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Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.


The member’s experience below is not a typical member representation. While their story is extraordinary and inspirational, not all members should expect the same results.

As a resident, Dr. Saira Z. worked in one of the most expensive places in the country—the New York City area. Besides managing the high cost of living on a residency budget, Saira was also paying back loans from medical school.

Figuring out how to stretch her $65,000 a year medical resident’s salary wasn’t easy, even after she got married. She and her husband tried to be as frugal as possible. When they took stock of their spending, however, they found places to cut back.

The couple drew up a budget to help them stay the course through Saira’s three-year residency and when her medical fellowship salary dipped. It also allowed them to set good habits that still serve them well. Saira and her husband now have twins, and she’s in a private practice.

As Saira learned, residency can test your finances. While you’re finally drawing an income—the average annual salary of a first-year resident is less than $63,000, according to 2023 data from the Association of American Medical Colleges—a residency budget needs to cover a lot. Your medical school finances likely include considerable student loan debt. The median medical school debt for the class of 2023 is $200,000, according to the Association of American Medical Colleges, which doesn’t include undergraduate student loans, credit card balances or other debt.

Having a financial plan is a way to make the most of your income and set up for the future. These tips for budgeting for residents may help you get started.

Identify Your Biggest Budget Busters

A budget can serve a variety of purposes. It can help you make progress toward your savings goals, adopt healthier spending habits, and pay down debt. It can even allow you to spot the biggest drains on your money so you can look for ways to curb spending.

For Saira and her husband, meals out with friends were a top budget buster. But they had no idea that was the case until they reviewed their finances. “You don’t realize eating out is such a huge expense until after the fact,” Saira says. As a result, the couple decided to temporarily stop going to restaurants, which allowed them to put that money into their savings.

Build Your Financial Foundation

Budgeting for medical residents should include working on your financial foundation, says Brian Walsh, CFP, senior manager, financial planning for SoFi. “These foundational pieces are so critical to establish,” Walsh says. “Then, once you get that big paycheck, it will be much easier to sock away 25% or more of your income toward retirement.”

Here are a few steps he recommends:

•  Pay off “bad debt.” Walsh defines “bad debt” as anything that accelerates consumption and comes with a high interest rate (such as credit cards).

•  Build up an emergency fund. This stash of cash should cover three to six months’ worth of your total living expenses and be placed in an easy-to-access place, like money market funds, short-term bonds, CDs or a high-yield savings account.

•  Protect your income. There are two types of protection you may want to consider. Disability insurance covers a portion of your income in the event you’re unable to work due to an injury or illness. Monthly premium amounts vary, but generally, the younger and healthier you are, the less expensive the policy. You may also want to consider purchasing a life insurance policy if other people depend on your income.

Recommended: Short Term vs. Long Term Disability Insurance

Start Saving for the Future

Next, Walsh suggests putting any leftover funds into retirement. Over time, as your emergency fund grows and “bad debt” diminishes, you’ll be able to put more money into retirement.

One simple way to build up savings now is to contribute to your employer’s 401(k) or 403(b) retirement plan, if one is available, and tap into any matching funds program. There’s a limit to how much you can contribute annually to either plan. In 2024, the amount is $23,000; if you’re 50 or older, you can contribute up to an additional $7,000, for a total of $30,500.

There are other investment vehicles Walsh suggests exploring if you have additional money to save, don’t have access to a 401(k) or 403(b), or simply prefer to have more control over your money. These include an individual retirement account (IRA), such as a traditional IRA or Roth IRA, both of which can offer tax advantages.

Contributions made to a traditional IRA are tax deductible, and no taxes are due until you withdraw the money. Contributions to a Roth IRA are made with after-tax dollars; your money grows tax-free and you don’t pay taxes when you withdraw the funds. However, there are limits on how much you can contribute each year and on your income.

Another option is a health savings account (HSA), which may be available if you have a high deductible health plan. HSAs provide a triple tax benefit: Contributions reduce taxable income, earnings are tax-free, and money used for qualified medical expenses is also tax-free.

Recommended: Budgeting as a New Doctor

Come Up With a Plan to Pay Student Loan Debt

As a resident, you have several priorities competing for a piece of your paycheck: lifestyle expenses, long-term savings goals, and medical student loan debt. Loan repayment typically starts six months after graduation, and options vary based on the type of loan you have.

If you have federal student loans and need extra help making payments, for example, you can explore a loan forgiveness program or an income-driven repayment (IDR) plan, which can lower monthly payments for eligible borrowers based on their income and household size. You also have the option to postpone payments during residency, but the interest will continue to accrue and add to your total balance.

Your medical student loan debt may feel overwhelming, but there are a couple of ways to consider tackling it. With the avalanche approach, you prioritize debt repayment based on interest rate, from highest to lowest. With the snowball approach, you pay off the smallest balance first and then work your way up to the highest balance.

While the right approach is the one you’ll stick with, Walsh often sees greater success with the snowball approach. “Most people should start with paying off the smallest balance first because then they’ll see progress, and progress leads to persistence,” he says.

Find Out If Refinancing Is Right for You

You may want to consider refinancing your student loans as part of your repayment strategy. When you refinance, your existing loans are paid off and you get one new loan. You may be able to get a lower interest rate, which could potentially reduce your monthly payments. Some lenders, including SoFi, also provide benefits for residents and other medical professionals.

Though the refinancing process is fairly straightforward, “People overestimate the amount of work it takes to refinance and underestimate the benefits,” Wash says. A quarter of a percentage point difference in an interest rate might seem small, but if you have a big loan balance, it could save you quite a bit.

However, refinancing may not be right for everyone. By refinancing federal student loans, you could lose access to benefits and protections, such as income-driven repayment and student loan deferment. Your best bet is to weigh all of your options and decide what makes the most sense for your situation.

The Takeaway

After years of medical school, you’re finally starting to make some money. But you also likely have a lot of student loan debt that you need to start paying back during your residency. Having a solid plan for repaying your loans, and using a few key strategies to start saving money for your future, can help position you for long-term financial success.

If part of that plan includes refinancing your student loans, SoFi can help. With our medical professional refinancing, you may qualify for a special competitive rate if you have a loan balance of more than $150,000. You can also reduce your monthly payments to as low as $100 during residency, for up to seven years.

Photo credit: iStock/Andrei Orlov

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SOSLR-Q324-027

If you’re a new dentist, you have plenty of reasons to smile about your profession. You can start practicing soon after completing dental school, and you stand to earn a healthy salary right off the bat. The average entry-level dentist in the U.S. earns $189,979 a year, according to ZipRecruiter.

