By Jason Steele |
Credit |
Comments Off on What Is the Average Credit Card Limit and How Can You Increase It?
For Americans, the average credit limit currently sits at $28,930, according to Experian. That’s the typical maximum amount that a cardholder can spend on the card before needing to pay the credit card’s balance. A credit limit is sort of like a loan maximum — the higher the credit limit, the more money the cardholder can charge on the credit card.
If you know your credit limit, you may be wondering how it compares to the average credit card limit. Read on to find out, and to learn how you may be able to increase your credit limit if you need access to more buying power.
What Is the Average Credit Card Limit?
The average credit card limit for Americans was $28,930, according to a recent report by Experian. However, individual credit card limits can vary depending on a variety of factors, and can be as low as $300. For instance, there’s variance in the average credit card limit by age, as well as by creditworthiness.
Whatever your credit limit may be, it’s a critical part of understanding what a credit card is. Knowing your credit limit will help you to be aware of how much you can spend at places that accept credit card payments.
How Credit Card Issuers Determine Your Credit Limit
When you apply for a credit card, your initial credit limit depends on a variety of factors, including your credit scores, your income and debt-to-income ratio (DTI), your history with the card issuer, the card issuer’s policies and goals, and the current economic conditions. Every card issuer has its own process for determining an applicant’s credit limit. Here, some more specifics:
Your Credit Scores
Your credit score is a large factor in determining your credit limit. Just like your score can affect your APR on a credit card, the higher your credit score, the more likely you are to receive a higher credit limit.
In addition, the average credit limit increases with the age of the credit history. Generally, the longer someone has had credit, the more likely they are to use it responsibly. That’s why credit companies may be more likely to offer a higher credit limit to applicants with an older line of credit and a higher credit score. Obviously, the age of your oldest line of credit is limited to your own age, so be sure to be aware of how old you have to be to get a credit card.
Your Income and Debt-To-Income Ratio (DTI)
Due to how credit cards work, card issuers are taking a risk when they extend credit to cardholders. If they think the applicant is a riskier customer, they may offer them a lower credit limit. A high income can indicate that you are able to repay what you borrow. Therefore, a high income can help you get a higher credit limit.
However, credit issuers will also consider your existing debt obligations when deciding your credit limit. Specifically, they will look at your debt-to-income ratio (DTI), which compares the amount of money you owe each month to the amount of money you earn each month.
Your debt-to-income ratio can also affect factors like whether your interest rate is above or below the average credit card interest rate.
Your History With the Card Issuer
Your history with a card issuer can also influence your credit limit. If you have an existing positive relationship with the card issuer, it may help you to get approved for a higher credit limit. However, if you have too many existing cards with an issuer, the card issuer may not want to extend you additional credit, even if you meet other criteria like having an excellent credit score.
The Card Issuer’s Policies and Goals
The credit card issuer has the authority to determine your credit limit, based on how risky they think you are as a customer. Each card issuer has its own policies and goals that it uses to determine what credit limit is afforded to each customer. In other words, your credit limit will also depend on your credit issuer.
Current Economic Conditions
One factor that’s completely out of your control when it comes to your credit limit are the current economic conditions. Since it relates to risk, the current economic environment does play a role in how credit card issuers determine your credit limit. For example, some credit card issuers lowered card limits at the start of the COVID-19 pandemic due to global economic uncertainty.
How to Increase Your Credit Limit
There are several ways to increase your credit limit. Sometimes, your card issuer will offer you a revised credit limit after you update your income information or build your credit. Other times, you may need to be more proactive by directly requesting an increase or transferring your available credit.
Update Your Income Information
One way to increase your credit limit is to keep your income information up to date with your card issuers. Sometimes your card issuer may periodically ask you if your income has changed. If not, you may need to let them know when your income rises, as a higher income can lead to a higher credit limit.
Build Your Credit
One of the best ways to increase your credit limit is to increase your credit score. You can do this by paying your bills on time, keeping your balances low by making more than your credit card minimum payment, and maintaining a low credit utilization rate.
Although this method may take the longest, it may have the most benefit because it could help you in many other financial aspects as well. For instance, it may make it possible for you to secure a good APR for a credit card.
Request an Increase
Most card issuers allow you to request a credit limit increase online. If this option is not available, you also can call your credit issuer to request an increase. However, be aware that a request for an increase sometimes results in a hard credit inquiry, which may hurt your credit score.
