SoFi

A second chance checking account can help those with negative past banking history access banking services. It can be a place to deposit and spend money, though it may not offer all the features of a standard checking account.

These second chance checking accounts can be an important step for many people on their journey to enjoying full banking privileges. Learn more about them here.

Who Is a Second Chance Banking For?

Second chance banking can help those who have negative marks on their past banking record. To understand this, it’s important to know a bit about what ChexSystems is. Think of it as the banking equivalent of a credit bureau. It catalogs information on consumers’ banking histories, including basics like name, contact information and Social Security number, as well as information on account closures, bounced checks and overdrafts, unpaid balances, suspected fraud, and more.

When a customer applies for a new checking account at a bank or credit union, the institution may look up the ChexSystem report to determine whether or not it’s willing to extend its services. Negative report items — such as unpaid overdrafts, involuntary account closures, or a high number of recent inquiries — can cause a bank to refuse regular checking services to the client.

That’s where second-account checking comes in. A second-chance bank account is one where the bank offering the account is willing to overlook a less-than-stellar banking history. This means a client can continue to use a bank account while rebuilding their ChexSystem report.

While this type of account isn’t available at all banks, it is available at many, including some major traditional and online banks, like Wells Fargo, Chime, and Varo.

In other words, an imperfect banking history doesn’t have to mean living an unbanked existence.

How Does Second Chance Banking Work?

Here’s how second chance banking operates: much like any other regular checking account. The account holder deposits money into the second chance checking account, which they can then access using a debit card or making a withdrawal at an ATM.

Specific account features will depend on which institution is offering the account. For example, some banks may offer free paper checks, and many have convenient mobile banking features.

However, some banks may charge monthly service fees or minimum opening deposits, and may not allow second chance checking account holders to use paper checks. And although checking account interest rates are notoriously low, it’s unlikely your second chance checking account will accrue any interest at all.

That’s why, as when opening any other kind of bank account, it’s important to review the fine print closely to ensure you know what you’re getting into before you apply.

Applying for one of these accounts typically works in the same way as opening a bank account of any kind.

•   The bank will ask for a variety of personal information, and you may be asked to verify your identity with a form of official identification like a driver’s license or Social Security card.

•   You can do this in person or entirely online.

•   Depending on the institution, you may be required to put down a minimum initial deposit. However, in many cases, you will find second chance checking with no opening deposit, meaning the account will be 100% free.

•   You may need to wait a few business days for your application to process, and then you should be in.

Recommended: How to Set Up a Bank Account

Once you’ve opened a second chance checking account, you can use it as normal to pay bills, restaurant tabs, and grocery store totals — whatever expenses come up in your day-to-day life. Meanwhile, the negative items that might be on your ChexSystems report will slowly vanish. Most records fall off after five years.

If you’re interested in cleaning up your ChexSystems report, know this:

•   Consumers also have the right, under the Fair and Accurate Credit Transaction Act (FACTA), to request a free ChexSystems report once a year. A request can be made by phone, mail, fax, or online form, allowing review of the report for any incorrect negative items and disputing them.

•   If you do dispute something on your record, the investigation will generally take about a month. You will receive a letter in the mail notifying you of the results.

Over time, it’s possible to clean up a ChexSystems record — which can unlock the ability to pursue other types of banking services, including high-interest deposit accounts.

Recommended: Guide to Reopening a Closed Bank Account

Pros and Cons of Second Chance Banking

While second chance banking does provide a valuable service, there are some drawbacks to these accounts as well. Here are the pros and cons of second chance checking accounts.

Pros:

•   Allows clients to use a checking account even without a perfect banking history.

•   Gives account holders time to rebuild their banking history and let negative items fall off their ChexSystems report.

•   In many cases, second chance checking accounts are free and don’t require a minimum opening deposit.

Cons:

•   Some accounts may assess monthly bank fees and have minimum opening deposits — and may not offer waivers.

•   The account may have limited capabilities (such as an inability to use paper checks or to access overdraft protection).

•   The account is unlikely to offer interest growth on account balances.

