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Being debt-free can be a terrific feeling of freedom. However, many of us don’t know that sensation. According to Experian, the average American is carrying $101,915 in debt. And paying off the amount that you owe — whether it’s credit card debt, student loans, or something else — can be a considerable challenge.

While each person’s finances are different, there are smart strategies to pay off debt effectively and quickly. That will not only likely reduce your money stress and improve your finances, it can also free up funds to help you achieve some big-picture goals, whether that means funding a wedding or growing your toddler’s college fund.

Here, you’ll learn why it’s important to pay off debt, the best how-tos, and tips for managing debt as you work to shake it off.

Why Is It Important to Pay Off Debt?

Granted, not all debt should necessarily be paid off ASAP. There’s “good debt,” which is typically lower interest and can have a positive impact on your financial status. For example, if you have a mortgage, that is likely low-interest and it is helping you build equity and, by extension, your net worth.

However, there is also “bad debt” of the high interest variety, like credit card debt, which can wind up having a negative effect on your finances and your life. Some examples of why this kind of debt can be problematic:

•  It takes up funds that could otherwise be put towards long-term goals like retirement or short-term goals, such as a vacation fund.

•  It gives you more bills to pay.

•  It can cause you stress.

•  It can have a negative impact on your credit score, which can have further ramifications, such as making it more expensive to open other lines of credit.

•  It means you are subject to the lender’s decisions (such as raising your interest rate).

When you are debt-free, you likely don’t have to deal with those issues any longer. So here are smart debt payoff strategies to help you take control of your money.

💡 Quick Tip: With low interest rates compared to credit cards, a debt consolidation loan can substantially lower your payments.

1. Create a Budget

A budget can help you understand and create a plan for where your money is going. This is where you can start to figure out how to live within your means to avoid accumulating new or more debt in the future, such as credit card debt.

•  To start your budget, take an inventory of all of your after-tax income. If you have a job, simply look at your net paycheck and multiply the number by how many times you’re paid each month.

•  Next, tally up necessary expenses. These might already include debt payments such as your student loans or a car payment. They can also include rent, utilities, insurance payments, groceries, and so on.

•  Subtract this total from your income and what you have left represents the money available for discretionary spending. If the amount of money you’re spending on discretionary expenses exceeds the amount you have available, you’ll likely need to make some adjustments to how you spend.

•  To pay off debt, focus a portion of the available discretionary income on debt payments. One approach is known as the 20/10 rule, which says that you should put no more than 20% of your annual take-home pay or 10% of your monthly income towards consumer debt.

2. Set Realistic Goals

It takes a lot of discipline to get debt-free. Setting measurable and achievable goals can help you stay on track. Think carefully about how much money you actually are able to put toward your debts each month. Include factors like how much spending you can reasonably cut and how much you might be able to add to your income.

Don’t factor in extra income unless you’re sure you’ll be able to come up with it. Once you settle on your monthly amount, you can calculate how many months it will take you to pay your debt off.

For example, say you have $500 dollars per month to help you pay off $10,000 in credit card debt with a 19.99% interest. With an online credit card payoff calculator, you can determine that it will take you about 25 months to pay off your card. So, a reasonable goal might be two years to get out of debt, which even builds in a little wiggle room if you can’t come up with a full $500 in one of those months.

3. Try a Payoff Method

Once you’ve identified funds you can use to pay down debt, there are a number of strategies you can use to put that money to work towards different debts you’re shouldering.

The Snowball Method

Here’s how the snowball method of debt repayment works:

•  List your debts in order of smallest balance to largest. Look exclusively at the amount you owe, ignoring the interest rate.

•  Make minimum payments on all the debts to avoid penalties. Make all extra payments toward paying off the smallest debt.

•  Once the smallest debt is paid in full, move on to the next largest debt and so on. Use all of the money you were directing toward the previous debt, including minimum and extra payments, to pay off the next smallest. In this way, the amount you’re able to direct toward the larger debts should grow or “snowball.”

One downside to the snowball method is that while targeting your smaller debts first, you may be holding onto your higher interest debts for a longer period of time.

However, you should also theoretically get a psychological boost every time you pay off a debt that helps you build momentum toward paying all of your debts off. And if this extra push can help keep you motivated to continue eliminating debt, the benefits of this strategy might outweigh the extra costs.

The Avalanche Method

The avalanche method takes a slightly different approach:

•  List your debts in order of highest interest rate to lowest. Once again, commit to making minimum payments on all of your debts first.

•  Make any extra payments toward your highest interest rate debt. As you pay each debt off, move on to the next debt with the highest rate. The debt avalanche method minimizes the amount of interest you pay as you work to get debt-free, potentially saving you money in the long-term.