Transfer Your Available Credit
If you need a higher credit limit for a specific card (like for a large upcoming purchase), you may be able to transfer available credit from another card from the same card issuer. To check if this is an option for your cards, call your card issuer’s customer service line to request the transfer.
The Takeaway
Your credit limit represents how much you can spend on your card before you’ll need to pay off your balance. While the average credit card limit was recently found to be $28,930, credit limits can vary widely depending on age, creditworthiness, your credit card issuers, current economic conditions, and more. Plus, there are ways you can increase your credit limit.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
What is a reasonable credit limit?
A reasonable credit limit may depend on a variety of factors, including your credit score, your income, and the current economic conditions, among others. The current average credit limit is $28,930, but many people will have a significantly higher or lower cap.
Can lenders change credit limits?
Lenders can change credit limits after you have been given an initial credit limit. Sometimes the card issuer will offer you a new credit limit after you update your income information or build your credit. Other times, you may need to directly request an increase. You can also consider transferring your available credit to increase your limit on a specific card.
What is available credit?
Available credit is the amount of money that is available to you to borrow, considering the current balance on your account. Credit limit, on the other hand, is the total amount that you can borrow.
Photo credit: iStock/RgStudio
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
It is very unlikely that you can directly pay your mortgage lender with a credit card. However, there are a few workarounds that can help you pay your home loan with plastic. But it’s important to understand other factors involved when paying your mortgage with this kind of card, such as possible fees and other financial consequences.
Read on to learn how to pay your mortgage with a credit card and what to consider before you do so.
How to Pay Your Mortgage With a Credit Card
It’s highly unlikely that you can pay your mortgage directly with a credit card. That said, there are several ways you can use workarounds to pay your mortgage with a credit card, including using a money order, utilizing third-party services, and getting a cash advance.
Use a Third-Party Service
Some third-party services facilitate mortgage payments using your credit card and send a payment to your lender on your behalf. Companies like Plastiq allow you to use select credit cards (including American Express) to make mortgage payments through their platform.
For the privilege, you’ll most likely need to pay a convenience fee — Plastiq charges a processing fee of 2.9% — each time you make a mortgage payment using your credit card. And, depending on how that payment is delivered (say, check or bank transfer), you may also be charged an additional fixed fee that can range from 99 cents to $39. You may also have the option to make recurring payments or to make your payments manually.
Buy a Money Order
Depending on your location and the retailer, you may be able to purchase a money order with your credit card. Then, you’ll simply take the money order and deposit it at your bank and transfer the amount to your mortgage lender.
Keep in mind that many retailers may not accept credit cards as a form of payment for money orders — it’s best to check ahead of time if you plan to do so. Even if you can, money orders tend to have a limit of $1,000. That means if you want to go this route, it may take you a few transactions before your money orders total enough for your mortgage payment.
Additionally, you may incur a fee for each money order you buy. Also keep in mind that some credit card issuers treat money order purchases as cash advances, which can result in a fee and interest charges at a rate that’s usually higher than the standard purchase APR on a credit card.
Transfer a Balance to Your Bank Account
You could attempt to conduct a balance transfer, with the funds going into your bank account — some credit card issuers may allow this type of transaction. Most commonly, credit card issuers provide cardholders with balance transfer checks to facilitate these types of transactions. There may be balance transfer fees involved, and interest may accrue depending on your credit card terms.
Get a Cash Advance
As another method to pay your mortgage with a credit card, you can get a cash advance at the ATM with your credit card. You’d then deposit the cash into your bank account and use the funds to make your mortgage payments. You could also consider using the funds to purchase a cashier’s check and mail it to your lender.
Going this route most likely means you’ll have to pay a cash advance fee, and interest on cash advances will accrue on your credit card with no grace period and often at a significantly higher rate than on your everyday purchases. Credit limits may be lower for cash advances as well.
Do All Mortgage Lenders Accept Credit Card Payments?
No, most mortgage lenders do not accept credit card payments directly from the borrower.
If you’re curious about why this is, know that paying debt with a credit card isn’t usually a financially responsible move. Mortgage companies likely don’t want the added risk that someone is paying for their home loan with credit vs. cash. Also, it can be expensive for lenders to accept credit cards, given that processing and other fees can take a bite out of every incoming amount of money.
Factors to Consider When Paying a Mortgage With a Credit Card
Before paying your mortgage with a credit card, consider the following.