Alternatives to Second Chance Banking

Second chance checking accounts are a solid option for those who might not be able to open a traditional checking account because of their banking history. But they’re not the only alternative. Here are two options:

•   Prepaid debit cards. A prepaid debit card can be used to pay bills and other expenses without using cash. It works like a gift card: Clients load the card with a certain amount of money, which they can then use as they see fit. The cards are also reloadable, making them a fair option for working around the handicap of not having a bank account.

   What’s more, many prepaid debit cards don’t require a credit check to open. This makes them a viable choice for those with poor credit histories as well as poor ChexSystems reports.

   That said, there are pros and cons of prepaid debit cards. In terms of downsides, they often include a variety of fees — such as monthly maintenance fees, activation fees, and reloading fees — which can eat into the user’s balance and make them unsustainable for long-term use.

•   Cash. Others who find themselves unbanked might try to simply pay their way through life using cash. After all, you can often get a paycheck cashed at the nearest major grocery store or retailer.

   However, there are downsides: Check-cashing services generally come with a fee. Plus, many utility companies, landlords, and other bill collectors don’t accept cash as payment. And if your cash is lost or stolen, there’s no reliable way to get it back. It’s gone.

The Takeaway

Second chance bank accounts can help those who are unable to get a standard bank account. While it doesn’t have all the features of typical accounts, it can offer a path to being banked and graduating to a full-fledged checking account.

FAQ

What is second chance banking?

Second chance banking is a kind of account that serves people who may not have a perfect banking record. If you have negative items on your ChexSystems record, you may still qualify for this kind of account.

What is a second chance bank account?

A second chance account is one that can be opened even if you have a less than perfect history with banking. It may have some downsides (monthly fees plus no overdraft protection, for example), but it allows people to get back in the game and have checking privileges.

Who is second chance banking for?

Second chance banking is for people who have negative items in their banking history. These typically include unpaid overdrafts, involuntary account closures, and other events which show the account holder did not use their privileges responsibly.

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

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

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.

SOBNK-Q324-005

It’s not uncommon to feel guilty about spending money, even when it’s a necessary purchase, since you may believe the funds could be better applied elsewhere. Perhaps you could buy something better, or maybe you could use the cash to pay down debt or save for the future.

Some purchases trigger more guilt than others, and some people are more prone to experiencing this unpleasant sensation than others. Read on to learn more about feeling guilty after spending money.

Is Spending Money a Bad Thing?

Spending money in and of itself is not a bad thing. In fact, it’s a necessary reality of life, and financial products like checking accounts and credit cards are designed to enable it. It would be hard to imagine navigating daily life without spending cash to, say, buy food or commute to work.

But there are a lot of opinions out there about how people should spend their cash, which can lead to conflicting emotions. Treating oneself can stir up feelings around self-worth, and spending money on a big-ticket item can trigger anxiety about future finances. (You’ll learn more about these scenarios in a moment.)

Despite money’s necessary role in life, feeling guilty about spending it is fairly common. One recent LendingTree survey found that 71% of respondents reported feeling that way. That sensation can snowball, creating free-floating money worries.

Spending cash is an inescapable reality, but the guilt associated with it doesn’t have to be.

Recommended: How to Cut Back on Spending

Reasons Why We Feel Guilty About Spending Money

Often, guilt and anxiety around spending money come from the motivation for the transaction, not the purchase itself. Learning to stop feeling guilty after spending money may require people to notice when they feel guilt or shame after a purchase and change their mindset or spending behavior accordingly.

Everyone has different emotional triggers around their spending, but there are some common scenarios when someone might feel guilty, such as these:

Buying Items to Keep Up With Friends

FOMO, or the “fear of missing out,” may be a silly acronym, but it’s a powerful motivator for spending.
People may spend more so they don’t miss valuable time with friends or feel they are fitting into their group of pals. That could mean paying too much for a vacation or buying a cool new watch they see friends wearing. These expenses can be small, subtle purchases, too, like meeting a friend at a pricier restaurant than you’d usually visit, or it could reflect a significant financial decision, like buying a new instead of used car to “keep up with the Joneses.”