At the same time, you also need to figure out how to pay off your student loans. According to the American Dental Association (ADA), the average dental school graduate leaves school with nearly $300,000 in education debt. By comparison, medical school graduates owe an average of $243,483 in total educational debt, according to the Education Data Initiative. That’s where budgeting for dentists comes into the equation.

How Budgeting Helps

Starting a career with a six-figure loan debt may feel overwhelming, but budgeting for dentists can help. In fact, now is an ideal time to establish your saving and investing strategies, says Brian Walsh, CFP®, Head of Advice and Planning for SoFi. “When you’re right out of school and your lifestyle is already lean, you can more easily build a pay-yourself-first mentality without making any drastic adjustments,” he explains. “It’s significantly easier to do it at this point instead of when you have a house, a car, and a family and then need to start making cuts.”

Here are some strategies to help you create your budget and plan for the future.

Protect Your Income

With its repetitive motions and constrained work area, dentistry can be physically taxing work, especially on the back and joints. According to the ADA, dentists have a one in four chance of becoming disabled. To mitigate your risk, you may want to consider disability insurance, which covers a percentage of your income if you become unable to work due to an illness or injury.

If you purchased a policy during dental school, you have the option to increase your coverage now that you’re making more. If you don’t have a policy, you can buy one as part of a group plan or as an individual. Find out if your employer offers it as part of your benefits package; some do. Monthly premium amounts vary, but in general, the younger and healthier you are, the cheaper the policy.

Recommended: Budgeting as a New Doctor

Don’t Overspend

Dropping a bundle on meals out? Clicking “add to cart” more frequently? Enjoy your hard-earned income, but don’t go overboard on splurges.

To help you focus on where you put your money, consider prioritizing your financial goals — saving for a home, for example, or paying off your debt. This is an important strategy in budgeting for dentists. Walsh also recommends that early-career professionals use cash or debit cards for purchases to build up good spending habits, and automate their finances whenever possible. For example, pre-schedule your bill payments and set up automatic contributions to your retirement account.

Kick-Start a Savings Plan

Tackling student loans is likely a top priority for you right now, but just as important is creating a savings plan.

Walsh recommends early-career dentists set aside 30% of their income for savings. Of that, 25% should be for retirement and 5% for other savings, like building an emergency fund that can tide you over for three to six months. The remaining 70% of your income should go toward expenses, including monthly dental school loan payments.

The sooner you start saving and investing, the sooner you can enjoy compound growth, which is when your money grows faster over time. That’s because the interest you earn on what you save or invest increases your principal, which earns you even more interest.

You may even want to consider buying a dental practice at some point, so that’s another reason budgeting for dentists makes sense.

Explore Different Ways to Invest

As a high earner, you may need to do more with your money than max out your 401(k) or 403(b), though you should do that, too. Walsh suggests new dentists leverage a combination of different investments. This strategy, called diversification, can help shield you from risk. Here are some types of investments to consider:

•  A health savings account (HSA), which provides a triple tax benefit. Contributions reduce taxable income, earnings are tax-free, and money used for qualified medical expenses is also tax-free.

•  An individual retirement account (IRA), like a traditional IRA or Roth IRA, can offer tax advantages. Contributions made to a traditional IRA are tax deductible, and no taxes are due until you withdraw the money. Contributions to a Roth IRA are made with after-tax dollars; your money grows tax-free and you don’t pay taxes when you withdraw the funds, provided certain requirements are met. However, there are limits on how much you can contribute to an IRA each year.

•  A Simplified Employee Pension IRA (SEP IRA) can be a good option if you’re a solo practitioner. “Total contributions can be just like those with an employer-sponsored plan, but you control how much to contribute, up to a limit,” Walsh says. Contributions are tax-deductible, and you don’t pay taxes on growth until you withdraw the money when you retire.

•  After-tax brokerage accounts offer no tax benefits but give you the flexibility to withdraw money at any time without being taxed or penalized.

Two investments to consider bypassing are variable annuities and whole life insurance. Neither is a suitable way to build wealth, Walsh says.

Whatever your strategy, keep in mind that there may be fees associated with investing in certain funds. Those can add up over time, Walsh points out.

Determine a Student Loan Repayment Strategy

Since new dentists tend to start earning money more quickly than other health care professionals, they are often better positioned to tackle loan repayments more aggressively.

But your repayment strategy will depend on a number of factors. To start, consider the types of student loans you have. Federal loans have safety nets you can explore, like loan forgiveness and income-driven repayment (IDR) plans, which can lower monthly payments for eligible borrowers based on their income and household size.

Once you’ve assessed the programs and plans you’re eligible for, figure out your goals for your loans. Do you need to keep monthly payments low, even if that means paying more in interest over time? Or are you able to make higher monthly payments now so that you pay less in the long run?

If you have multiple loans and/or other debts, there are two approaches you might consider for paying them down. With the avalanche approach, you prioritize debt repayment based on interest rate, from highest to lowest. With the snowball method approach, you pay off the smallest balance first and work your way up to the highest balance.

While both have their benefits, Walsh often sees greater success with the snowball approach. “Most people should start with paying off the smallest balance first because then they’ll see progress, and progress leads to persistence,” he says. But as he points out, the right approach is the one you’ll stick with.

Consider Your Refinancing Options

Paying down debt has long-term benefits, like lowering your debt-to-income ratio and building your credit. In order to help do this, you may want to include refinancing your student loans in your student loan repayment strategy.

When you refinance, a private lender pays off your existing loans and issues you a new loan. This can give you a chance to lock in a lower interest rate than you’re currently paying and combine all of your loans into a single monthly bill, which can be easier to manage. Some lenders, including SoFi, also provide benefits for new dentists.

The refinancing process is straightforward, yet some common misconceptions persist, Walsh says. “People overestimate the amount of work it takes to refinance and underestimate the benefits,” he says. A quarter of a percentage point difference in an interest rate may seem inconsequential, for instance, but if you have a big loan balance, it could save you thousands of dollars.

That said, refinancing may not be right for everyone. If you refinance federal student loans with a private lender, for instance, you lose access to federal benefits and protections, such as forgiveness programs and forbearance. Consider all your options and decide what makes sense for you and your financial goals.

The Takeaway

Dentistry can be a rewarding career with the potential to earn a healthy salary right from the start. However, you’re likely to have a significant loan debt when you graduate from dental school. Fortunately, balancing your goals with some smart saving, investing, and loan repayment strategies can help you get your finances on firm footing.