The Fireball Method

This is a hybrid approach to the snowball and avalanche methods:

•  Group your debts by good and bad debt. As noted above, good debts are those that help you build your future net worth, like a mortgage, business loan, or student loan, and typically have lower interest rates. Bad debts have high interest rates and work against your ability to save; think credit card debt. (Btw, credit card debt should always be characterized as bad debt even if you are taking advantage of a 0% interest promotion.)

•  Next, list your bad debts in order from smallest to largest based on balance size. Continue making minimum payments on all debts, but funnel extra cash toward paying off the smallest of the bad debts.

•  Work your way up the list until all your bad debts are paid off. You can pay off your good debts on a regular schedule while investing in your future. Once you’ve blazed through your bad debt, you may even have extra cash to help you accomplish your long-term goals.

Choose the strategy that fits your personality and financial situation to increase the chances for success.

4. Complete a Balance Transfer

A balance transfer allows you to pay off debt from one or more high-interest credit cards (or other high-interest debt) by using a card with a lower interest rate. This strategy has a number of benefits.

•  First, it helps you get organized. Staying on top of one credit card statement might be easier than keeping track of many cards.

•  This strategy also helps you free up the money you were paying toward higher interest rates, which you could use to accelerate your debt payments.

Research what’s available carefully. Some credit cards offer teaser rates as low as 0% for a set period of time, such as six months to a year or even longer. It may make sense to take advantage of one of these deals if you think you can pay down your debt within that time frame.

However, when these teaser rates expire, the card might jump to its regular rate, which could be higher than the rates you were previously paying.

5. Make More Than the Minimum Payment

Credit cards allow you to make minimum payments — small portions of the balance you owe — until your debt is paid off. While this might seem convenient on the surface, this system is stacked in the credit companies’ favor. Making minimum payments can cost more in the long run than making larger payments and paying down debt faster.

That’s because as you make minimum payments, the remaining balance continues to accrue interest. Consider a credit card balance of $5,000 with a 15% interest rate. According to this credit card interest calculator, if you only make minimum payments of $112.50 per month, it will take you 64 months (5 years and 4 months!) to pay off your debt of $7,344. And in that time you will have spent more than $2,344 on interest payments alone.

In an ideal world, you would pay your credit card balance off each month and wouldn’t owe any interest. But, if that’s not possible, consider paying as much as you can to minimize the cost of high interest rates.

6. Find Extra Cash

Finding the cash to pay off your debt can be tough, especially if you’re looking to accelerate your debt payments. The most obvious place to start is by cutting unnecessary expenses.

For example, you might save money on streaming services by dropping some or all of your subscriptions, or give up your gym membership while you’re getting your debt in check. You may also try negotiating lower rates for some necessary expenses such as phone or internet bills, or consider starting a side hustle that can boost your income.

You can also use any windfalls, such as extra cash from tax returns, bonuses at work, or generous birthday gifts, to help accelerate your debt payments.

7. Avoid Taking on More Debt

While you’re paying off debt, it’s important that you work hard to not add to your debt. If you’re trying to pay off a credit card, you might want to stop using it. You may not want to cancel your credit card, but consider putting it somewhere where it’s not easily accessible. That way you’ll be less tempted to use it for impulse buys.

It can also be helpful to track your spending with a free budget app to help understand where your money is going and how not to increase your debt.

8. Consolidate Debt

Consolidating is another strategy that makes use of lower interest rates to pay off debt.

•  When you take out a loan, it will come with a fixed interest rate and a set term. When you consolidate your debts, you are essentially taking out a new loan to pay off debts, hopefully with a better interest rate or term.

•  A new loan with a lower interest rate can save you money in the long run, especially if you’re carrying a sizable balance. You may also be able to lower your monthly payments to make a budget more manageable on a month to month basis — or you may be able to shorten your terms, which can let you pay off the loan faster. Do keep in mind extending the term of the loan could lead to lower monthly payments but you may end up paying more in interest over time.

•  You may want to consider consolidating if you’ve established your credit history since you took out your loan. That may mean banks are more willing to trust a borrower with a loan and will give them more favorable rates and terms.

•  Also, keep an eye on the prime interest rate set by the Federal Reserve. When the Fed lowers interest rates, banks often follow suit, providing you with a possible chance to find a loan with lower interest rates.

9. Reward Yourself

Paying off debt can be a challenging process. That’s why it’s so important to treat yourself as you reach debt milestones.

Tethering productive behavior to rewards is a process that Wharton business school professor Katherine Milkman calls “temptation bundling.” This process can help you boost your willpower and stick to your goals.

So, choose a reward and tie it to a debt milestone like paying off a credit card, or paying off 10% of your debt. Each of these steps puts you closer to being debt-free, and that’s worth celebrating. When you reach a goal, indulge in a free or budget-friendly reward.