FOMO spending may make someone feel guilty about spending money because it’s tied to the deep desire to fit it. It is often more about self-image and self-esteem than a particular item.

Recommended: How to Save Money on Hotels

Buying Items That Do Not Align With Our Financial Values

Similar to FOMO spending, cultural messaging about “the right way” to spend can lead to a sense of guilt or buyer’s remorse.

It may be the influence of social media encouraging someone to buy a certain brand or societal pressure (the American dream) to own property. Whatever the purchase is, guilt could crop up because it’s not something the individual truly wants — and deep down, they know that.

Saving Goals Impacted by Impulse Spending

An impulse or unexpected purchase could lead to feeling guilty after spending money.

It could be something as simple as forgetting lunch at home and having to buy something expensive near the office. Or maybe it’s buying something you totally didn’t plan to but saw it was on sale. It may be a small purchase, but it eats into your budget and savings goals because it’s unexpected.

Many of these purchases arise from a lack of planning, leading to guilt. You feel as if you messed up, and now you are literally paying for it. Buying a new set of luggage, for instance, is not a good reason to use emergency funds or money in your savings account, so you may be upset with yourself.

Having a Money Mindset Tied to Emotions and Past Experiences

Guilt about spending money may have little to do with the individual and be more connected to their family or upbringing.

People who grew up with parents or guardians in debt may experience feelings of scarcity around money. If you grew up always hearing there wasn’t enough money and getting calls from collection agencies, you may hold a sense of guilt with every purchase.

Or, if someone’s experienced debt in the past, any transaction may trigger anxiety as they remember their old patterns of overspending.

Recommended: Using the 30-Day Rule to Control Spending

Tips to Help You Stop Feeling Bad About Spending Money

Instead of agonizing over every purchase or waking up worried about bills, it may be time to stop feeling guilty when you spend money. Here are some strategies to help combat those negative feelings while improving your financial wellness.

Taking Care of Financial Responsibilities

When people prioritize financial responsibilities, they may feel less guilty spending the surplus, or leftover money, in their budget.

That means enacting a “paying yourself first” mindset, which can be one of the most important personal finance basics. When a paycheck deposits, immediately put money away towards future goals, like retirement or savings. Setting up automatic transfers makes it easy.

Taking care of financial responsibilities first can give someone the freedom to use the remaining cash relatively guilt-free.

30-Day Savings Rule

To avoid guilt over impulse spending, try implementing a 30-day rule on purchases. If you want to purchase something, whether it’s a new laptop or a new coat, wait 30 days. After 30 days, you can buy it. But in many cases, you may find you don’t even want it anymore.

Slowing down the purchase process can help separate needs from wants, as well as quit spending money impulsively.

If impulse purchasing is a major source of guilt, consider a 30-day freeze on shopping, buying only necessities for a month. This can be a good tip to stop overspending. It can help you reset your spending behaviors.

Improving Your Money Mindset

Understanding needs versus wants can be a helpful way to understand and improve money mindset.

For some, the idea of a want is “bad,” translating to guilt when a purchase isn’t absolutely necessary. But, wants can make life more comfortable and bring pleasure — two very good things. So the key is differentiating between needs and wants, and understanding where wants fit into a budget. Perhaps not every want can or should be satisfied, but recognizing they are part of life and budgeting for them is important.

You might try the 50/30/20 budget rule, which says to put 50% of your after-tax earnings towards needs, 30% to wants, and 20% toward savings.

Creating a Personalized Budget

Sometimes guilt stems from the unknown. If someone doesn’t know how much cash they have in their bank account, they may feel guilty purchasing something.

This is where a personalized budget comes into play and can help you manage your money better. Everyone’s budget will be a little different, but feeling knowledgeable about and in control of one’s money can help alleviate guilt.

For example, if someone looks forward to having brunch out every Saturday, they may create a line item in their budget for it. That way, they don’t feel guilty spending the money as it’s earmarked for that purpose. They eliminate the possibility of anxiety spiraling over that cost.

Only Spending Money That You Have

It sounds like common sense, but only spending money that’s available can help prevent guilt around money. It’s an unhappy fact that many Americans carry credit-card debt: The typical balance is currently approximately $6,900, and the average credit card interest rate is almost 25%.

There are of course times when paying with a credit card and carrying a balance are necessary, such as when your hot-water heater breaks or you get hit with a major dental bill. But in general, it’s wise to pay with a debit card or cash so you don’t wind up getting stuck with high-interest debt. By only spending the money you have, you can avoid guilt, worry, and a lower credit score to boot.

Guilt isn’t constructive and won’t change your financial situation. However, working on financial discipline can improve the overall outlook on spending and make sure your purchases are ones you can truly afford.

The Takeaway

People feel guilt about spending money for many different reasons, even when they can afford their purchases. Getting rid of that guilt is possible through understanding why spending makes someone feel guilty and learning financial responsibility to prevent guilt altogether.

One place guilt shouldn’t crop up? In a bank account. Avoid it by knowing that you have an account that pays you a terrific interest rate while charging you no fees.

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.

FAQ

How do I get over my guilt of overspending?

First, figure out what kind of spending makes you feel guilty and why. Perhaps it’s based on childhood or past experiences. Then, consider creating a budget and planning purchases to avoid buyer’s remorse or impulse spending.

What is the psychology behind overspending?

People may overspend because they’re afraid of missing out on experiences, they want a self-esteem boost, or they want to fit in with their peers.

How do you forgive yourself for not saving money?

Understanding the emotional triggers behind overspending and not saving can help build a sense of self-compassion. Many people overspend or fail to prioritize saving. Dwelling on it won’t change the past. For these reasons, forgiving yourself and moving on is best.

Photo credit: iStock/Deagreez

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

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

SOBNK-Q324-002

Sooner or later, most of us hit that moment where we need some cash — and fast. Maybe a major car repair or medical bill arrives, you get laid off, or you simply overspend for a period of time: All are ways that you can unfortunately find yourself in a hole financially.

A particularly expensive (or unlucky) month might make a credit card cash advance seem appealing. But before you go ahead and get a bundle of bills from your credit card issuer, read up on the consequences of doing so.

Can You Get Cash Back from a Credit Card?

Yes, it’s possible to get a cash advance on a credit card. But just because you can do something doesn’t always mean you should.

A credit card cash advance is a stopgap for a financial emergency that can come with high costs to a person’s immediate financial situation. Furthermore, if not paid back quickly, it may also affect their credit history in the long term.

While a cash advance is certainly easy (it’s similar to making an ATM withdrawal from your checking account), there are typically better and more affordable options for most financial needs.

A credit card cash advance is used to get actual cash against a credit card account’s cash limit, which might be different from the credit limit. It’s essentially a loan from the credit card issuer. Here’s how it usually works:

•   You put your credit card into an ATM, enter the card’s PIN, and choose an amount to withdraw. The cash is then dispensed for you to use as you see fit.

•   If you don’t know the card’s PIN, a cash advance can be completed by going into a bank or credit union with the credit card and a government-issued photo identification.

•   A cash advance check directly from the credit card company — sometimes included with mailed monthly billing statements — can also be used to get a cash advance.

Why Do People Use Cash Advances?

Why use a cash advance from a credit card? The bottom line: convenience and speed. ATMs are plentiful in most towns, and it takes just a few minutes to complete the process of getting a cash advance at an ATM. There’s no approval process required either.

Some people may assume they don’t have enough time to access other kinds of credit. This isn’t always true, however. For instance, funds obtained through an unsecured personal loan are sometimes available in just one to five days after approval of the loan.

As fast and simple as a credit card cash advance may seem, however, there are significant costs involved. Realizing the financial impact of these withdrawals may encourage a person to look elsewhere for funds.

Recommended: 39 Passive Income Ideas to Build Wealth

Cost of Withdrawing Cash from a Credit Card

A cash advance is an expensive way to borrow money. To put it in perspective, they’re just a step up from payday loans (which typically have much higher interest rates than credit card cash advances, extra fees, and short repayment terms). Here’s a closer look at how these expenses can pile up.