Fees vs Rewards
Similar to those considering paying taxes with a credit card, many people tend to pay their mortgage with a credit card because they want to earn rewards. Since third-party services will charge you fees — or you’ll pay the fees charged directly by your credit card issuer for balance transfers — you’ll want to make sure the value of the rewards outweighs what you’re paying in fees.
Sure, the fees may seem small, but they can quickly add up over time. Also, in many cases, rewards cards may only count certain transactions as eligible for rewards. Many issuers don’t consider balance transfers as qualifying transactions, for example.
The Cost of Interest
If you don’t pay off your balance each month, interest will start to accrue on your credit card — and credit card interest rates are typically much higher than your mortgage interest rate, even if you have a good APR for a credit card.
Additionally, if you go the cash advance route, these transactions may have higher credit card interest rates, and there’s no interest-free grace period.
Effect on Your Credit Score
If your credit card balance starts to get too overwhelming and you miss making the credit card minimum payment, it could negatively impact your score.
Even if you make on-time payments, having a high balance could affect your credit utilization, which is the ratio between your balance and your available credit. The higher your credit utilization, the more it could negatively impact your score.
Challenges You May Face When Paying a Mortgage With a Credit Card
One challenge with using a credit card for mortgage payments is the time it takes to do so. Any of the above mentioned methods will take you some time and effort to complete successfully. That’s because it’s unlikely your lender will accept a direct credit card payment and you will instead have to use a workaround.
There are also the fees to consider — determining whether paying the extra charges and potentially a higher interest rate is worth it takes some careful calculations.
Should You Pay Your Mortgage With a Credit Card?
Making mortgage payments with a credit card may be a good idea if you’re looking for a way to earn more rewards or get some financial breathing room. However, given the downsides, such as high fees and the impact it may have on your credit, you may be better off pursuing other options first. Also keep in mind that using a credit card to pay your mortgage may trigger a higher cash-advance interest rate than your typical interest rate since you can’t pay directly.
Alternatives to Using a Credit Card for Your Mortgage
Here are several options you can choose from instead of paying your mortgage with a credit card:
• Consider mortgage forbearance: If you’re struggling with your payments and experiencing a significant hardship, you can contact your lender to see if mortgage forbearance is possible. This could allow you to temporarily stop paying or have your monthly payments reduced until you can get back on your feet.
• Seek help with a housing counselor: You can find a reputable housing counselor that’s approved by the U.S. Department of Housing and Urban Development (HUD) by contacting the Homeowners HOPE Hotline or using the housing counselor tool on the Consumer Financial Protection Bureau’s website. They could suggest options to help you manage your mortgage payments. You may have to pay a small fee for the service, but it could be more affordable than using a credit card to pay your mortgage.
The Takeaway
While you probably can’t pay your mortgage directly with a credit card, there are workarounds that are possible, as long as you understand what you’re getting into and are strategic about how to do so. Before you move forward with paying your mortgage with your credit card, make sure you weigh the fees involved vs. the rewards you could earn as well as any interest you could accrue and potential impacts to your credit. Understanding the pros and cons of this scenario is an important step in using your credit card responsibly.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
Can you use a credit card to pay a mortgage?
You probably can’t pay your mortgage directly using a credit card, but you can do so through indirect methods. Some of these include going through a third-party service, making a balance transfer, purchasing a money order using your credit card, or getting a cash advance. Each of these methods will come with its own set of fees and/or higher interest rates.
Can paying a mortgage with a credit card impact credit score?
If you end up with a high balance on your credit card as a result of your mortgage payment, it could negatively impact your score if you have a high credit utilization. Or, if you end up missing or being late on a payment (perhaps you’re struggling to make the monthly payments), then your score could also be impacted.
Are there fees for paying a mortgage with a credit card?
There are fees depending on how you use your credit card to pay for your mortgage. For instance, you may incur balance transfer, cash advance, or third-party fees.
Photo credit: iStock/vgajic
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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.
If you, like many students, have taken out loans, it’s important to know the answer to, “Do student loans accrue interest while you are still in school?” The answer is often yes. The main exception to this rule is for those who hold Federal Direct Unsubsidized Loans. While a student is taking classes, the interest on these loans is covered by the US government.
It can be important to understand exactly what type of student loan you have to make sure you understand the terms of the loan and when interest accrues. This, as you might guess, impacts how much you will be paying back.
Read on for a guide to how student loan interest works while you are still in school.