Debt Payoff Tips

Paying off debt often requires patience and persistence. Here’s some smart advice to address common concerns and help keep you going as you whittle down that debt.

What Are Some Common Mistakes to Avoid When Paying off Debt?

Some common mistakes when paying off debt are hiding from the situation (that is, not looking at how much you owe and creating a plan), taking out high interest payday loans, and, in some cases, taking out a home equity loan. Here’s a closer look at each:

•  It can be a common mistake to not dig in, review the full picture, and make a plan. Some people would rather be in denial and just keep paying a little bit here and there. Knowing your debt and developing a way to pay it off can be the best move.

•  Taking out a payday loan or other high-interest option to make a payment. This can make a tough situation worse by adding more money owed to your situation. A personal loan might be a better option with lower rates.

•  Tapping your home equity. Credit card debt is unsecured; you don’t put up anything as collateral. A home equity loan, however, uses your home as collateral. Yes, a home equity loan can be a helpful option in some situations, but if you use that equity to continue spending at a level your income can’t support, that can mean bigger problems lie ahead. You could wind up losing your home.

How Can I Balance Paying off Debt with Saving for Other Financial Goals?

To manage both debt repayment and saving, it’s important to make sure you keep current on paying what you owe. Next, you might want to create a budget, cut your spending, and automate your finances (which will send some money to savings) to help maintain a good balance. Here’s guidance:

•  Create a budget, keep paying off your debt, and work to create an emergency fund (even saving $20 or $25 a month is a good start).

•  Commit to cutting your spending. Some people like gamifying this: Say, one month, you vow to not eat dinner out; another month, you decide to forgo buying any new clothes.

•  Automate your finances. This can be as simple as setting up a recurring transfer from your checking account to savings just after payday. That whisks some money into savings (a small amount is fine), and you won’t see it sitting in checking, tempting you to spend it.

What Are My Debt Relief Options if I’m Struggling to Make Payments?

Some ways to get help with debt relief can include a balance transfer credit card, a personal loan, a debt management plan, and (if no other options are possible) considering declaring bankruptcy. If you are having a hard time with debt payoff, there are several options:

•  As mentioned above, you might take advantage of zero-percent balance transfer credit card offers.

•  You can contact your creditors and see if they will lower your interest rate or otherwise reduce your burden.

•  You might consider a personal loan (mentioned above) to pay off high-interest debt with a lower-interest loan.

•  You could participate in a debt management plan that consolidates your debt into one payment monthly that is then divvied up among those to whom you owe money. Look for a plan that is backed by a reputable organization such as the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America.

•  You might decide to declare bankruptcy; the most common form is known as Chapter 7 liquidation, and can get rid of credit card debt, medical debt, and unsecured personal loans. Educate yourself carefully to see if you qualify, and be sure you understand the long-term impact it may have on your personal finances.

The Takeaway

Digging yourself out of debt can be a challenging process, but with a well-crafted plan and discipline, it can be achieved. Evaluate your spending habits, determine how you are going to prioritize your debts, and stick to your plan by setting small, measurable goals. One option people consider is consolidating multiple high-interest debts into a one personal loan with one payment. However, note that extending the loan term could lead to lower monthly payments, but you may end up paying more interest in the long run.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

FAQ

Why is it important to have a plan to pay off debt?

It’s important to have a plan to pay off debt so you can be organized and strategic in this effort. Only by knowing the full extent of your debt and your resources can you make a plan. Whether you choose to use a method like the snowball or avalanche technique, take out a personal loan, or try a debt management program, it’s vital to know just where you stand.

What are some strategies for dealing with multiple sources of debt?

If you have multiple sources of debt, you may want to research the snowball, avalanche, and fireball methods of paying down what you owe. These consider such factors as how much you owe and the interest rate you are being charged and can help you prioritize how you repay the debt. These strategies can help focus your efforts and contribute to your success.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

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 .

This article is not intended to be legal advice. Please consult an attorney for 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.

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Whether you need to pay for an emergency root canal or have unexpected home repairs, sometimes life can’t wait for your next paycheck.

If you’ve researched how to access cash quickly, you might wonder if online payday loans are the answer. Lenders that offer payday loans typically promise you things like quick applications, no credit checks, and expedited approvals. They may say you’ll get the cold hard cash you need the very next day.

It’s an easy solution, right? Not so fast.

How Do Payday Loans Work?

Payday loans are called that because they’re meant to be paid back the next time you get a paycheck. They’re generally for small amounts, and usually don’t require collateral or even necessarily a credit check.

The catch? Payday loans come at a price — and a high one, at that. They can have interest rates of more than 600%, depending on the lender you choose and which state you’re in. (Some states have stronger protective laws, including rate caps.)