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.

Photo credit: iStock/5second

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

SOSLR-Q324-025

A non-governmental organization (NGO) is an organization independent of the government that focuses on social, environmental, educational, and other issues. These organizations generally aim to make the world a better place, whether that’s the American Red Cross holding a blood drive or the World Wildlife Fund working to protect and restore species in their habitats.

But how do NGOs raise the kind of money they need to operate, which may be on the order of millions, or even billions, of dollars? It depends on the NGO, but here’s a look at some of the key sources of NGO funding.

What Is an NGO?

The acronym NGO stands for non-governmental organization. These groups function independently of any government but may be involved in national or international philanthropic, developmental, or social missions. For example, Doctors Without Borders is an NGO that provides medical assistance and access to medicines to those in need throughout the globe.

Though they are independent from the government, NGOs may receive funds from government agencies.

NGO Purpose

The purpose of an NGO is to promote positive change through advocacy, direct service, and awareness-building. Their activities can range from providing education, healthcare, and disaster relief to advancing human rights and environmental protection.

NGOs play a critical role in filling gaps left by government agencies, often focusing on areas like poverty alleviation, development, and public policy. They address challenges that governments or businesses may not prioritize, working on both local and global levels to create sustainable impact.

How Do NGOs Work?

NGOs are typically nonprofit entities organized by private citizens. These organizations can pursue a wide range of goals for social, developmental, or political purposes, and may operate on a local, national, or even international level.

As nonprofits, NGOs can accept donations from private individuals, for-profit companies, charitable foundations, and governments (local, state, federal, and foreign). They also raise funds by charging membership dues and selling goods and services.

NGOs vs. Nonprofits

While an NGO is a nonprofit, there are a few key differences between the two.

Key Differences

NGOs tend to operate on a much larger scale than nonprofits. They’re not concerned with only helping people in one city or community; instead, they often support national and international projects for causes such as disaster relief and human rights. Their budgets tend to be much larger than that of a local nonprofit, and therefore the funding needed by an NGO is typically significantly higher.

Both nonprofits and NGOs, however, rely on fundraising, donations, and grants to sustain operations.

Recommended: 11 Funding Sources for Nonprofits

How Do NGOs Get Funding?

While NGOs aren’t affiliated with any governmental agency, funds for NGOs often come from grants that are offered by local, state, and federal governments. Grants can also come from foreign governments.

NGOs may also accept private donations from individuals, charitable foundations, or corporations. They may also raise funds through sales, memberships, and fundraising campaigns.

Importance of Diverse Funding

Diverse funding is crucial for NGOs as it ensures financial stability and reduces reliance on a single source, minimizing the risk of disruptions if one funding stream dries up. Multiple funding sources, such as donations, grants, partnerships, and income-generating activities, allow NGOs to maintain independence and flexibility in their operations.

Fund Usage and Reporting

NGO fund usage is typically directed toward achieving the organization’s mission. This includes project implementation, operational costs, and capacity building. Funds are allocated for specific programs like education, healthcare, or environmental initiatives, as well as for staff salaries, administrative expenses, and outreach activities.

Transparent and accurate financial reporting is crucial for maintaining donor trust and accountability. NGOs are required to provide regular financial reports, detailing how funds are used and ensuring they align with donor expectations. This reporting may include annual audits, financial statements, and progress reports, which help donors and stakeholders assess the impact and effectiveness of the NGO’s work.

Recommended: How Do You Structure a 3-Year Business Plan?

6 NGO Funding Sources

Here are some of the ways an NGO may raise revenue to fund their operations and support their missions.

1. Grants

Often, a significant portion of the funds for NGO projects comes from grants offered by corporations, as well as local and federal governments. Unlike small business loans, grants for businesses, nonprofits, and NGOs don’t have to be repaid. Competition for these awards, however, tends to be stiff. Writing a grant proposal can also take a fair amount of time, effort, and expertise.

Pros:

•  Money doesn’t have to be repaid

•  NGO may be able to automatically qualify for the same loans year after year

•  Can be for large amounts

Cons:

•  Funding for grants can dry up

•  There may be heavy competition to qualify for certain grants

•  Requires a grant writer on the team to fill out applications

2. Fundraising

Just like other nonprofits, NGOs often engage in a variety of fundraising activities to help fund their operations and fulfill their missions. Fundraising efforts can range from offering a website donation link to hosting elaborate events like galas, festivals, and auctions. There’s no limit to the possibilities when it comes to fundraising. In fact, Doctors Without Borders even organizes charity video game marathons to help raise funds.

Pros:

•  Money doesn’t have to be repaid

•  Funds can come from any donor who’s interested in supporting the NGO

•  Fundraising activities provide a way to publicize an NGO and its cause

Cons:

•  Planning fundraising events can be time-consuming

•  Fundraising needs to be ongoing; it’s not a one-and-done event

•  May require finding businesses and individuals to donate time or products

Recommended: How to Set Up a Fundraising Bank Account

3. Private Donations

Funding from NGOs can also come from wealthy individuals who seek philanthropic activity. They may donate money annually or bequeath large sums in their wills upon their death.

Pros:

•  Money doesn’t have to be repaid

•  Donations can be sizable

•  For the donor, money given to NGO may be tax deductible

Cons:

•  Large donations aren’t guaranteed

•  Donors may want to be honored through a plaque in their name or a mention at an event

•  Donations may slow during sluggish economic times

4. Membership

Another way for NGOs to raise money is to charge for membership. To attract members, the NGO may offer exclusive benefits and perks. For example, PETA (People for the Ethical Treatment of Animals) offers members a subscription to its magazine, as well as a calendar, vegan recipes, and discounts on products.

Pros:

•  Money doesn’t have to be repaid

•  The perks offered to members are usually low-cost

•  Members feel more invested in helping the NGO

Cons:

•  Membership fees are typically low, so it takes a large number of members to raise significant funds

•  NGO needs a membership coordinator or department to run the program

•  Perks need to be enticing enough to draw members

5. Corporate Sponsorships

Just like private individuals, many corporations engage in philanthropy, and many do so by financially sponsoring NGOs. There are a variety of ways a corporation can sponsor an NGO, including direct donations, event partnerships, and matching gifts. This allows a corporation to give back, potentially get a tax deduction, and become affiliated with an NGO that has a powerful and positive mission.