Cash Advance Fee

It’s typical for credit cards to have a fee specifically for cash advances. This fee can be anywhere from 3% to 5% of the total amount of the cash advance. This fee is added to the account balance immediately — there is no grace period.

Higher APR

The average APR, or annual percentage rate, a credit card issuer typically charges for a cash advance is quite a bit higher than normal purchase charges. Currently, the average credit card interest rate on purchases is almost 25%. But what is the APR for a cash advance? The rate is likely to be between 25% and a whopping 30% or more, according to recent research.

What’s more, unlike interest charged on regular purchases, there is no grace period for the interest to start accruing on a cash advance. It starts accumulating immediately and increases the account balance daily.

ATM Fee

Getting a credit card cash advance from an ATM may also mean incurring an extra fee charged by the ATM owner, if that’s not the financial institution that issued your credit card. These fees currently average $4.73 or so per transaction. As you see, the ATM fee can increase the charges for a cash advance, which often add up quickly.

Payment Allocation Rules

If you’re thinking that a cash advance can be paid off first and then the interest rate will revert to the lower rate charged on regular purchases, guess again. While federal law dictates that any amount more than the minimum payment made must go toward the highest interest rate debt, the minimum payment amount is typically applied at the credit card issuer’s discretion. This might well work in the card issuer’s favor, not yours.

Recommended: How to Increase Your Credit Limit

A Hypothetical Scenario

You might be wondering just what a cash advance looks like in actual dollars and sense, so let’s consider this scenario.

Say a person is carrying a credit card balance of $1,000 with an APR of 25%. Perhaps they are trying to financially survive a layoff and need funds, so they find out how to get a cash advance on their credit card and take out $1,000 with a 30% APR. When they receive the billing statement, they pay $1,000 toward their credit card balance.

The minimum payment due amount of $35 is applied to the regular purchases that are accruing interest at a rate of 25%. The remainder, $965, is applied to the cash advance balance that’s getting charged a 30% interest rate.

In order to completely get rid of that 30% APR, the account holder would have to pay the full $2,000 balance.

The cash advance will only be paid off when the entire credit card balance is paid in full, which means they could be setting themselves up with higher interest charges for a long time to come.

Waiting until the next monthly statement is available will just increase the amount due. Every day the cash advance accrues interest, it costs the cardholder more money. The faster the balance is paid off, the less interest will accrue.

Using a credit card interest calculator can be enlightening when figuring out how much purchases or cash advances will really cost with interest applied and how much time it might take to pay them off.

Personal Loans vs Cash Advances

Now you understand how to get a cash advance from a credit card and the expenses involved. So what are the alternatives to this kind of a cash advance? Ask friends or family for a loan? Find ways to make money from home?

While those options are certainly acceptable, an unsecured personal loan might also be an option for some people. These loans can allow you to get funds at a lower interest rate that you can use to pay off your high-interest debt. Here’s how they usually work:

•   An application for a personal loan online can typically be completed in minutes and, if approved, the borrower may possibly get the funds within a couple of days. Personal loans can be used for a variety of reasons.

•   Some common uses for personal loan funds are debt consolidation, wedding expenses, unexpected medical expenses, and moving expenses, to name a few. It’s even possible to use a personal loan to pay off that credit card cash advance, which may cost you a lot less in the long run.

There are several benefits to personal loans that are worth knowing about:

•   Personal loans are likely to offer a more manageable interest rate on the money borrowed than the typical interest rate on a credit card cash advance. Of course, the personal loan’s interest rate will depend on the borrower’s creditworthiness, but it’s likely to be lower than the one tied to a credit card cash advance.

•   When personal loans are used to pay off a cash advance, they can simplify a person’s debt. With a single personal loan, there is only one interest rate to keep track of, as opposed to juggling two high interest rates: one for the cash advance and one for regular purchases charged to the credit card.

•   Credit card debt is revolving debt, which means that the borrower’s credit limit can be used, repaid, then used again, as long as the borrower is in good standing with the lender. A personal loan, however, is installment debt, and has fixed payments and a fixed end date. Unlike the revolving debt of a credit card, the funds from a personal loan can only be used once, and then they have to be repaid.