Understanding How Federal Student Loan Interest Works
Do federal student loans accrue interest in school? In many, but not all, cases, the answer is yes. The first step of understanding how student loan interest works is to know what type of student loan you have exactly, because interest may accrue differently, depending on the type of loan it is.
Subsidized vs. Unsubsidized Loans
Federal student loans may be subsidized or unsubsidized. The accrued interest on Direct Subsidized loans is covered by the government while a student is enrolled at least half-time. Direct Subsidized loans are only available to undergraduate students.
For Direct Unsubsidized Loans, students are responsible for paying the interest that accrues on their student loans. Interest begins accruing as soon as the loan is disbursed, or paid out to the borrower.
You won’t be required to make payments while in-school, but be aware that if you don’t, you may graduate with a higher balance than when you started. That’s because the accrued interest is capitalized on the original balance of the loan. Direct Unsubsidized Loans are available to undergraduate and graduate students.
Direct PLUS Loans are available for graduate students or their parents. The interest on these loans begins accruing when the loan is disbursed and continues accruing while the student is enrolled in school.
How Does the Grace Period Impact Interest Accrual?
Both Direct Unsubsidized and Subsidized Loans have a six-month grace period after the borrower graduates. On subsidized loans, the borrower is not responsible for paying interest during the grace period. On an unsubsidized loan, interest continues to accrue during the six-month grace period.
Direct PLUS Loans do not have a grace period. Graduate students do receive an automatic deferment after graduation and interest does accrue during this time period.
How Does Capitalized Interest Work?
While payments are not required on most federal student loans while the student is enrolled in school, students with Direct Unsubsidized or PLUS loans have the option of making interest-only payments. This can be helpful because, as mentioned previously, after the grace period, and at the end of periods of deferment or forbearance, the accrued interest is capitalized on the loan.
Capitalized interest on student loans occurs when the accrued interest is added to the principal balance of the loan (the amount that was originally borrowed). This becomes the new balance of the loan, and interest will continue to accrue based on that new balance.
Think of all that accumulating interest like a snowball rolling down a mountain. You might be able to stay ahead of it for a while, but it also might catch up with you.
💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.
Understanding How Private Student Loan Interest Works
When thinking about private vs. federal student loans, know that private loans are not subject to the same rules as federal student loans. They’re offered by private companies, and each lender will likely have its own terms and conditions.
Wondering, “Do private student loans accrue interest while still in school?” Yes, the majority of private student loans will accrue interest while the student is enrolled in school. Some lenders may allow borrowers to defer payments until after they graduate. In this case, the accrued interest from while the borrower was in school will likely be capitalized on the loan. To be sure of the terms on your loan, review the loan agreement or check in with the lender directly.
Keep in mind that, as mentioned, private student loans don’t always offer the same benefits or borrower protections (things like income-driven repayment options) that federal loans do. Because of this, they are generally considered after all other sources of financing, including federal student loans, have been exhausted.
This table provides an overview of how interest accrues on the various types of loans discussed in this article.
Type of Loan
Does Interest Accrue While In School?
Grace Period and Interest
Federal Direct Subsidized Loans
Interest does not accrue while the borrower is enrolled in school at least half-time
Interest does not accrue during the six month grace period
Federal Direct Unsubsidized Loans
Interest accrues while the borrower is in school
Interest does accrue during the six month grace period
Federal Direct PLUS Loans
Interest accrues while the borrower is in school
Do not have a grace period
Private Student Loans
Varies by lender. It is likely that interest will accrue
Varies by lender. Some lenders may offer a grace period and interest may accrue
Can You Minimize Student Loan Interest Accrual While in School?
One way to limit accrued interest is to limit what you borrow in the first place. When it comes to student loans, aim to borrow only what you really need.
Work-Study or a Part-Time Job
A work-study, for those eligible, or part-time job in another way to help take the sting out of student loan payments. You may have the best intentions when it comes to getting a job to help make those loan payments, but it can be tough to manage when you’re busy with academics, extracurriculars, internships, and more.
Make Interest Only Payments
Do you need to pay student loans while in school? That isn’t likely to be a requirement, but as mentioned earlier, many loans allow borrowers to make interest-only payments while they’re in school. While this won’t really eliminate accrued interest, it may help minimize the amount of interest paid over the life of the loan, because the interest is paid as it accrues instead of being capitalized onto the loan.