Pros:

•  Corporate sponsorships can be of significant value

•  Partnering with a corporation can amplify the NGO’s message faster and further

•  Corporation may get tax benefits with the donation

Cons:

•  May require a dedicated individual or team to find corporate sponsorships and manage the relationships

•  Continual support from a corporation isn’t guaranteed

6. Business Loans

Like businesses, nonprofit organizations sometimes need cash in the form of a loan to operate their programs effectively. For example, an NGO may encounter a situation in which the timing of when they receive funds from grants and other sources and when they need to pay bills are out of sync. A cash flow loan or business line of credit can help bridge gaps in cash flow and enable an NGO to run efficiently.

Different types of small business loans can also make it possible for an NGO to take advantage of a time-sensitive opportunity or make costly but key capital improvements. Sometimes a grant or in-kind donation can fit the bill, but in many cases, a loan with monthly payments may be the best funding tool.

Pros:

•  Can be easier and faster to get than a grant, corporate gift, or large donation

•  Can enable an NGO to take advantage of a short-term opportunity

•  Can help an NGO make capital investments that will improve operational efficiency

Cons:

•  Money has to be repaid, plus interest

•  NGO will need to prove it has sufficient revenue to repay the loan and may need to provide collateral

•  Lenders may charge nonprofits a higher interest rate due to higher risk involved

Recommended: 6 Step Guide to Getting a Small Business Loan

The Takeaway

With budgets sometimes in the hundreds of millions, finding sources for funding projects, operations, salaries, and other overhead costs is typically an ongoing effort for NGOs.

As nonprofit organizations, NGOs often rely on a variety of funding sources, including membership dues, the sale of goods and services, grants from corporations and governments, fundraising activities, and private donations. Loans can also be a tool that can help an NGO grow and succeed.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

FAQ

What does NGO stand for?

NGO stands for “non-governmental organization.” It refers to a nonprofit group that operates independently from government control, typically working to address social, environmental, humanitarian, or development issues.

What are some notable NGOs?

Some notable NGOs include Doctors Without Borders, The World Wildlife Fund, Amnesty International, Greenpeace, Make-A-Wish Foundation, Habitat for Humanity, and Red Cross.

Are NGOs and nonprofits identical?

No. While an NGO is a nonprofit, a nonprofit isn’t necessarily an NGO. NGOs tend to have a larger, more global reach than nonprofits.

Photo credit: iStock/metamorworks

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SOSMB-Q324-031

In July 2024, the national unemployment rate was 4.3%, the highest level since October 2021. The jobless rate rose by 0.2 percentage point over June and was 0.8 percentage point higher than in July 2023. This continues the 2024 trend of unemployment reaching and staying above 4%.

Unemployment rates were higher in July in 13 states, lower in 1 state, and stable in 36 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported in the most recently available statistics.

South Dakota had the lowest jobless rate in July (2%), closely followed by Vermont (2.1%) and North Dakota (2.2%). The District of Columbia had the highest unemployment rate (5.5%), closely followed by Nevada (5.4%).

A low level of unemployment sounds like great news for American workers, but it presents challenges too. Economists say that inflation cannot ease significantly while unemployment is low. For small businesses, the problem can be particularly acute. Not only is it hard to fill job openings, but salary pressure increases and if there aren’t enough skilled workers, the business can stagnate or slump.

Citing a slowdown in inflation and concerns over the health of the job market, the Federal Reserve cut its key interest rate by a half a percentage point in September.

Looking At Unemployment Data By City

In this story, we are taking a look at unemployment rates by city to get a feel for the job landscape across America. Using Bureau of Labor Statistics (BLS) data, we have created a list that ranks the jobless statistics for the cities that show the largest populations within their respective states.

On our list, Detroit, Michigan, is the city with the highest unemployment in America, followed by Las Vegas, Nevada, and then Los Angeles. Within this list, many fascinating — and even contradictory — trends are revealed that have bearing on small business owners.

Recommended: Best Cities to Start a Small Business

What is the Unemployment Rate and How Is it Calculated?

The labor force participation rate in July 2024 was 62%, which is virtually the same as the last six months. Why doesn’t that align with a 4.3% unemployment average?

The Bureau of Labor Statistics, which falls under the Department of Labor, measures labor market activity, working conditions, price changes, and productivity in the U.S. economy. The unemployment rate for any area is the number of area residents without a job and looking for work divided by the total number of area residents in the labor force.

In other words, the unemployment rate represents the number of unemployed people as a percentage of the labor force (the labor force is the sum of the employed and unemployed). What the BLS unemployment rate will not tell you is how many people have taken themselves out of the workforce, perhaps becoming so discouraged in their job search that they have given up hope of finding a job.

Some economists say that the nation’s low unemployment could be due, in part, to a low labor participation rate.

U.S. City Unemployment Rates: Lowest to Highest

To gauge the current state of unemployment across all 50 states, we’ve zeroed in on the cities with the largest population in each state, along with the District of Columbia. The data from July 2024 was the most recently obtainable from the Bureau of Labor Statistics. Below is our list of ranked cities, beginning with the city that had the lowest rate of unemployment and moving to the highest.

50. Sioux Falls, South Dakota

After staying in the bottom five for unemployment among the nation’s cities for the last year, Sioux Falls reached the distinction of ranking lowest on our list at 1.6%. “South Dakota traditionally has a lower unemployment rate than the rest of the country,” explained an economics professor in a recent paper. But the state’s low rates throughout 2023 and 2024 (South Dakota showed a jobless rate of 2% in July) creates a “double-edged sword.” The super-tight labor market means economic growth can be difficult, warned the economist.

49. Burlington, Vermont

In July, the city of Burlington showed an unemployment rate of 1.9%, same as in June. The statewide unemployment rate was 2.1%. “There are nearly three job openings for every unemployed Vermonter,” according to the Vermont Department of Labor. Burlington is the industrial, tourist, and financial center of the state, with a population of 44,700. Burlington also has the distinction of being the least populous city in our list.

48. Fargo, North Dakota

Fargo, population 126,000, showed an unemployment rate of 2.3% in July 2024, while the state’s unemployment was 2.2%. One reason North Dakota has had such a low unemployment rate for years is because it is the fifth least-populated state in the United States. Fargo’s economy is based on education, the medical industry, agricultural equipment, and services.

47. Portland, Maine

Maine’s unemployment rate decreased from 3% in May to 2.8% in June and remains there in July. Unemployment has been below 4% for 30 consecutive months, the third longest period of such low rates for the state of Maine. The city of Portland’s was even lower at 2.3%. The state’s economic boom was driven mostly by the leisure and hospitality sector, which added the most jobs since Covid-19.