Personal Loans and Credit Scores

Another upside of choosing a personal loan over a credit card cash advance is that responsibly managing a personal loan might positively impact the borrower’s credit score.

One factor that goes into calculating a FICO® Score is the percentage of available credit being used, the credit utilization ratio, and it accounts for 30% of a person’s total score.

In the hypothetical scenario above, if the borrower had a $3,000 credit limit on their credit card, by using $2,000 of their total available credit, their credit utilization rate would be a whopping 66% (if that one credit card was the only account appearing on their credit report).

It’s fairly typical that credit card users continue to make charges on their accounts, which is likely to keep their credit utilization ratio high.

Installment debt, such as a personal loan, is looked at in a slightly different way in credit score calculations. Making regular payments on an installment loan may carry slightly greater weight than might someone’s credit utilization rate in calculating their credit score. Thus, making regular payments on a personal loan is likely to demonstrate responsible borrowing as the balance is paid down.

As you’ve now learned, considering a variety of funding sources when you need money fast is a smart money move. When you do so, a credit card cash advance may well be seen as a last-resort maneuver.

The Takeaway

Life can certainly deliver some unexpected financial challenges now and then — moments when you need cash quickly, for instance, but don’t have any available. While a cash advance from your credit card may seem like a fast, simple solution, tread carefully. There are significant costs associated with this withdrawal which could leave you with more long-term debt than you’d like. It’s probably wise to explore your options first.

While money management can be tricky at times, partnering with the right financial institution can help improve your financial life.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

What is a credit card cash advance?

A credit card cash advance is a quick, convenient way to access cash using your credit card. You insert it into an ATM or visit a bank branch to obtain the cash. However, this will likely involve your owing significant fees and being assessed a considerable interest rate on the money you have borrowed.

What are the costs of a credit card cash advance?

A credit card cash advance will involve a fee that’s typically 3% to 5% of the total loan amount. In addition, there may be an ATM fee of several dollars. The money that you are advanced begins to accrue interest right away, and this usually is at a higher rate than your rate on purchases. What is a cash advance APR usually? Between 25% and 30%.

What is the difference between a credit card cash advance and checking account withdrawals?

A credit card advance is significantly different from a checking account withdrawal. With a credit card advance, you are quickly getting access to cash from your credit card issuer. It is a form of a loan, and your interest rate will likely be between 25% and 30% until it’s fully repaid. With a checking account withdrawal, you are accessing your own money, so there’s no interest fee involved, though you might be charged a several dollars if you use an out-of-network ATM for the transaction.

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.

SOPL-Q324-046

Canceling a credit card might seem like a good idea if you’re trying to get debt under control or you want to consolidate your cards. But closing a credit account may do more harm than good and damage your credit standing. Before you take action, here’s what you need to know — and other strategies you may want to consider instead.

Understanding the Impact of Credit Utilization Ratio

In order to understand why canceling a credit card can hurt your credit score, you need to know about something called the credit utilization ratio. This is the ratio of your total credit to your total debt.

Another way to think of it is how much of your available credit you’re using. For instance, if you have two credit cards with a total line of credit of $20,000 and you use $5,000 of that, you have a credit card utilization ratio of 25%. In addition to credit cards, your credit utilization ratio can include things like loans, such as a mortgage, car loan, and personal loan.

Your credit utilization ratio directly affects your credit score. In fact, it accounts for 30% of your FICO score. Your credit utilization ratio is the second-most important factor in your credit score (payment history is number one). Ideally, lenders like to see a person’s credit utilization ratio below 30%.

When you cancel a credit card, you reduce your available credit. This can cause your credit utilization ratio to jump up — especially if you owe money on other credit cards — and can negatively impact your credit score.

Reasons to Cancel a Credit Card

There are several factors that may be motivating you to want to cancel a credit card, including:

•   Too much debt. Perhaps having the card on hand is causing you to overspend and take on even more debt. If canceling the card will help you manage your finances better and get your debt under control, it can be a good option.

•   A high annual fee. If the card’s fee is high and you aren’t taking advantage of any of the perks like travel rewards to offset it, you may want to find a card that’s a better fit.

•   Too many cards. If multiple credit cards are causing you to stress out and miss payments, fewer cards might help lighten the load. (A budget planner app can help you spot upcoming bills and manage bill paying.)

How to Cancel a Credit Card

If, after considering the pros and cons, you’ve decided to go ahead and cancel the credit card, here’s how to do it:

1.    Pay off the remaining balance on the card, or transfer the balance to another credit card.

2.    Contact the credit card company, preferably by phone. Some credit card companies allow customers to cancel online, but most will require a call. Keep in mind the company wants to hold onto customers, which could mean that they will try to entice you with offers or deals. You have the right to cancel at any time.

3.    Consider sending written confirmation to make things official. Send a letter to the credit card company informing them that you have canceled the same credit card account. Post it via certified mail to ensure the company receives the letter with confirmed receipt.

4.    Cut up the card. Shredding or destroying the card helps prevent fraud.

5.    Look at credit reports for changes to your credit score. The canceled account should be reflected in your credit score within several weeks. AnnualCreditReport.com offers a free copy of your credit report once a year.

Keep in mind that you can also track your credit score with a money tracker app. It helps you stay up to date with any changes that affect your score, allows you to connect all your bank accounts, and lets you monitor your spending habits and savings all in one place.

Can Closing a Credit Card Impact Your Credit History?

Closing a credit card can affect the length of your credit history. That’s important because credit history is one of the factors used to help determine your credit score. In general, creditors want to know that you’ve had credit accounts over a period of time, so the longer the relationship, the better.

Recommended: 10 Credit Card Rules You Should Know

How to Downgrade Your Credit Card

If you’re considering canceling your credit card because of high fees or a high interest rate, you might want to downgrade the card instead. By downgrading, you can swap your current credit card for one with a lower fee or lower interest rate.

Downgrading can provide some of the benefits of canceling the card without the negative impact of closing the account.

If downgrading sounds like a good option for you, these strategies can help:

•   Research the credit card issuer. Do they have cards with a low or no annual fee? It may be worth switching to credit card issuers with one of those.

•   Call the credit card company and ask for a downgrade. They may offer to waive the annual fees on your existing card. Or they may downgrade you to a low-interest card with no annual fee.

•   Ask about a partial refund. Some credit card companies will provide a partial refund on the annual fee, depending on when you downgrade. Ask the customer service representative if they can prorate the annual fee or provide any refund.

How to Keep Your Credit Utilization Rate Low

Whether you downgrade a credit card or not, it’s important to improve your credit utilization rate since it counts for 30% of your FICO score. Here’s how to keep yours low.

•   Make more than one credit card payment a month. Making more than two automatic bill payments or one payment per billing cycle can benefit your credit score. That’s because credit card companies report balances towards the end of the billing cycle. Making several payments can reduce your credit utilization ratio when your balance is reported.

•   Keep credit accounts open, if possible. Keeping a card open, even if you rarely use it, increases your credit limit and helps lower your credit utilization rate.

•   Ask for an increase in credit limit. If you have a record of on-time payments, your credit card company may be willing to increase the credit limit for your account. And the more available credit you have, the better your ratio. Call customer service to make the request.

The Takeaway

Canceling a credit card can negatively impact your credit score, so make sure to consider all your options carefully. You can keep the credit account open, which can help with your credit history, and rarely use the card. Or you can downgrade to a card with a lower interest rate and no annual fee. In the end, the decision is yours, but it’s good to know you have choices.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

How do I close a credit card without affecting my credit score?

Closing a credit card is likely to have a negative impact on your credit score. Downgrading to a card with a lower interest rate and no annual fee may be a better option.

Is it better to cancel unused credit cards or keep them?

If the credit card has a low interest rate and no annual fee, it can be better for your credit score and your credit history to keep the card.

Does canceling a credit card hurt your credit?

Canceling a credit card can hurt your credit score. However, practicing other good credit habits, like paying your bills on time, can help you gradually get back in good standing.

Photo credit: iStock/Doucefleur

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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

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.

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 .

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL-Q224-1921170-V1

When a refund goes to a canceled credit card, it may seem like that cash is lost for good. However, getting your money back just requires a few calls to the credit card company and the merchant, and a little patience.

