As a young professional living in San Francisco, Katherine O. first got her airlines reward card to earn points for flights back to her hometown in Southern California.
But she got more than she bargained for: Before long, she was deep in debt. “I didn’t understand what a credit card meant until it was too late.”
Spending “here and there” adds up to $12,000
Katherine figured if she tried to limit her credit card spending and paid her monthly minimum (or more) each month, she was handling her credit card well. She justified the money she spent with the savings she was getting on airfare through her credit card rewards.
“With the amount of stuff that San Francisco has to offer, I just got in the habit of spending and rang it up,” she says. “It was little things here and there.”
“Before I knew it, it had added up and I was at a drowning point,” Katherine says. A little over a year ago, her credit card balance peaked at $12,000. Her minimum payments of $250 were straining her budget, already spread thin by living in a high-cost city.
Over $150 of her payments went straight to interest alone, thanks to a 23.40% APR. “I was on a treadmill of debt that had no destination,” she says.
Katherine’s turning point: “I started hyperventilating”
It was a stressful move to a new apartment that made Katherine realize the seriousness of the sizable debt she’d accrued.
While purchasing things for her apartment at Target, she opted to open a new card to get a 15 percent discount. She intended to pay for her items with a debit card, but there was a mixup and her purchase was instead charged to the new Target card.
“I came home and started hyperventilating,” Katherine says. With another credit card to pay off in her wallet, the $12,000-plus she owed was starting to feel like more than she could handle.
“The stress of it was horrible,” she adds. “I didn’t want to wake up and think about this anymore.”
Debt consolidation: “Why wouldn’t I do this?”
By chance, Katherine’s new roommate happened to work for online lender SoFi. Her roommate sat her down, “talked to me about consolidating my debt, and helped me calm down.”
The roommate didn’t ask for many details. She simply said, as Katherine recalls: “If it’s bad, you need to come to terms with how bad it is. You need to accept it. And then you need to come up with a solution to tackle it.”
Her roommate directed Katherine to research loan options on SoFi’s site. After looking at success stories and playing with a loan calculator, Katherine felt like this could be her solution. The numbers made sense, so “I figured, why wouldn’t I do this?”
Katherine applied for a loan and was approved within a couple of days. Her funds to pay off her credit card balances arrived in her account just 24 hours after approval.
A personal loan to replace credit card debt
Katherine opted to replace her credit card debt with a 7-year personal loan. There was no origination fee, and with 10.24% APR (less than half of her credit card rate), she’s saving big-time on interest.
“I paid so much money to that card and wasn’t even making a dent in this card’s balance,” Katherine recalls. Having it gone was a huge relief.
On top of a much lower interest rate, Katherine has a $201 monthly payment that’s lower than her previous $250 monthly minimum. “I’m not stressed about paying $150 in interest, and I’m getting this debt down,” she adds.
Facing her debts wasn’t easy, Katherine admits. “It’s definitely hard to sit down and be like, ‘You’ve failed and done wrong in this world!’” she says. But she owned up to “how much I was hurting myself,” and found a way to tackle her $12,000 credit card debt.
Earning a pay raise
Around the time that Katherine consolidated her credit card debt with SoFi, she also had a win at work. “When it comes down to being an adult and living in such an expensive city, that entry-level pay is just not enough,” