of death. This includes retirement accounts, life insurance proceeds, assets held in a living trust, and brokerage accounts. Homes may also be protected, though this will depend on state law and how title to the property is held.

Remember: Credit card companies can’t legally ask you to pay credit card debts that aren’t your responsibility.

Credit Card Liability After Death

The best way to keep your loved ones from having to deal with your credit card debt is to responsibly manage your credit card balances while you’re alive. For instance, you can avoid spending up to your credit card limit each month to make your balance easier to pay off.

You can also take the time to look for a good APR for a credit card to minimize the interest that racks up if you can’t pay off your balance in full each month.

Knowing your credit card debt won’t disappear after you die may also make you think twice before making a charge. For instance, while you can technically pay taxes with a credit card, it might not be worth it if it will just add interest to the amount you owe.

If a loved one has recently passed and you shared accounts in any way, keep an eye on your own credit reports and credit card statements. Make sure to dispute credit card charges that you think are incorrect.

How to Avoid Passing Down Debt Problems

If you want to avoid passing down the issue of sorting out your debt, you can have an attorney create a will or trust. A will or trust will offer your loved ones guidance on where you’d like your assets to go after your death, and, in some cases, could allow them to bypass the sometimes costly and time-consuming process of probate.

However, making a will or trust won’t necessarily stop debt collectors from contacting your family members after your death — even if those family members aren’t responsible for the debt. Keep in mind that the Fair Debt Collection Practices Act does prohibit deceptive and abusive contact by debt collectors, so your loved ones will have some legal protections from excessive collections efforts.

Still, it’s important to share as much information as you can about your debt with family members so that they’re aware of your finances after you are no longer there. You don’t need to share information as personal as the CVV number on your credit card or your credit card expiration date, but it is helpful for your loved ones to have an idea of how many accounts you have and what the general state of them is.

The Takeaway

Unfortunately, you don’t get automatic credit card debt forgiveness after death. While your loved ones generally won’t be held responsible for your debt — unless you have a joint account, served as a cosigner, or live in a community property state — your debts are still deducted from your estate. If you want to avoid leaving your loved ones with a mountain of debt, the most important step you can take is to responsibly manage your credit cards while you’re still here.

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.

FAQ

Do I have to pay my deceased parent’s credit card debt?

You don’t have to pay your deceased parent’s credit card debt unless you were a cosigner on their credit card. If you were an authorized user on your parent’s credit card, you are not responsible for their debt.

Do credit card companies know when someone dies?

You should notify the credit card company when your close relative dies to close any accounts in their name. You should also notify the three consumer credit bureaus of the death to put a credit freeze on the person’s account to prevent identity theft.

Can credit card companies take your house after death?

Homes are usually protected from creditors in the event of death, though this does depend on state law and how the title of the property is held. In general, however, credit card companies usually can’t take your house after death.

Is my spouse responsible for my credit card debt?

Your spouse is not responsible for your credit card debt unless they were a cosigner on your credit card. If they were an authorized user on your credit card, they generally are not responsible for your credit card debt unless you live in a community property state (California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin).

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.

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

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

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.

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

Photo credit: iStock/PixelsEffect
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Over the life of a $350,000 mortgage with a 7% interest rate, borrowers could expect to pay from $216,229 to $488,233 in total interest, depending on whether they opt for a 15-year or 30-year loan term. But the actual cost of a mortgage depends on several factors, including the interest rate, and whether you have to pay private mortgage insurance.

Besides interest, homebuyers need to account for a down payment, closing costs, and the long-term costs of taxes and insurances that are included in a $350,000 mortgage payment.

Cost of a $350,000 Mortgage

When you finance a home purchase, you have to pay back more than the borrowed amount, known as the loan principal. The total cost of taking out a $350,000 mortgage is $838,281 with a 30-year term at a 7% interest rate. This comes out to $488,233 worth of interest, assuming there aren’t any late monthly mortgage payments or pre-payments.

When you buy a home, there are usually some upfront costs you’ll have to pay, too. Mortgages often require a down payment, calculated as a percentage of home purchase price, that’s paid out of pocket to secure financing from a lender. The required amount varies by loan type and lender, but average down payments range from 3% – 20%.

Closing costs, including home inspections, appraisals, and attorney fees, represent another upfront cost for real estate transactions. They typically sum up to 3% to 6% of the loan principal, or $10,500 to $21,000 on a $350,000 mortgage.

The total down payment on $350,000 mortgages also impacts the total cost of taking out a home loan. Unless buyers put 20% or more down on a home purchase, they’ll have to pay private mortgage insurance (PMI) with their monthly mortgage payment. The annual cost of PMI is generally between 0.5% – 1.5% of the loan principal. Borrowers can get out of paying PMI with a mortgage refinance or when they reach 20% equity in their home. If this is your first time in the housing market, consider reading up on tips to qualify for a mortgage.


💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.

Monthly Payments for a $350,000 Mortgage

The monthly payment on a $350K mortgage won’t always be the same amount. You’ll need to factor in your down payment, interest rate, and loan term to estimate your $350,000 mortgage monthly payment.

With a 30-year loan term and 7% interest rate, borrowers can expect to pay around $2,328 a month. Whereas a 15-year term at the same rate would have a monthly payment of approximately $3,146. However, these estimates only account for the loan principal and interest. Monthly mortgage payments also include taxes and insurances, but these costs can differ considerably by location and based on a home’s assessed value.

There are also different types of mortgages to consider. Whether you opt for a fixed vs adjustable-rate mortgage, for instance, will affect your monthly payment.

To get a clearer idea of what your monthly payment might be with different down payments and loan terms, try using a mortgage calculator.

Recommended: Best Affordable Places to Live in the U.S.

Where to Get a $350,000 Mortgage

Homebuyers have many options in terms of lenders, including banks, credit unions, mortgage brokers, and online lenders.

The homebuying process can be stressful, so it may be tempting to go with the first mortgage offer you receive. However, shopping around and getting loan estimates from multiple lenders lets you choose the one that’s the most competitive and cost-effective.

Even a fraction of a percentage point difference on an interest rate can add up to thousands in savings over the life of a mortgage. Besides the interest rate, assess the fees, terms, and closing costs when comparing mortgage offers.

Recommended: Home Loan Help Center

What to Consider Before Applying for a $350,000 Mortgage

When taking out a mortgage, it’s important to consider the total cost of the loan. You’ll need cash on hand for a down payment and closing costs, plus sufficient income and funds to cover the monthly payment and other homeownership costs.

Before applying for a $350,000 mortgage, crunching the numbers in a housing affordability calculator can give a better understanding of how these costs will work with your finances.

It’s also helpful to see how $350,000 mortgage monthly payments are applied to the loan interest and principal over the life of the loan. The majority of the monthly mortgage payment goes toward interest rather than paying off the loan principal, as demonstrated by the amortization schedules below.

Here’s the mortgage amortization schedule for a 30-year $350,000 mortgage with a 7% interest rate — which would amount to $488,233 in interest. For comparison, we’ve also included the mortgage amortization schedule for a 15-year $350,000 mortgage with a 7% interest rate. A $350,000 mortgage payment, 15 years’ out, would add up to $216,229 in interest. When weighing a 30-year vs 15-year loan term, the shorter loan term carries a higher monthly payment but less than half the total interest over the life of the loan.

Amortization Schedule, 30-year Mortgage at 7%

Amortization Schedule, 15-year Mortgage at 7%

Recommended: The Cost of Living By State

How to Get a $350,000 Mortgage

To qualify for a $350,000 mortgage, borrowers will need to meet the income, credit, and down payment requirements. It’s also important to have an adequate budget for long-term housing costs and other financial goals and obligations like savings and debt.

Using the 28/36 rule, a monthly mortgage payment shouldn’t be more than 28% of your monthly gross income and 36% of your total debt to be considered affordable. With a $2,328 monthly mortgage payment, you’d need a minimum gross monthly income of at least $8,300, or annual income of $96,600, to follow the 28% rule. Similarly, your total debt could not exceed $660 to keep housing and debt costs from surpassing 36%.

Home mortgage loans, with the exception of certain government-backed loans, require a minimum credit score of 620 to qualify. However, a higher credit score can help secure more competitive rates. If you qualify as a first-time homebuyer, you could get a FHA loan with a credit score of 500 or higher, though borrowers with a credit score below 580 will have to make a 10% down payment.

As mentioned above, it’s a good idea to compare lenders and loan types to find the most favorable rate and loan terms. From there, getting preapproved for a home loan is a logical next step to determine the loan amount and interest rate you qualify for. It also puts you in a better position to demonstrate you’re a serious buyer when making an offer on a property.

After putting in an offer, completing the mortgage application requires many of the same forms used for preapproval, plus an earnest money deposit.


💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.

The Takeaway

Buying a home is the largest purchase many Americans make in their lifetime. How much you’ll end up paying for a $350,000 mortgage depends on the interest rate and loan term. On a $350,000 mortgage, the monthly payment can range from $2,328 to $3,146 based on these factors.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How much is a $350K mortgage a month?

The cost of a $350,000 monthly mortgage payment is influenced by the loan term and interest rate. On a $350K mortgage with 7% interest, the monthly payment ranges from $2,328 to $3,146 depending on the loan term.

How much income is required for $350,000 mortgage?

Income requirements can vary by lender. But using the 28/36 rule, a borrower who isn’t burdened by lots of other debts should make $99,600 a year to afford the monthly payment on a $350,000 mortgage.

How much is a down payment on a $350,000 mortgage?

The down payment amount depends on the loan type and lender terms. FHA loans require down payments of 3.5% or 10%, while buyers could qualify for a conventional loan with as little as 3% down.

Can I afford a $350K house with a $70K salary?

It may be possible to afford a $350,000 house with a $70,000 salary, but only if you are able to make a sizable down payment to lessen the amount of money you need to borrow. Having a good credit score and minimal debt would also better your chances.

Photo credit: iStock/sturti

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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.

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.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

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Building a budget can pay off quite literally: It provides guidelines for your money and helps you wrangle your spending and saving to achieve financial health. With smart planning, you can make your cash work harder for you and grow.

Many people think that a budget is all about deprivation, but it’s really about organization. A key step in developing a good budget is knowing how to categorize both your spending and saving. That can help you get a handle on where your money is going and how to make the most of it.

In this guide, you’ll learn how to divide your expenses into three main categories (namely, needs, wants, and savings), and then further separate things into smaller groups. This can help you truly understand your spending habits and optimize your finances.

Whether you’re just starting out on your independent financial life or if you’re looking to tweak your existing budget, this advice can help you better manage your budget categories and direct your spending goals.

9 Budget Categories for Needs

Of course, you probably are wondering what actually constitutes budgeting categories. First, focus on the needs of life.

This category, which represents the largest chunk, includes expenses that you must pay in order to live and work. You might think of these as things you actually need to survive — they’re sort of like the air, water, and food of your budget.

So, for instance, a fancy dinner out or a caramel latte are definitely food, but they wouldn’t necessarily go in this category. Groceries would though.

A good rule of thumb is to have this category take up about 50% of your after tax income. Housing and utilities are likely to take up the biggest chunk, but ideally no more than 30% of income.

The percentages, however, are just guidelines. Because the cost of living in different states varies across the country, you may need to adjust your budget according to where you live.

Recommended: How to Make a Budget in 5 Steps

1. Housing

Whether you pay rent or have a home mortgage, paying to keep a roof over your head is definitely a need. In addition, you may have property taxes to pay if you are a homeowner, and home maintenance costs can be part of this category for renters and owners alike.

2. Utilities

Depending on your living situation, you might pay for electricity, WiFi, heating fuel, telephone service, water, sanitation services, and other necessities.

3. Insurance

Having car, health, life, homeowners or renters insurance and possibly pet insurance can be important. You don’t want to wing it with this kind of protection (and auto insurance is required).

4. Groceries and Personal Care Items

Of course, you need food and toiletries as part of daily living. So the food you purchase to make meals and items like toothpaste go into your budget as “needs.” However, buying that $7 pack of cookies or $40 hair conditioner? Those might be better deemed “wants.”

5. Transportation

Car ownership expenses, public transportation, and the occasional Uber to get to urgent care can all be considered necessities.

6. Clothing

Yes, you need a warm winter coat if you live in the climates that get chilly, plus boots. And you need basic garments to wear to work and on your off-hours. However, if you buy a cool jacket because you love it or yet another pair of cute shoes since they are on sale, those are not vital to your survival and should go in the “wants” category.

7. Debt

Minimum payments on outstanding debts like credit cards, student loans, auto loans, or personal loans would also go into the 50% needs portion.

8. Parenting Expenses

Child care, as well as child support or alimony payments, go into the “must” bucket of your budget. Those are not discretionary expenses.

9. Healthcare

Depending on your insurance coverage, you may have expenses related to staying well, such as copays, prescription costs, and the like. Treating yourself to a massage that isn’t medically required? That’s not a “need” but a “want.”

Recommended: Input your monthly income to find out how much to spend on essentials, desires, and savings with our 50/30/20 Budget Calculator.

6 Spending Categories for Wants

These are expenses that don’t qualify as needs and don’t include your savings and payments towards debt. Though it can sometimes be tricky to separate needs from wants, if you can live and earn your income without it, then it’s probably a want.

If you can live and earn your income without it, then it’s probably a want.

This is where you could put spending on clothing outside of what you need on a day-to-day basis, dinner and drinks out with friends, going to the movies, gym memberships, personal care, and miscellaneous spending.

As a general guideline, this category shouldn’t take up more than 30% of your spending. While you may need to give and take depending on your situation, seeing how much you are spending on wants in black and white may cause you to start thinking more carefully about these expenditures.

1. Clothing and Personal Care

Treated yourself to a new but unnecessary shirt as part of a little retail therapy? Took yourself to the spa for a day? Or bought yourself a fancy watch since you got a promotion? Those are all wants. They aren’t necessarily bad things, but be clear that they are not vital to your survival.

2. Dining Out and Drinking

It’s part of life to meet friends and loved ones for happy hour or a nice meal, or to get a bubble tea while running errands on the weekend. Or maybe you don’t feel inspired to cook so you order some Pad Thai for pickup or delivery. These are all discretionary food expenses vs. those that are vital to your survival.

3. Entertainment

While entertainment can definitely enrich your life, it goes into the “wants” category. This includes things like concert, play, and movie tickets; books and magazines; cable and streaming services; downloading music; and attending festivals and fairs.

4. Gym Memberships, Self-care, and Grooming

You could just workout for free at home while watching a Youtube video, so health club memberships, yoga or Pilates classes are “wants.” Same goes with self-care and grooming: Facials, manicures, and the like are considered discretionary. That $50 hair conditioner you can’t live without? That isn’t a “need” either.

5. Travel Expenses

If you are traveling for business purposes to pitch a new account, that’s more of a “need,” but otherwise, a getaway is a “want.” So tally up any airfare, rental car costs, hotel or Airbnb, food, and tour/attraction tickets, and consider them “wants.”

6. Home Decor

If your mattress bites the dust and you replace it, that is a “need,” but deciding to buy a new couch because your home could use a spruce-up is a “want.”

💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.

Categorizing Your Savings

Under the 50/20/30 rule, it’s suggested that savings take up 20% of your post-tax income. This is the money you’re putting toward your retirement, emergency fund, and other savings. You can also put payments against debt above minimums here since this can ultimately save money on interest, it’s considered savings.

Here are specifics.

1. Emergency Fund

Financial experts recommend having three to six months’ worth of basic living expenses socked away in case of emergency. This could mean job loss or receiving an unexpected and major medical or car repair bill. You don’t want to have to resort to using your credit card for such things.

Recommended: Use our emergency fund calculator to determine how much you should be savings for an emergency fund.

2. Retirement Savings

If you aren’t offered a 401(k) or something similar at work, you can still contribute to retirement savings account like an individual retirement account (IRA). You might be able to find a low-fee, or no-fee, IRA online.

Recommended: How to Open an IRA: Step-by-Step Guide

3. Other Short- and Long-Term Savings

You’ll also probably want to fund non-retirement savings goals, such as saving for a summer vacation or the down payment on a house. It can be a good idea to open a separate savings account, ideally where you can earn higher interest than a standard savings account, such as a money market fund, online savings account, or a checking and savings account.

To make sure saving happens each month, you may also want to set up an automatic transfer from your checking account into this account on the same day every month, perhaps after your paycheck gets deposited.

4. Additional Debt Payments

If you can pay more than the minimum on your credit card bill or make extra payments on your loans, that can decrease what you are spending on interest. That in turn can help increase your overall financial health and wealth.

Why Categorizing Your Budget Is Important

Categorizing your budget is important because it can give you a much better sense of where your money goes versus just paying whatever bills turn up.

•   When you see how much cash goes towards the different kinds of “needs,” “wants,” and savings, you can better manage your cash. Tracking your spending can bring greater financial insight.

•   Also, as you categorize and tally your spending, you may see that much more than 30% of your take-home pay is going to ”wants.” That could convince you to recalibrate and cut back.

•   Or you might notice that you are spending way more than 50% on “needs.” This can happen when you are just starting out in your career or if you live somewhere with a high cost of living. Again, you might look to lower costs.

Finalizing Your Budget Categories and Getting Started

Now that you have an idea of how to allocate your income based on standard budgeting categories, you may want to start building out your budgeting plan.

If you find that your monthly expenses (including savings) are higher than your monthly take-home income, you’ll likely want to make some adjustments. One of the easiest places to do this is within the “wants” bucket.

Here, you can scout for unnecessary expenses you may be able to do without. For instance, maybe you would be fine saving on streaming services by dropping one or two platforms, cooking at home a few more times per week, or cutting back on clothing purchases.

If your “musts” are eating up more than 50%, perhaps you want to consider moving to a less expensive home or taking in a roommate. Another option could be to start a side hustle to bring in more income or train up for a higher-paying line of work.

It can help to keep in mind that the 50/30/20 guideline is just that, a guideline. Everyone’s situation is different and your numbers may vary depending on many different factors, including where you live, your income, how much debt you have, and your savings and investment goals. (There are also other budgeting methods to try, if you like.)

The Takeaway

Putting expenses into categories and coming up with a spending plan can bring significant benefits. These include being able to pay off debt, saving up for short-term goals (such as an emergency fund, a vacation, or a down payment on a home), and funding your retirement.

The 50/20/30 rule can give you an general idea of how to allocate your income based on standard budgeting categories and help you start building out your budgeting plan.

Need some help keeping track of spending? Many financial institutions offer tools that can help you see where your money is going and make the most of your savings.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with 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.

FAQ

What are the 4 main categories in a budget?

There are different ways to categorize a budget, but commonly, people focus on their take-home pay, their spending on their “wants,” their “needs,” and how much they save.

What categories should you have in a budget?

When building a budget, it’s important to know how much income you have after taxes, what are the expenses that are necessary for your survival, what is your usual discretionary spending (which some people call the “fun stuff” in life), and how much are you saving. Within the last three buckets, you can subdivide into more specific categories.

How do you organize a budget?

One good budgeting technique is the 50/30/20 budget rule. This principle says that 50% of your take-home pay should go towards necessities, 30% to discretionary spending, and the remaining 20% should be saved.

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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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