There are ways to avoid a refund going to a canceled credit card and methods to recover the cash if it’s stuck in limbo between the retailer and the credit card company. Keep reading to learn how to avoid this situation, and what your options are.

Can You Stop a Refund From Going to a Canceled Credit Card?

To avoid a refund going to a canceled credit card, the easiest approach is to reach out to the merchant before starting the refund process.

Ask the business if it’s willing to refund the purchase in a different way. That’ll likely mean store credit or a gift card. In some instances, it could mean receiving cash back or refunding the purchase to a different credit card.

Going to the business first may involve calling customer service or visiting a bricks-and-mortar location. If the business is willing to refund the purchase differently, you’ll avoid the long process of getting back a refund that went to a canceled credit card.

Recommended: Common Credit Report Errors and How to Dispute Them

Steps for Getting a Refund on a Canceled Credit Card

When a refund is going to a canceled credit card, you have a few options to ensure the credit doesn’t go to waste. It can help to know a little about how credit cards work, but it’s not essential.

1. Check if Your Canceled Card Account Is Still Open

In the event that a credit card was canceled due to theft or loss, don’t worry. If the account is still open under a new card number, the refund from the merchant will be credited back to the new card.

Recommended: How to Report Identity Theft

2. See if the Refund Was Accepted by the Card Issuer

When there’s no longer a credit card associated with the account, things get trickier. What happens next will vary based on how long ago the cardholder closed the account.

If the customer can still log in to their account, they may see the refund reflected online. But if the account is long closed and can’t be accessed online, first the customer should reach out to the merchant and ask for the Acquirer Reference Number. Armed with this information, they can then talk to the credit card company.

3. Request the Refund

If the merchant says the refund was posted to the old account, call the credit card company and request a refund via check. This is when the Acquirer Reference Number can come in handy. In some cases, the credit card company or bank may ask for a written request.

4. Be Patient

A standard refund usually takes a week, but getting a refund from a canceled credit card can take longer, depending on merchant policy, credit card company policy, and even the returned item or service.

Generally, expect a refund between seven and 14 business days after your request. If 30 business days elapse with no refund, it’s time to follow up with the merchant.

5. Return Directly to the Merchant for the Refund

If 30 days pass without a refund, it may be time to return to the store to track down the refund.

In some cases, the card issuer may reject a refund to a closed account and send it back to the store. Reach out to the store’s customer service and ask if it received a bounce back from the credit card issuer. If the store did, customers might be able to request a refund in the form of store credit or cash.

This process can be complicated or tedious, depending on the retailer’s size and bookkeeping system. An independent retailer is unlikely to have a customer service department, so going to the store with receipts and reference numbers could help speed up the process.

How To Avoid a Refund Going to a Canceled Card

Asking for an alternative refund method is one way to avoid a refund going to a canceled card, but here are a few other ways to steer clear of the lengthy process.

•   Conduct an audit of transactions before canceling a credit card. Are there any purchases you plan to return? Keeping the card open until the refund is processed could make sense.

•   Keep an eye on finances. A money tracking app can help you keep tabs on your spending, avoiding the confusion of which refund goes on what card. Some services also offer free credit monitoring and a debt payoff planner.

•   Think long and hard before canceling a credit card. Canceling a credit card can harm your credit score, and canceling one out of the blue may lead to more issues than benefits. Closing a card without thinking it through could lead to refunds on a canceled card.

Recommended: What is The Difference Between Transunion and Equifax

The Takeaway

The simplest way to avoid a refund going to a canceled card is by going straight to the merchant and asking them to refund the amount through an alternative means. That could mean getting store credit, but it’ll sidestep the credit card company and get your money back faster. If a refund does go to a canceled card, it’s not lost for good. It’ll just take a few steps to get the refund.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Can I get a refund that was sent to a closed credit card?

Yes, but getting the refund will depend on if the account is still open, how long the card has been closed, and the credit card company’s policies.

Photo credit: iStock/MBezvodinskikh

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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.

SORL-Q224-1945522-V1