Such high-interest rates and other associated fees can quickly lead to situations where you end up getting behind on the loan. You may end up having to borrow more and more in order to pay back the money you borrowed, especially since the loan might come due in only two weeks or a month. Soon you may be in a hole so deep you might not know how to get out. It can be costly, greatly damage your credit, or even lead to bankruptcy.

Recommended: What Are Common Uses for Personal Loans?

How Much Does a Payday Loan Cost?

The short answer: a lot. But let’s look at an example.

Say you take out a $500 payday loan at an annual percentage rate (APR) of 300%. You would only pay that full 300% if you took a whole year to pay off the loan because the APR is what you would be charged in interest over 12 months.

However, even if you only borrow money for one month, you’d have to pay 1/12 of 300%, which translates to 25%. Here’s where the math gets ugly: 25% of $500 is $125, which means that when your loan comes due at the end of its very short term, you’ll owe $625. This amount might be tough to meet, especially if you’re in a situation where you needed a payday loan in the first place.

What Is a Direct Payday Loan?

Payday loans are offered by a wide variety of vendors, but for the most part, they break down into two categories: direct payday loans and those offered through a broker.

With direct payday loans, the entire loan process, from application to funding to repayment, is all managed by the same company. Although these can be slightly better than indirect loans — which may involve multiple fees, longer funding wait times, and harder-to-pin-down communication — they’re still generally considered a bad idea.

Why Is it Best To Avoid Payday Lending?

Other than the possibility that you can get money quickly if you have bad credit, there aren’t many benefits associated with payday loans. You’ll end up paying a significant amount in interest, and you’re usually expected to pay the money back in a very short period of time — usually within two weeks or so.

The interest on your loan can also compound daily, weekly, or monthly. This means that interest charges will start accumulating on the interest you already owe, which will inflate your loan balance even more.

Depending on how much you borrowed and your financial situation, compounding interest can make it incredibly difficult for you to pay back the loan. Many times borrowers end up taking out additional loans to pay off the payday loan, which can lock them into a seemingly endless cycle of debt.

You’re also unlikely to be able to borrow a large amount of money because payday and fast cash loan lenders typically have low maximum borrowing amounts.

What’s more, you won’t even be building your credit if you do manage to pay the loan back on time, because most of these lenders don’t report your behavior back to credit bureaus. In contrast, above-board lenders will report back to credit bureaus when you’re paying your bills on time and in full, and that can boost your credit score.

What Are Some Alternatives to Payday Loans?

In an ideal world, you’d avoid any kind of consumer debt. But sometimes it’s simply unavoidable. There are financially favorable alternatives to consider before you sign up for a risky payday loan.

Paycheck Advance

The best kind of money to borrow is money you’ve already earned. While not every employer offers it, a paycheck advance can be a relatively low-risk way to fund last-minute emergencies. An advance on your paycheck basically means getting paid earlier than you normally would, with the balance deducted from your future paycheck.

But tread carefully: Many employers offer paycheck advances through apps and platforms that may assess a one-time fee or even charge interest. While the rates may not be as astronomical as payday loan rates, it’s still worth taking a second look at the paperwork to ensure you understand what you’re signing up for ahead of time.

Recommended: What to Know About Credit Card Cash Advances

Debt Settlement

Another option is debt settlement, which is where you offer a creditor a lump sum payment on a delinquent debt — a lump sum that often ends up being far less than the original amount you owed.

However, doing this does require some negotiating, and sometimes even some legal know-how, which is why many people seek the help of professional debt settlement companies. This, too, is tricky, because scams abound, and some debt settlement companies may try to charge exorbitant fees to “eliminate your debt,” all without actually doing any work on your behalf. The Federal Trade Commission has more information on debt settlement and how to look for a reliable firm if you choose to go this route.

Personal Loans

Many types of personal loans are unsecured loans — meaning no collateral is involved — that can be used to pay for just about anything. And although they tend to have higher interest rates than secured loans, like mortgages or auto loans, those rates are still much lower than payday loans.

With its lower interest rate and longer-term, a personal loan will likely cost you less money than a payday loan in the long run. And some online personal loan lenders can process your application quickly and even get you the money you need in a matter of days.

Unlike payday loans, you have to go through a credit check to qualify and get approved for a personal loan. However, if you have a steady income and meet the lender’s eligibility requirements, you’re likely to qualify for a lower interest rate than you would if you used an online payday loan.

Your repayment timeline could also be less stressful if you opt for a personal loan rather than a payday loan. Personal loans come with the option of longer terms — a few years, for example, instead of a few months.

And because you can pay your loan off over a longer-term, your monthly payments might be more manageable than a payday loan. There also tend to be fewer fees attached to personal loans, and you might be able to borrow more because personal loans have higher loan maximums.

Personal loans aren’t much more difficult to apply for than payday or fast cash loans. You can typically get pre-qualified online by answering a few questions about your income, financial history, and occupation.