46. Huntsville, Alabama

The July 2024 jobless rate for Alabama of 2.8% continues the streak of low joblessness for the state. The unemployment rate of 2.7% for Huntsville makes it one of the country’s lowest for cities of its size. A metropolis of rapid growth, Huntsville’s leading sectors are aerospace, defense, information technology, bioscience, and advanced manufacturing.

45. Honolulu, Hawaii

With a population of 345,000, Honolulu had an unemployment rate of 2.8% in July, down from 3% in June. Job gains were seen in professional and business services, trade, transportation and utilities, and private education and health services. Overall, Hawaii had an unemployment rate of 2.9%, continuing its steady decrease in joblessness this year.

44. Manchester, New Hampshire

The state of New Hampshire continued to show low unemployment at 2.5% in July. The jobless rate of Manchester, population 115,000, increased to 2.9% in July, showing a sizable bump from 2.5% in June. The jobless rate is still very low, and that does create special challenges for employers, such as dealing with the size of the workforce, which is smaller in New Hampshire than it was before the Covid-19 pandemic.

43. Nashville, Tennessee

The city of Nashville has seen its unemployment rate drop more than a point over the last five months to 2.9% in July, with the state’s jobless rate coming in at 3%, one of the biggest decreases among all the states. The city is famous for music and entertainment, but healthcare and manufacturing are leading sectors as well. The city, population 1.3 million, is one of the fastest growing in America.

42. Jackson, Mississippi

With a population of 149,000, Jackson had a jobless rate of 2.9% in July, decreasing significantly from 3.3% in June. Jackson also has a lower average cost of living than the average for the U.S. Its major job sectors are advanced manufacturing, health care, information technology, and food processing. The state of Mississippi’s unemployment rate was 2.7%.

41. Cheyenne, Wyoming

With a jobless rate of 3.1%, Cheyenne’s economy is based on light manufacturing, agriculture, the military and government, tourism, and transportation. Cattle- and sheep-raising continue to thrive throughout the region too. The unemployment rate in Wyoming was 2.9% in July, pretty much unchanged for the last six months.

40. Omaha, Nebraska

In July, Nebraska continued its low unemployment rate of 3.2%. Nebraska’s low jobless rate is believed to be due to the dominance of industries like manufacturing and agriculture, which are less volatile than the energy or hospitality sectors. Omaha, population 487,000, had a jobless rate of 2.6%.

39. Des Moines, Iowa

The largest city in Iowa had a July 2024 jobless rate of 3.3%, compared to 3% in June. Iowa’s seasonally adjusted unemployment rate was 2.8% in July, unchanged from June and the same as one year ago.The state is recognized for its leading position in the agricultural sector, particularly corn, soybean, pork, and egg production.

38. Billings, Montana

The largest city in Montana showed an unemployment rate of 3.3% in July. Billings has a history of strength in agriculture and energy; more recently, it has focused on retail. Total employment and the number of people in the labor force were mostly unchanged in Montana in July, leading to no change in the unemployment rate of 3.1% since April.

37. Baltimore, Maryland

At 3.4%, Baltimore continues to rank low for unemployment, although it has increased since a low of 2.4% six months ago. Maryland also ranks among the lowest states in unemployment at 2.8%. What makes the achievement of the Baltimore metropolitan area particularly newsworthy is that for the last year it has consistently posted in the bottom 5 for joblessness among large U.S. metro areas with 1 million or more in population.

Recommended: Maryland Small Business Grants

36. Virginia Beach, Virginia

Virginia Beach has a jobless rate of 3.5%, edging up significantly from 2.4% three months ago. Real estate, defense, and tourism are major sectors of the city’s economy. The state has an overall jobless rate of 2.7%, lower than its largest city. According to household survey data in July, the labor force decreased by 4,066 (to 4,570,647) as the number of unemployed residents increased by 2,160 (to 124,643). The number of employed residents decreased by 6,226 (to 4,446,004).

35. Oklahoma City, Oklahoma

The largest city in Oklahoma hung in there with a low jobless rate of 3.5% in July. Oklahoma City has one of the world’s largest livestock markets, with oil, natural gas, and petroleum products as its largest sectors. As for the state, Oklahoma’s rate of 3.5% is part of a slow increase over the last six months.

34. Little Rock, Arkansas

Arkansas’s unemployment rate was 3.3% in July 2024, unchanged for the last four months. Little Rock, its largest city at 202,000 residents, showed a jobless rate of 3.6% in July 2024, up a bit from 3.4% in June. Healthcare is a leading sector in Little Rock, followed by manufacturing and construction.

33. Salt Lake City, Utah

Salt Lake City had a jobless rate in July 2024 of 3.6%, the same as in June. Known as the “Crossroads of the West,” the city’s major industries are government, trade, transportation, utilities, and professional and business services. The state’s unemployment rate is 3.2%.

32. Bridgeport, Connecticut

The unemployment rate in Bridgeport, population 148,000, came in at 3.6% in July, showing a major improvement since May 2024, when it was 4.4%. The state was at 3.6% in July as well. While some fled New York or New Jersey during the pandemic, Connecticut added 66,000 people in 2021. However, Bridgeport struggles, with some 19% of its residents living in poverty.

31. Boise, Idaho

With a population of 237,000, Boise had a jobless rate of 3.7% in July, inching up from 3.6% in June. The major economic drivers in the region include semiconductor and other computer product manufacturing, food product manufacturing, administrative and business support services, and construction. Statewide unemployment stood at 3.5%.

30. Milwaukee, Wisconsin

The state of Wisconsin had a jobless rate of 3% in July 2024, edging up from its unemployment rate low of 2.9% in June. Its largest city, Milwaukee, had an unemployment rate of 3.7%. The three sectors that comprise most of Milwaukee’s workforce are service sectors, manufacturing, and retail trade.

29. Minneapolis, Minnesota

The unemployment rate of 3.8% in July puts Minneapolis on a definite trajectory of increases, as the jobless rate was 2.6% in May. The Twin Cities’ industries are dominated by healthcare, finance, manufacturing, and technology. Minnesota’s unemployment rate was 2.9%.

28. Jacksonville, Florida

The largest city in Florida with a population of 954,000, Jacksonville had a jobless rate of 3.8% in July, edging up from 3.6% in June. The state of Florida showed an unemployment rate of 3.3% in July. It stands out as one of the states with the largest gains in employment (+222,200). Florida’s unemployment rate has remained lower than the national rate for 40 consecutive months.