Interest on many types of student loans accrues while the student is in school. Federal Direct Subsidized Loans are an exception, as the accrued interest is paid for by the government while the student is enrolled in school and during the grace period.
Generally speaking, interest other types of student loans, including Direct Unsubsidized and PLUS Loans, begin accruing interest when they are disbursed, and continue accruing interest while the student is enrolled. For private student loans, each lender will likely have its own terms and conditions. The surest way to confirm how interest accrues on a private student loan is to check directly with the lender.
Depending on your situation, student loan refinancing might lower your monthly payment. However, it’s important to note that if you refinance for an extended term, you may pay more interest over the life of the loan. Also, when you refinance federal loans, you forfeit federal loan protections. Refinancing may not be the right decision depending on your particular needs.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
SoFi Student Loan Refinance Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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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.
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.
Whether you recently graduated school or are just seeking a new job, work interviews are increasingly conducted online, via video. This can be especially true as more companies take on remote hires and millions are working from home.
With this rapid rise in digital job interviews, you may wonder, What are some ways to ace a video interview? Do I need a fancy lighting set-up? What should I wear?
To help you make a good impression, read on for seven video interview tips, from practicing ahead of time to tweaking your background. They can help you make a great impression.
Get the Details Right
Video interviews could lead to a rewarding job. So it can be a smart first step to confirm the logistics of the video interview in advance to make sure there’s not a last-minute panic. Some questions to wrangle could include:
• Will you get a calendar invite or event link for the interview?
• What time zone will the interviewer be calling in from?
• Which video conferencing platform will be used?
• Will you need to download software to be able join the interview?
Knowing the answers to logistics can help bring more confidence to the video interview.
💡 Quick Tip: Often, the main goal of refinancing is to lower the interest rate on your student loans — federal and/or private — by taking out one loan with a new rate to replace your existing loans. Refinancing makes sense if you qualify for a lower rate and you don’t plan to use federal repayment programs or protections.
Dress for the Video Interview
Whether you are applying for an on-premises, fully remote, or part-time remote job, certain interview expectations stay the same — namely, presenting yourself with professionalism and dressing for the job. Even when (especially when) you’re interviewing from home.
Even if you’re applying for a fully remote job and you’d likely wear a hoodie and leggings every day, this is a moment to look professional. Business casual is a good bet, and remember the adage to dress for the job you want, not the role you have. Going a notch more formal is typically better than too relaxed.
Do check out how you look on camera in your interview outfit in advance. A shirt that looks fine in real life could wind up looking odd when cropped on camera.
Now, the seven tips to help you ace a video interview as you move forward with job applications.
1. Practice to Make Perfect
Different companies or organizations may use different platforms to host the interview — from Zoom to Google Hangouts to other programs. Don’t worry: You don’t need to become a pro at all the expert features. Still, it’s a good idea to become comfortable with:
• Dialing into scheduled calls
• Checking the audio and the camera
• Understanding what the interviewer can see
• Ensuring the WiFi signal is strong enough for the video interview and doesn’t lead to lag.
If you’re scheduled for a video job interview via a program you’ve never used, it’s advisable to download and try it out well before the actual call. Opening up an unfamiliar program just before the interview only to realize it’s not compatible with your technology might not create a positive first impression. Also make sure you double-check that you have all logins or passwords for the call.
Here’s the next video interview tip: Generally, it’s a good idea to do a test call on the planned video-interview platform. This could help you assess how you and your surroundings appear via video. You may even want an extra set of eyes and ears: Ask a friend or family member to do a “mock” call to ensure the audio and visuals are clear.
When prepping for a video interview, put yourself in the position of whoever will be interviewing you. Some questions to chew on:
• What can the interviewer see of your space? Are you too far from or close to the camera?
• Are you easily visible or is more light needed? Or is the setting too bright and full of glare?
• Are there any distractions in the camera frame? Are you able to make eye contact as you talk, or are you looking sideways into the camera?
Some digital platforms allow users to record sessions. So, interviewees may want to record themselves talking and then watch and listen. You could run through the main things you want to say in the real video interview. Talking aloud on camera can help some people to become more aware of their own body language and improve it, if needed.
These steps can be a good way to finetune your online interviewing skills and hopefully get you on your way to accepting a job offer.
3. Take Brief Notes Beforehand
With job interviews, researching the company beforehand could give you ideas of how to connect previous work experience with the brand’s values or role’s responsibilities. One of the benefits of a video interview is that you can make these research notes quite literal.