Recommended: Personal Loan Calculator

The Takeaway

When you need money quickly, payday loans — and their promise of fast money — can be tempting. But you’ll want to proceed with caution. These loans generally come with very high interest rates and associated fees, and you may only have a couple of weeks or so to pay back the money you borrowed. There are less-risky alternatives to consider, including paycheck advance, debt settlement, or a personal loan.

If you are thinking about taking out a loan to help you repay debts on time, a SoFi personal loan may be a good option for your unique financial situation. SoFi personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.

See if a personal loan from SoFi is right for you.

FAQ

What is a disadvantage of a payday loan?

Payday loans generally come with high interest rates and associated fees. What’s more, you typically have to pay back the money you borrowed on your next payday.

Are payday loans a good idea?

Payday loans are usually not the top choice when you need cash quickly. That’s because they often come with high interest rates and tight repayment timelines.

What is the catch to payday lending?

The catch to payday loans is that borrowers are typically charged very high fees and interest rates.

Are payday loans easy or hard to pay back?

With their high interest rates and fees and short repayment timelines, payday loans can be difficult for borrowers to pay back on time.

Can payday loans hurt your credit?

While payday loans are unlikely to help your credit score, they can hurt your credit if you don’t pay back your loan and your lender sends the debt to a debt collector.

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.

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

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.

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If you’re a homeowner considering a range of home improvements, you may not know if what you’re planning is a renovation or a remodel. Does it matter? Yes, because there are key differences.

A renovation is an update of an existing room or structure, while a remodel affects the design and purpose of an area. The more extensive work in a remodel will influence the cost and length of your project.

What Is a Renovation?

During a renovation, one or more rooms are updated and repaired. This might include new cabinets, flooring, and paint.

The bones of the room are typically left intact, though some structural issues may be fixed in a renovation, such as replacing rotting wood or swapping out window frames suffering from water damage.

A kitchen renovation might include replacing appliances, faucets, and knobs, while a bedroom reno might call for paint, new rugs, or new lighting.

Bathroom renovations often involve installing new tile, towel racks, and faucets.

Recommended: Home Improvement Cost Calculator

Advantages of a Renovation

Renovations are typically less costly than remodels, thanks to several factors.

You Can DIY

If you’re handy, you can slash some of the cost of hiring someone to undertake your renovation by doing some of the work yourself.

Because most renovations don’t require structural changes, you likely won’t be on the hook to hire licensed professionals to get it done. That means anything that you’re capable of — painting, wallpapering, floor sanding — you can do and pocket what it would have cost to hire help.

Just make sure you are skilled enough; hiring a professional to redo what you couldn’t complete may cost you money you didn’t plan on spending.

You May Get a Better Return on Investment

Since a renovation doesn’t call for major expenses like hiring licensed professionals or other construction-related outlays, in some cases the project offers more bang for the buck than a renovation does.

Renovation-related tweaks will still improve the look and feel of your home, and thus increase the value of your home, without the major expense a renovation entails.

You Can Expect Fewer Hidden Costs

When you’re renovating a room, your action plan is pretty cut and dry, and there aren’t likely to be surprises that require you to spend more than you planned.

Not so with a remodel, which, due to its scope, may result in additional costs to fix unforeseen problems such as hidden water damage, termites, or asbestos. These surprises can also lengthen the time of your project.

What Is a Remodel?

Remodels are typically more extensive than renovations. They include altering the function and sometimes the structure of an area of the house.

If your project calls for tearing down or adding walls, or changing the layout of a room, you’re planning a remodel.

Some examples of remodels: changing a powder room into a laundry room, knocking down a wall between a dining room and kitchen to create a great room, building an addition to your existing home, or expanding a closet into a dressing room.

Even if you’re not tearing down or adding walls, your project may be a remodel. This might include moving kitchen appliances around to improve room flow for a kitchen remodel, tearing out a tub and installing a walk-in shower in a bathroom, or turning a small guest bedroom into a home office.

Advantages of a Remodel

Many homeowners find there are pluses to a remodel as opposed to a renovation.

You Have the Opportunity to Customize Your Home

As homeowners grow with their home, they may find that their needs change.

Some may want an addition to accommodate an aging parent, while others may have expanded their families and need to convert a home office into a nursery or finish an attic and turn it into a bedroom. Empty-nesters may want to use one of their bedrooms as a study or gym.

A remodel affords them more options than a renovation does because they can make the necessary changes — however major — to achieve their needs.

You May Experience Hidden Benefits

Adding an island to a kitchen and removing a wall to create a larger space might mean more than increased room to prepare meals. You may find your family spends more time together in rooms that are spacious and inviting.