Recommended: Recommended: Small Business Grants in Florida

27. Atlanta, Georgia

Georgia’s largest city with a population of 496,000, Atlanta had a jobless rate of 3.8% in July, compared with 3.9% in June. Georgia’s unemployment rate was 3.4%. The sectors with the most job gains included accommodation and food services, health care and social assistance, arts, entertainment, recreation, and management of companies and enterprises.

26. Phoenix, Arizona

Phoenix, population 1.6 million, has seen its unemployment rate edge upward. It’s now at 3.9%, a full percentage point higher than in April 2024. One of the fastest-growing cities in America, Phoenix reached a record jobless high of 13.7% in April of 2020 and a record low of 2.5% in April of 1998. In the last 50 years, Phoenix’s economy has been powered by hospitality and leisure, but the city is also home to a growing number of high-tech, IT, renewable energy, and bioscience companies. Arizona had a 3.4% jobless rate in July.

Recommended: Small Business Grants in Arizona

25. Anchorage, Alaska

Anchorage, the city with the largest population in Alaska, had a jobless rate of 4% in July 2024, down from 4.5% in June. Alaska often shows a relatively high unemployment rate. Over the last 40 years, the average unemployment rate in the United States has been 6.3%, while in Alaska, it averaged 7.9% since 1976. Therefore, the July rate of 4.5%, while higher than the national average, is low for this state.

24. Charleston, South Carolina

The July jobless rate of 4.2% for Charleston, population 151,000, is a significant increase from 2.4% in April. The rates are still much lower than in April 2020, when unemployment raged at 13%. The city’s economic strength is diverse, ranging from aerospace and life sciences to hospitality. The statewide unemployment rate was 3.9% in July 2024.

23. Charlotte, North Carolina

With a population of 879,000, Charlotte is home to corporations such as MetLife, NASCAR, Wells Fargo, Bank of America, and Lowe’s. Its unemployment rate was 4.2% in July, while the state’s jobless rate was 3.7%. Unemployment rates (not seasonally adjusted) increased in 83 of North Carolina’s counties in July 2024, decreased in three, and remained unchanged in 14.

22. Boston, Massachusetts

At 3.5%, Massachusetts showed low unemployment in July, but Boston’s unemployment moved up to 4.2%, up from 2.8% in April. The city is the economic engine and cultural hub of New England, with higher education, health care, and financial services as the major drivers. In a recent survey of cities most attractive to recent college graduates when considering job openings and affordability, Boston came in at number 12, making it the top city in the Northeast.

21. Kansas City, Missouri

Missouri had a jobless rate of 3.8% in July 2024, and Kansas City, its largest city, had a rate of 4.3%, up from 3.9% in June. The unemployment rate in Missouri reached a record high of 11.4% in April of 2020 and a record low of 2.1 in May of 2022. Kansas City is the third largest beef-processing city in America and has strong sectors in health care, tech, retail, and finance.

20. Denver, Colorado

Colorado’s jobless rate was 3.9% and Denver, its largest city, had a rate of 4.3%. Considered a magnet for work-from-home professionals, Denver is a fast-growing city, but one with housing costs that are 36% higher than the national average. Software and financial services are among its hottest industries. Aerospace, digital communications, and food and beverage sectors are also expanding.

Recommended: Small Business Grants in Colorado

19. New Orleans, Louisiana

The July 2024 jobless rate of 4.4% in the Big Easy ticked down from 4.6% the previous month. And unemployment has come a long way since its alarming Covid-19 days of 20% in April 2020 and an April 2021 rate of 9%. As a tourist favorite and a major port on the Gulf Coast, New Orleans is considered an economic and commercial hub, and Louisiana’s 3.9% unemployment rate is considered low for the country.

18. Indianapolis, Indiana

The city of Indianapolis showed an unemployment rate of 4.4% in July. An economist said in 2023 that there were 5 job seekers for every 10 open positions in the state. Central Indiana’s life sciences and healthcare sector generates nearly $84 billion in total economic output. The state of Indiana showed a jobless rate of 4%.

17. Charleston, West Virginia

The city with the largest population in West Virginia has 46,700 people and had an unemployment rate of 4.4% in July, the same as in April. As it is the state capital, Charleston has government jobs as well as those in trade, utilities, education, and medicine. The chemical industry and the manufacturing sector are also significant. The jobless rate in West Virginia was 4.2% in July.

16. Portland, Oregon

Oregon’s unemployment stands at 4.1%, while Portland, its largest city, has a jobless rate of 4.4%. Seventeen counties in Oregon had unemployment rates at or below the statewide rate of 4.1% and nineteen had rates at or below the U.S. unemployment rate of 4.3%.

15. Columbus, Ohio

Ohio’s unemployment rate was 4.5% in July 2024. Columbus, its largest city, also clocked in at 4.5%. The number of workers unemployed in Ohio in July was 264,000, up from 254,000 in June. Overall, the number of unemployed has increased by 67,000 in the past 12 months from 197,000. The July unemployment rate for Ohio has increased 1.1 percentage points from 3.4% in July 2023.

14. Wichita, Kansas

The unemployment rate in Wichita, population 395,000, was 4.7% in July. Agriculture, manufacturing, healthcare, and energy drive the Wichita regional economy. The state of Kansas had a jobless rate of 3.2% in July, which is lower than the national unemployment average.

13. Wilmington, Delaware

Located midway between Washington, D.C. and New York City, Wilmington is Delaware’s largest city and its economic engine. Wilmington had an unemployment rate of 4.8% in July, a sizable increase from 3.7% in May. The state itself is at 4.1% unemployment.

12. Philadelphia, Pennsylvania

The unemployment rate for Philadelphia stood at 4.8% in July, up from 3.9% in April. The state of Pennsylvania ranked at 3.4% in July 2024. While that may not sound like one of the good news stories, Philadelphia’s jobless rate continues a record low for the state. This low unemployment bolsters the region’s ongoing recovery from the pandemic, which hit Philly hard and led to the loss of more than 100,000 jobs in the first two months of Covid-19 alone.

11. Houston, Texas

Houston’s July unemployment rate at 4.8% was higher than the state of Texas’ rate of 4.1%. Since June 2022, Texas employment grew by over 542,500 positions — the largest annual increase in the nation. The expanding ranks of the unemployed is believed to reflect an increase in the size of the metropolitan workforce rather than layoffs in the state, which has the second-highest population in the United States.