Write out key points on a big piece of paper near your computer. Or, jot down a couple of accomplishments (say, an in-demand internship) on a sticky note next to your camera. It’s likely that the employer conducting the video interview will have no idea you’re looking at those pre-prepared notes. Just make sure you keep your notes short, so you can naturally weave in key points while maintaining good eye contact with your interviewer.
💡 Quick Tip: It might be beneficial to look for a refinancing lender that offers extras. SoFi members, for instance, can qualify for rate discounts and have access to financial advisors, networking events, and more — at no extra cost.
4. Minimize Off-Screen Distractions
Another important online video tip is to keep your on-screen image distraction-free. It’s worth remembering that the only person the interviewer wants to interact with is you…not your adorable pets, lovely roommates, or kid sister. You ask the folks you share a living space with to keep quiet or stay in their rooms during your interview. Plan ahead so the conversation isn’t distractingly interrupted by unexpected visitors. (If your dog does somehow come bounding in and sits on your lap, own the situation, apologize, and remedy it as quickly and calmly as you can.)
And, on this topic, it’s a smart idea to turn off notifications for texts and emails during the interview time slot. Otherwise, a funny group chat could make your phone blow up with the distracting sound of alerts flooding in.
Also, as part of how to prepare for a video interview, check your background. Not everyone has a camera-ready home office. Do you have a messy shelf behind your head? Or your roommate’s horror-movie poster hanging there? Style your space so it doesn’t distract your interviewer from you and all you can offer a company.
Just as with an in-person interview, it’s wise to show up early. This can communicate that, yes, you’re punctual, but also that you are organized, dependable, and eager for the job.
Also remember that with video calls, there can be issues. Perhaps your passcode doesn’t work, or your video camera won’t turn on (despite having tested it the day before). If you aim to be online and logged in early, you can troubleshoot as needed. Just keep your posture and demeanor professional while you are in any digital waiting rooms before the call starts.
6. Go Outside for a Breather
It’s hard to feel energetic and friendly if you’re cooped inside all day. A good way to minimize nerves is to get fresh air. Don’t just open up a window. Take a quick walk around the block to get a jolt of sunlight and catch a breeze. They can help reset the mind. It can also be a great idea to do these between video interviews, if you have more than one scheduled on a given day.
7. Remember to Be Yourself
After preparing for the logistics of video job interviews, it can be easy to forget one simple thing: Be yourself. While a strong WiFi signal and well-lit space won’t hurt your chances during a video interview, it’s helpful to recall that interviews are conversations between two or more people. You’re not being grilled on a TV news report. Sure, you want to be prepared, but also relax, and share who you are.
Ways to help communicate across the digital divide: Aim to make good eye contact, have your voice show energy, and try out a signal to show that you are done speaking and ready for the next question. A nod might work well in this case.
Getting to Work
How to prepare for a video interview and ace it is just one part of navigating life after college. Being ready for a video interview is just one new way to get noticed these days.
On top of looking for a full-time or better-paying job, some grads also want to find ways to reduce their outstanding debt balances. That can include long-term bills, like student loan repayments. Some borrowers decide to refinance their student loans with a private lender.
Refinancing student loans could reduce monthly bill payments, though it’s important to note that you may pay more interest over the life of the loan if you refinance with an extended term. In addition, if you refinance federal student loans, you will forfeit certain federal benefits and protections. If you are curious to learn more about refinancing student loans, it can be a good idea to research different offers.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
SoFi Student Loan Refinance Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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Building a budget can pay off quite literally: It provides guidelines for your money and helps you wrangle your spending and saving to achieve financial health. With smart planning, you can make your cash work harder for you and grow.
Many people think that a budget is all about deprivation, but it’s really about organization. A key step in developing a good budget is knowing how to categorize both your spending and saving. That can help you get a handle on where your money is going and how to make the most of it.
In this guide, you’ll learn how to divide your expenses into three main categories (namely, needs, wants, and savings), and then further separate things into smaller groups. This can help you truly understand your spending habits and optimize your finances.
Whether you’re just starting out on your independent financial life or if you’re looking to tweak your existing budget, this advice can help you better manage your budget categories and direct your spending goals.
Key Points
• Personal budget categories help organize and track expenses for better financial management.
• Common budget categories include housing, transportation, food, utilities, healthcare, debt payments, savings, entertainment, and personal care.
• It’s important to customize budget categories based on individual needs and priorities.