Similarly, retrofitting your heating and cooling system, adding under-floor heating, and replacing insulation might result in lower utility bills, freeing up money for hobbies or vacations.

Recommended: Guide to Buying, Selling, and Updating Your Home

Why a Remodel May Cost More Than a Renovation

All of that means remodels are costlier than renovations. Here’s why.

You May Need Permits

Thanks to the extensive nature of most remodels, many cities require homeowners to secure a permit before they begin work, especially if the project involves creating an addition to the home, or if new walls or new roofs are being installed. This is to ensure that building codes are followed.

If you need permits, you will want to factor the time it takes to secure them into your timeline. Once the permits are approved, the project may begin. And once it is completed, it will likely need to be approved by a local inspector.

You May Need Professional Help

If your remodel requires electrical, duct, or plumbing work, you will likely need to hire a licensed professional to complete it.

You may also need a general contractor to hire and oversee these workers and others for larger remodels like adding a guest suite to the home or converting an attic to a home office with an en-suite bathroom.

These vendors, while necessary, can be costly since you are paying for their time in addition to any materials.

You May Be Dealing With Construction

While it can be exciting to imagine what your home will look like after a remodel, getting there can be taxing. That’s because you may be living in a construction zone as the project is underway.

It can be difficult to have to eat multiple takeout meals because your kitchen is being worked on, or deal with dust from work being done in the next room over.

If their remodel is especially extensive, some homeowners find they need to rent a home nearby until the remodel has been completed.

Recommended: 15 Ways to Keep Inflation from Blowing Your Home Reno Budget

Paying for a Remodel or Renovation

Whether you’re undertaking a renovation or remodel, you’ll want to have a budget and a payment plan. Some renovations are small enough that homeowners can pay upfront.

Those tackling remodels and larger renovations might tap a home equity loan or home equity line of credit, when the home is used as collateral.

An unsecured, fixed-rate home improvement loan is another option.

A cash-out refinance also can free up part of the difference between the mortgage balance and the home’s value.

Recommended: Home Equity Loans vs Personal Loans for Home Improvement

The Takeaway

Undertaking home improvements can be exciting for homeowners. But before you embark on a project, know whether you’re looking at a renovation or a remodel, how much inconvenience you’re willing to put up with, and what you are willing to pay.

SoFi offers personal loans of up to $100,000. If a cash-out refinance makes more sense, SoFi offers that as well.

Or if you’re in the market for a home loan, SoFi has that covered, too, with competitive rates and flexible terms.

SoFi Mortgages
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You probably know how easily you can tap to pay for items when shopping and click to send a friend money for your share of a dinner tab. Why can’t most of your financial transactions be that easy?

They can be. You can be freed from much of the usual day-to-day account activity by automating your finances. Doing so can eliminate your wondering whether you have paid bills on time, allocated the right amount to savings, and more.

Automating your finances can be a smart money move that saves you on late fees and reduces financial stress. It may also help you establish and stick to a budget, as well as get on a path to growing your wealth.

Deciding where and when to automate personal finances need not be complicated. Here’s a guide sharing what it means to automate your finances, the different ways you can put your money management on autopilot, and tips for making the process super simple.

What Does It Mean to Automate Your Finances?

Automating your finances means you use today’s technology to pre-schedule and preapprove transfers of your funds. It’s a “set it and forget it” way to pay bills, move money from checking to savings, and even enrich your retirement account.

The beauty of doing so means you can avoid late fees (which many of us, no matter how responsible we are, get hit with sooner or later). You may also become more organized and free your mind to ponder better things. Worrying about when bills are due is so last decade, after all!

Check out our Money Management Guide.

This article is from SoFi’s guide on how to manage your money, where you can learn basic money management tips and strategies.

What Kind of Accounts Can You Automate?

If you’re wondering what kind of accounts you can automate, you’ll probably like this answer: Almost any kind. Here’s a list of some of the most popular:

•   Credit cards

•   Rent or mortgage

•   Utilities

•   Investment accounts

•   Loans (car, personal, etc.)

•   Insurance

•   Savings (from short-term vacation funds to your emergency fund to retirement accounts).

Automating payments can spare you late fees and overdraft charges. It can also help you streamline the process of staying active and accountable on your accounts (a great way to avoid winding up with credit charge offs).

It may also help keep your credit score from being impacted by missed payments. In fact, payment history contributes 35% to your FICO® score. You want to protect those digits.

(Btw, it’s a good idea to scan for common credit report errors on an annual basis, just to make sure nothing is amiss.)

💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open a bank account online.

Different Ways to Automate Your Finances

When it comes to the set-up of automating personal finances, there are a few different techniques to try. Here, you’ll learn some of the most popular options so you can decide what’s right for you, whether it’s one method or a combination.