Recommended: Small Business Grants in Texas

10. Seattle, Washington

Seattle, population 733,000, was tracking well above the national unemployment rate with a jobless figure of 4.9% in July. Thousands of tech sector layoffs in the Seattle area have had an impact, but the city continues to support innovation.The state of Washington’s unemployment rate was also 4.9% in July.

9. Albuquerque, New Mexico

The largest city in New Mexico had a jobless rate of 5.1% in July, up from 4.5% in June. It’s still a long way down from its pandemic high of 10%. Albuquerque and the rest of the state are on a growth curve — the top three industries are oil drilling and gas extraction, scientific research and development, and hospitals. New Mexico’s unemployment rate was 4% in July.

8. Louisville, Kentucky

With an unemployment rate of 5.2% in July, Louisville is showing a sharp increase since June when its jobless rate was 4.5%. In just April, the jobless rate was 3.8%. Louisville, with a population of 628,000, is known for shipping and cargo and, more recently, for major manufacturing (with two Ford plants in the region) and health care. Kentucky’s jobless rate of 4.7% is higher than the national average.

7. Providence, Rhode Island

With a population of 189,000, Providence had a jobless rate of 5.2% in July and the state’s unemployment rate was 4.5%. About one-third of the city’s economy is based in trade, transportation, utilities, and educational and health services. The four Fortune 500 companies based in Rhode Island are CVS Heath, United Natural Foods, Textron, and Citizens Financial Group.

6. Newark, New Jersey

In July, the city’s unemployment rate was 5.6%, up from 5% in June. However, this is a marked decrease from a high of 9.7% in 2010. The city of Newark has a population of over 305,000, and some 25% of residents are living in poverty, according to U.S. Census data. The state’s jobless rate of 4.7% is above the national average.

5. New York, New York

The Big Apple had a jobless rate of 5.6% in July, rising a full percentage point since April’s rate of 4.6%. This makes it one of the cities on our list with an unemployment rate higher than the national average. However, New York City, with its population topping 8.4 million, also shows gains in employment four years after the start of Covid-19 lockdowns. New York State is estimated to have lost about 2 million jobs in the immediate wake of the pandemic. The state has a jobless rate of 4.3%.

Recommended: Small Business Grants in New York

4. Chicago, Illinois

The July 2024 unemployment rate of 6.4% for the city was the same as the June jobless rate. The city and its suburbs are home to 35 Fortune 500 companies, with strengths in manufacturing, printing, insurance, transportation, financial trading, and food processing. Unfortunately, Illinois’s rate of 5.2% was one of the highest in the nation as well. The number of unemployed workers was 341,600, up 4.2% from the prior month, and up 19.4% from the same month one year ago.

3. Los Angeles, California

The city on our list with the second-highest population in America (at 3.9 million) had an unemployment rate of 6.5% in July, up from 5.9% in June. Both the city and the state of California have struggled since Covid-19. The state’s unemployment rate in July was 5.2%. Several factors are believed to contribute, including a mismatch between job skills among those who seek employment and what skills are needed.

2. Las Vegas, Nevada

Las Vegas, the largest city in Nevada, had the second-highest unemployment rate on our list at 6.7%, up from 6.2% in June 2024. Las Vegas shows a lot of turbulence in employment, with a high number of people in the workforce actively looking for jobs. Nevada’s rate was 5.1%. Ongoing recovery from the Covid pandemic and increases in short-term unemployment are contributing to Nevada having the highest unemployment rate in the nation, a state economist says.

1. Detroit, Michigan

The unemployment rate of 8.2% in Detroit in July 2024 was the highest on our list, and showed one of the largest increases month over month in the country, up from 6.2% in June. The city has gone through a rough economic ride, starting well before Covid-19: Detroit experienced a 61% decrease in population from 1950 to 2010, lowering its ranking from the 4th most populous city in America to the 27th. Detroit’s jobless rate was an eye-popping 27% in June 2009. The state of Michigan’s jobless rate was 4.3% in July, the same as the national average.

Notable Mention: Washington, D.C.

The nation’s capital of Washington, D.C., population 712,000, showed an unemployment rate of 6.3% in July, which is one of the highest for any large city in America.

What Factors Affect Unemployment Rate?

Unemployment is a key measure of the health of the American economy and considerable resources are put into analyzing it. There are many different reasons for unemployment. Apart from the common causes found in any economy — a worker leaving for another job or being fired — there is cyclical unemployment and structural unemployment.

Cyclical unemployment is caused by economic downturns or is related to changes in business conditions. As the name indicates, it can be temporary. After a recession ends, unemployment typically falls.

Structural unemployment is different. It usually means there is a mismatch between the jobs available and the skill levels of the unemployed. Technological changes, a lack of relevant skills, and jobs moving overseas cause structural unemployment.

Structural unemployment can be hard for a society to deal with — it produces permanent disruptions in the economy and obviously a lot of stress among the people who want to work but can’t get a job.

Recommended: How Does Unemployment Work?

How Does a Low Unemployment Rate Affect the Economy?

The problem of high unemployment seems far away indeed. A reasonable unemployment rate is somewhere between 3% and 5%. The current rate of unemployment means that the economy is producing near its full capacity, maximizing output, and driving wage growth.

However, the labor market can reach a point where each additional job added does not create enough productivity to cover its cost. This causes an output gap, or “slack,” in the labor market. The economy is in danger of becoming “overheated.”

How Does Unemployment Affect Small Businesses?

An increasing demand for labor coupled with a falling unemployment rate can result in wage inflation. With fewer people available to work, employers have to increase wages to attract and hold onto talent. While that’s pleasant for the workers, some businesses can’t afford to pay a lot more. The money that might go to growing the business has to go toward payroll.

Also, when there are more jobs than there are people with the necessary skills and experience, employees may begin feeling overwhelmed and stressed. Small businesses typically have less money to funnel toward training and recruitment. This is a time when small businesses may turn to debt financing, whether it’s seeking a small business loan or looking for investors.

Recommended: Six Step Guide to Getting a Small Business Loan

The Takeaway

The national unemployment rate of 4.3% is edging higher after two years of markedly low unemployment, according to the Bureau of Labor Statistics. The cities of Detroit, Las Vegas, Los Angeles, and Chicago all show jobless rates of more than 6%.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

Photo Credit: iStock/glegorly

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

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

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

SOSMB-Q324-041

Credit and debit memos are documents or items on financial statements that add to (in the case of a credit) or reduce (in the case of a debit) your account balance. They are used to correct charge mistakes or any changes in the amount you owe or the amount due to you.