• Tracking expenses within each category helps identify areas for potential savings and adjustments.
• Regularly reviewing and adjusting budget categories can help maintain financial balance and achieve financial goals.
9 Budget Categories for Needs
Of course, you probably are wondering what actually constitutes budgeting categories. First, focus on the needs of life.
This category, which represents the largest chunk, includes expenses that you must pay in order to live and work. You might think of these as things you actually need to survive — they’re sort of like the air, water, and food of your budget.
So, for instance, a fancy dinner out or a caramel latte are definitely food, but they wouldn’t necessarily go in this category. Groceries would though.
A good rule of thumb is to have this category take up about 50% of your after tax income. Housing and utilities are likely to take up the biggest chunk, but ideally no more than 30% of income.
The percentages, however, are just guidelines. Because the cost of living in different states varies across the country, you may need to adjust your budget according to where you live.
Whether you pay rent or have a home mortgage, paying to keep a roof over your head is definitely a need. In addition, you may have property taxes to pay if you are a homeowner, and home maintenance costs can be part of this category for renters and owners alike.
2. Utilities
Depending on your living situation, you might pay for electricity, WiFi, heating fuel, telephone service, water, sanitation services, and other necessities.
3. Insurance
Having car, health, life, homeowners or renters insurance and possibly pet insurance can be important. You don’t want to wing it with this kind of protection (and auto insurance is required).
4. Groceries and Personal Care Items
Of course, you need food and toiletries as part of daily living. So the food you purchase to make meals and items like toothpaste go into your budget as “needs.” However, buying that $7 pack of cookies or $40 hair conditioner? Those might be better deemed “wants.”
5. Transportation
Car ownership expenses, public transportation, and the occasional Uber to get to urgent care can all be considered necessities.
6. Clothing
Yes, you need a warm winter coat if you live in the climates that get chilly, plus boots. And you need basic garments to wear to work and on your off-hours. However, if you buy a cool jacket because you love it or yet another pair of cute shoes since they are on sale, those are not vital to your survival and should go in the “wants” category.
7. Debt
Minimum payments on outstanding debts like credit cards, student loans, auto loans, or personal loans would also go into the 50% needs portion.
8. Parenting Expenses
Child care, as well as child support or alimony payments, go into the “must” bucket of your budget. Those are not discretionary expenses.
9. Healthcare
Depending on your insurance coverage, you may have expenses related to staying well, such as copays, prescription costs, and the like. Treating yourself to a massage that isn’t medically required? That’s not a “need” but a “want.”
Recommended: Input your monthly income to find out how much to spend on essentials, desires, and savings with our 50/30/20 Budget Calculator.
6 Spending Categories for Wants
These are expenses that don’t qualify as needs and don’t include your savings and payments towards debt. Though it can sometimes be tricky to separate needs from wants, if you can live and earn your income without it, then it’s probably a want.
If you can live and earn your income without it, then it’s probably a want.
This is where you could put spending on clothing outside of what you need on a day-to-day basis, dinner and drinks out with friends, going to the movies, gym memberships, personal care, and miscellaneous spending.
As a general guideline, this category shouldn’t take up more than 30% of your spending. While you may need to give and take depending on your situation, seeing how much you are spending on wants in black and white may cause you to start thinking more carefully about these expenditures.
1. Clothing and Personal Care
Treated yourself to a new but unnecessary shirt as part of a little retail therapy? Took yourself to the spa for a day? Or bought yourself a fancy watch since you got a promotion? Those are all wants. They aren’t necessarily bad things, but be clear that they are not vital to your survival.
2. Dining Out and Drinking
It’s part of life to meet friends and loved ones for happy hour or a nice meal, or to get a bubble tea while running errands on the weekend. Or maybe you don’t feel inspired to cook so you order some Pad Thai for pickup or delivery. These are all discretionary food expenses vs. those that are vital to your survival.
3. Entertainment
While entertainment can definitely enrich your life, it goes into the “wants” category. This includes things like concert, play, and movie tickets; books and magazines; cable and streaming services; downloading music; and attending festivals and fairs.
4. Gym Memberships, Self-care, and Grooming
You could just workout for free at home while watching a Youtube video, so health club memberships, yoga or Pilates classes are “wants.” Same goes with self-care and grooming: Facials, manicures, and the like are considered discretionary. That $50 hair conditioner you can’t live without? That isn’t a “need” either.