Option 1: Sign Up for Automatic Payments with Your Creditor

Here’s how this works: Say your wifi provider or landlord of your rental apartment gives you an automatic bill payment option.

•   Through their payment portal, you’ll set up an autopay schedule, connecting the service provider to your bank account. On the agreed-upon date (say, rent is due by the 7th of every month so you select to pay on the 6th), they will automatically deduct the amount from your checking.

•   In some cases, you may be assessed a fee for this privilege; it varies with the provider.

•   When you opt into this kind of plan, you may be given the opportunity to have the payment charged to a credit card or deducted from an account other than your bank account. Look carefully, though; you may wind up paying additional fees for this.

Recommended: Guide to Automated Credit Card Payments

Option 2: Set Up Bill Pay with Your Bank

You may find that some creditors don’t offer you the kind of convenience described above, but your bank may swoop in and help you pay automatically. Many major banks will issue payments on your behalf to a creditor or service provider, which can make your life infinitely easier. No more writing checks every month and digging around for stamps. The steps to take:

•   Check with your bank about what they offer. Typically, they will need the account number and address of the business you are paying.

•   You’ll also need to assess how long this process will take every month; it may not be instantaneous. You’ll want to make sure the money arrives on time and you are not charged any late fees so your credit score doesn’t suffer.

•   Then you’ll sign up for the series of payments to be handled by your bank.

Option 3: Set Up Direct Deposit with Your Employer (if You Have the Option)

An excellent way to automate and fund your personal finances is to set up direct deposit of your paycheck (the vast majority of salaried workers are paid this way). You’ll know your salary is getting sent to your bank account and when it hits. Some pointers:

•   You’ll likely need to share your account number and routing number with your employer in order to establish direct deposit.

•   You may also need a voided check to get the funds moving to the right place.

•   You can then schedule your automated payments for the right dates, when your balance is feeling especially flush.

•   A great hack to know about: Some bank accounts will allow you access to your paycheck funds a day or two early if you sign up for direct deposit with them. That’s another great way to keep abreast of those bills.

💡 Quick Tip: As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.

Option 4: Set Up Automatic Retirement Contributions

It’s all too easy to think, “I’ll get around to saving for retirement…someday.” Perhaps that’s why the average American had only $65,000 stashed away for retirement according to the Federal Reserve’s most recent survey. That’s probably not enough if your dream is moving to Hawaii at age 65 and spending your days with your toes in the sand.

That’s why learning how to automate your finances for retirement savings can be such a helpful practice. Experts agree that 10% to 15% of your pretax income is a good amount to have deposited into your retirement plan every paycheck. Some tips:

•   You can authorize your HR or payroll department to automatically whisk away a certain amount of your pre-tax income every paycheck and put it toward retirement. You won’t miss what never hits your checking account, right?

•   Aim for the maximum amount allowed, or at least put in enough to get any company match that’s offered. Otherwise, you’re leaving free money on the table.

If you’re self-employed, you can also automate your savings with recurring transfers into such vehicles as a solo 401(k), SEP IRA, or SIMPLE IRA as you save for your future.

Option 5: Put Your Savings on Autopilot

Your non-retirement savings are another important account to automate. Again, if your salary hits your checking account, you may feel rich and go spend more than you should. By automating your savings and funneling money from your paycheck straight into an account, you may avoid going on shopping sprees.

This can be a very effective tool. In one study by financial psychologist Brad Klontz, people who visualized their goals and set up automatic withdrawals enjoyed a 73% increase in their savings after just one month.

Into what kind of account can you direct those funds? That’s up to you. Perhaps you want to have a few separate accounts that feed different goals. You might have one account for a down payment fund, one for vacation savings, and one for your child’s future educational expenses. You can direct how much and how often you want each transfer to be.

Of course, there are options about where exactly you keep your savings. Some possibilities to consider:

•   Standard savings accounts are good, but a high-yield savings account can be even better. These tend to pay a significantly higher annual percentage yield (APY) than a standard account and are often offered by online vs. traditional banks.

•   CD accounts can be another good option. These are time deposits, meaning you commit to keep the funds with the financial institution for a specific period of time, which may typically range from a few months to several years. In return, you are assured a specific interest rate. However, there may be penalties if you withdraw funds early.

•   A TreasuryDirect account can allow you to make recurring purchases of electronic savings bonds directly from your paycheck. You can learn more about this at the TreasuryDirect website .

Option 6: Set Up Regular Contributions to Your Emergency Fund

Your emergency fund is another bundle of cash that can benefit from automated infusions of money. An emergency fund is a stockpile of easily accessed cash that can tide you over when unexpected circumstances hit. Perhaps you get a major car repair or medical bill or are laid off from your job. An emergency fund can let you pay bills without accessing a high-interest line of credit (say, ringing up too much debt on your credit card).