When reading bank statements or invoices from vendors, you may see these two terms and want to know more about what they are and why they are important.

What Is a Credit Memo?

You may see a credit memo on an invoice from a vendor, on your bank statement, or on your credit card statement. No matter where you see the credit memo, it signifies the same thing.

A credit memo is shown when money is added to an account. In the case of a bank or credit card statement, you might see a credit memo if you were reimbursed for fees or earned interest on a bank account. With a vendor invoice, you might see a credit memo if you were overcharged on a previous invoice and are now receiving credit for that amount you overpaid.

Use Cases

A common use case for a credit card memo is tracking a business expense that you may have returned. For example, a small business owner makes a purchase for office supplies using a company credit card. In the memo field, they write “Office supplies for Q3” to clearly note the purpose of the purchase. If the business owner returns the office supplies, they’ll see a credit on their account for the purchase price. This will be a new line item on their ledger, as opposed to the charge just disappearing.

Information Found on a Credit Memorandum

In addition to showing the amount credited, a credit memo may also have the following details. If you’re keeping statements, it can be helpful to know what to look for to find a particular credit memorandum, including:

•  Payment terms

•  Invoice number

•  Description of item(s) purchased

•  Price paid or owed

•  Details on credit

•  Number of items on the purchase order

•  Date of purchase

•  Customer’s bank account number

•  Financial institution number

•  Shipping address

For a bank or credit card statement, you will find the date of the credit issued, a description of the credit, and the amount.

Recommended: Variable Costing Income Statement

Bank Account and Credit Card Statement Credit Memos

A credit memo on a bank account or credit card statement indicates a positive adjustment or refund. It reduces the amount owed by the customer, often resulting from returns, billing errors, or overpayments. Credit memos include:

•  Interest earned

•  Fees reimbursed

•  Reimbursement of unauthorized transaction

•  Credit for returned product purchase

Vendor Invoice Credit Memos

A vendor invoice credit memo is issued by a supplier to adjust or reduce the amount owed by a customer. It may include:

•  Correction of invoice error

•  Credit for overpayment

•  Discount for paying invoice early

Recommended: What Is a Personal Guarantee?

What Is a Debit Memo?

In contrast, a debit memo, also called a debit memorandum, decreases the amount of money in an account.

For bank and credit card statements, that might be a fee or interest charged. For vendor invoices, the debit memo might happen when you are charged a late fee for an unpaid invoice.

It’s important to understand the difference between a credit memo vs. debit memo because the amount of money you have in your business bank account (or the amount you owe on a credit card or vendor invoice) will be impacted, as will your accounts payable.

Recommended: Small Business Financial Ratios

Use Cases

A common use case for a debit memo would be if a company invoiced the wrong amount to the supplier, for example. If the invoice was too low, the company can issue a debit memo to correct it. The invoice would then be increased, and the supplier would make the appropriate adjustments with the memo, as well.

Information Found on a Debit Memorandum

The same information can be found on a debit memorandum, though, of course, you’ll find details on the debit, rather than the credit, including:

•  Payment terms

•  Invoice number

•  Description of item(s) purchased

•  Price paid or owed

•  Details on debit

•  Number of items on the purchase order

•  Date of purchase

•  Customer’s bank account number

•  Financial institution number

•  Shipping address

For a bank or credit card statement, you will find the date of the debit charge, a description of the debit, and the amount.

Bank Account and Credit Card Statement Debit Memos

A debit memo on a bank account or credit card statement indicates a charge or deduction. This can occur from transactions like fees, withdrawals, or adjustments due to billing errors. Debit memos increase the amount owed or reduce the account balance. Bank account and credit card statement debit memos include:

•  Monthly account fees

•  Overdraft fees

•  Credit card interest charges

•  Annual credit card fees

Vendor Invoice Debit Memos

A vendor invoice debit memo is issued by a buyer to request an increase in the amount owed to the vendor, often due to underbilling or additional services. It may include things like:

•  Fees for late payments

•  Reconciliation for undercharging on previous invoice

Recommended: Commercial Equity Line of Credit

Key Differences Between a Credit Memo vs Debit Memo

Here are the key differences between a credit memo and a debit memo:

•  Purpose:

◦  Credit Memo: Reduces the amount owed by the customer.

◦  Debit Memo: Increases the amount owed by the customer.

•  Usage:

◦  Credit Memo: Issued for refunds, returns, overpayments, or billing errors.

◦  Debit Memo: Issued for underbilling, missed charges, or additional services.

•  Effect on Account Balance:

◦  Credit Memo: Decreases the account balance for the business or creates a refund.

◦  Debit Memo: Increases the account balance for the business or adds to the amount due.

•  Financial Direction:

◦  Credit Memo: Reflects a credit to the buyer’s account.

◦  Debit Memo: Reflects a debit to the buyer’s account.

Recommended: Accounts Payable: What It Is and How It Works

When Are Credit Memos and Debit Memos Used?

There are a few scenarios where you, a bank, a credit card company, or a vendor may use a credit or debit memo.

The first is to correct an error. If you were overcharged (or undercharged) on an invoice, or if the amount owed otherwise included an error in calculation, the easiest way to rectify this error is by issuing a credit or debit memo on the next invoice.

If a customer wants to return a product or get a refund, a credit memo may be issued. Note that a credit memo isn’t the same as a refund. With a refund, the original transaction is typically reversed. With a credit memo, a separate transaction is conducted to credit the amount owed.

Another situation where a credit memo may be used is when a customer is given a discount for a purchase. Maybe you paid an invoice early and got a credit for a percentage of the invoice amount, or maybe the product was on sale or you purchased in bulk and got a discount through a credit memo.

With a debit memo, you may be charged a fee, such as for a late payment, an overdraft, or simply a monthly fee for a bank account.

Recommended: EBITAR Explained

The Takeaway

Understanding both credit memos and debit memos can help you more easily interpret bank and credit card statements, as well as vendor invoices. This helps you better manage your business finances.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

FAQ

Is a debit memo positive or negative?

A debit memo, in the case of a vendor invoice or credit card statement, increases the amount owed. In the case of a bank statement, it’s a reduction in the amount of money in the account.

Is the credit memo a refund?

A credit memo is similar to a refund, but it’s not exactly the same thing. Rather than reversing the initial charge, a credit is given as a separate transaction for the same amount as the original purchase.

Why is it called a credit memo?

A credit memo provides a credit, or increase, in the amount of money in an account.

Photo credit: iStock/Inside Creative House

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

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.

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

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