5. Travel Expenses
If you are traveling for business purposes to pitch a new account, that’s more of a “need,” but otherwise, a getaway is a “want.” So tally up any airfare, rental car costs, hotel or Airbnb, food, and tour/attraction tickets, and consider them “wants.”
6. Home Decor
If your mattress bites the dust and you replace it, that is a “need,” but deciding to buy a new couch because your home could use a spruce-up is a “want.”
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Categorizing Your Savings
Under the 50/20/30 rule, it’s suggested that savings take up 20% of your post-tax income. This is the money you’re putting toward your retirement, emergency fund, and other savings. You can also put payments against debt above minimums here since this can ultimately save money on interest, it’s considered savings.
Here are specifics.
1. Emergency Fund
Financial experts recommend having three to six months’ worth of basic living expenses socked away in case of emergency. This could mean job loss or receiving an unexpected and major medical or car repair bill. You don’t want to have to resort to using your credit card for such things.
If you aren’t offered a 401(k) or something similar at work, you can still contribute to retirement savings account like an individual retirement account (IRA). You might be able to find a low-fee, or no-fee, IRA online.
You’ll also probably want to fund non-retirement savings goals, such as saving for a summer vacation or the down payment on a house. It can be a good idea to open a separate savings account, ideally where you can earn higher interest than a standard savings account, such as a money market fund, online savings account, or a checking and savings account.
To make sure saving happens each month, you may also want to set up an automatic transfer from your checking account into this account on the same day every month, perhaps after your paycheck gets deposited.
4. Additional Debt Payments
If you can pay more than the minimum on your credit card bill or make extra payments on your loans, that can decrease what you are spending on interest. That in turn can help increase your overall financial health and wealth.
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Why Categorizing Your Budget Is Important
Categorizing your budget is important because it can give you a much better sense of where your money goes versus just paying whatever bills turn up.
• When you see how much cash goes towards the different kinds of “needs,” “wants,” and savings, you can better manage your cash. Tracking your spending can bring greater financial insight.
• Also, as you categorize and tally your spending, you may see that much more than 30% of your take-home pay is going to ”wants.” That could convince you to recalibrate and cut back.
• Or you might notice that you are spending way more than 50% on “needs.” This can happen when you are just starting out in your career or if you live somewhere with a high cost of living. Again, you might look to lower costs.
Finalizing Your Budget Categories and Getting Started
Now that you have an idea of how to allocate your income based on standard budgeting categories, you may want to start building out your budgeting plan.
If you find that your monthly expenses (including savings) are higher than your monthly take-home income, you’ll likely want to make some adjustments. One of the easiest places to do this is within the “wants” bucket.
Here, you can scout for unnecessary expenses you may be able to do without. For instance, maybe you would be fine saving on streaming services by dropping one or two platforms, cooking at home a few more times per week, or cutting back on clothing purchases.
If your “musts” are eating up more than 50%, perhaps you want to consider moving to a less expensive home or taking in a roommate. Another option could be to start a side hustle to bring in more income or train up for a higher-paying line of work.
It can help to keep in mind that the 50/30/20 guideline is just that, a guideline. Everyone’s situation is different and your numbers may vary depending on many different factors, including where you live, your income, how much debt you have, and your savings and investment goals. (There are also other budgeting methods to try, if you like.)
The Takeaway
Putting expenses into categories and coming up with a spending plan can bring significant benefits. These include being able to pay off debt, saving up for short-term goals (such as an emergency fund, a vacation, or a down payment on a home), and funding your retirement.
The 50/20/30 rule can give you an general idea of how to allocate your income based on standard budgeting categories and help you start building out your budgeting plan.
Need some help keeping track of spending? Many financial institutions offer tools that can help you see where your money is going and make the most of your savings.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
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FAQ
What are the 4 main categories in a budget?
There are different ways to categorize a budget, but commonly, people focus on their take-home pay, their spending on their “wants,” their “needs,” and how much they save.
What categories should you have in a budget?
When building a budget, it’s important to know how much income you have after taxes, what are the expenses that are necessary for your survival, what is your usual discretionary spending (which some people call the “fun stuff” in life), and how much are you saving. Within the last three buckets, you can subdivide into more specific categories.
How do you organize a budget?
One good budgeting technique is the 50/30/20 budget rule. This principle says that 50% of your take-home pay should go towards necessities, 30% to discretionary spending, and the remaining 20% should be saved.
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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 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, 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 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
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SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
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