In terms of emergency funds, keep the following in mind:

•   It’s wise to have at least a few to several months’ worth of basic living expenses in the bank. That means mortgage or rent, utilities, insurance payments, food, childcare, and other must-have goods and services, plus minimum debt payments.

•   Most people can’t create this fund with a single, lump-sum deposit. Making regular transfers into your account (even if it’s only $20 per paycheck or per month) will get you started. Any contribution is better than nothing!

•   Where to keep your emergency fund? Since you want it to be available almost immediately in urgent situations, a high-yield savings account or standard savings account can be a good option. Either way, you’ll earn some interest. A money market account may also serve this purpose.

Option 7: Sign Up for Automated Investing with Your Brokerage

If you currently have an investment portfolio or are planning on starting one, that’s another task that can be made simpler by technology. Automated investing can allow you to achieve consistency with minimal effort, which can help you build your net worth over time.

Some examples:

•   As noted above, you might set up recurring transfers into a retirement plan that invests the funds for you.

•   You can automatically transfer money from your checking account into a brokerage account.

•   You might work with a robo-advisor that picks investments based on your needs and preferences and also rebalances your portfolio.

•   Investing apps are another possibility. These can be as simple as the ones that round up the price of purchases and then invest the change for you.

Tips to Successfully Automate Your Finances

Now that you have a good grounding in the benefits and how-to’s of automating personal finances, consider these success strategies:

Create a Budget Based on the Balance You Get Paid

Look at where your money stands after you deduct your retirement and savings amounts. With the remaining funds, you can plan out ways to budget. There are various techniques out there, like the 50-30-20 budget rule, among others. Do an online search and see what resonates with you.

A budget will guide your saving and spending and can reveal how you are doing in terms of setting financial goals and meeting them on other fronts, such as a vacation fund or a retirement account.

It will help you handle good vs. bad debt more effectively. All are terrific ways to avoid excessive debt and build wealth.

Be Aware of All Your Bill Due Dates

As you automate your finances, do pay careful attention to the due dates on your bills. Who wants to see their hard-earned cash get drained by late fees?

•   Look at the calendar; check when your paycheck hits and when certain bills are due. Some creditors may set your due date in stone; others may have some flexibility.

Similarly, some autopay portals may allow you to set the payment date; others may have a specific date on which they will debit funds.

•   Make sure you understand if there’s any lag with automatic payments. Be sure they will arrive on time.

•   It can be better to stagger autopayments so you don’t risk overdrawing your account. See what best suits your lifestyle and money style to keep your account in good shape.

Review Your Bank Account and Bank Statements Often to Stay on Top of Your Transactions

One of the pleasures of automating your finances is that you are freed from thinking and worrying about your money and your bills on a regular basis. However, daily life involves all kinds of money blips, from treating your bestie to a fancy birthday dinner to (ugh) having fraudulent charges appear on your credit card bill.

So do review your bank account and other statements regularly to make sure everything is as it should be and that your balance isn’t too low. Check in with your accounts often. Should you check your bank account every day? Not necessarily. A couple of times a week can be a good cadence.

Increase Your Contributions When It Makes Sense

While you’re checking your finances and bank balances, don’t overlook whether it’s time to increase your contributions. If you’ve gotten a raise or paid off a student loan, you may have funds available to save more.

Or you might find that a chunk of change has accumulated in your checking account which could do more for your finances if used elsewhere. There are times when you may want to increase your transfers to reflect your positive financial status.

The Takeaway

Automating your finances can be a great way to take control of your money and make bill paying and saving so much more convenient. That kind of organization can let you breathe easier when it comes to managing your money and be more successful in meeting your financial goals.

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

How often should I review and adjust my automated finances?

You should review your finances and automated transactions regularly, which for some people may mean a couple of times weekly; for others, it might be every other week. Also, it’s wise to check in when you have significant changes in your life, whether you’ve gotten a raise, took out a mortgage, or moved to an area with a higher cost of living. You may want to recalibrate your transfers.

Is it safe to automate my finances?

By and large, it is safe to automate your finances. You should, however, check in regularly to make sure you are not overdrafting or getting close to it, and also to keep in touch with your money. While there is a small risk of glitches or fraud with automatic transfers, it’s not a significant concern.

What are the best tools or apps to use for automating my finances?

There are an array of tools and apps for automating your finances. A good place to start may be with your very own financial institution. They may have roundup apps, automated savings and investing products, and other tools to help you make the most of your money and grow your wealth.

Can I still make manual payments even if I have automatic payments set up?

In many cases, you will still be able to make a manual payment even if you have automated payments set up. This could occur when you have an additional bill to an account that is set on autopay, or when you have a credit and want to pay a lower amount. Check with your creditor or the financial institution handling the transfer for details on how to do this smoothly.

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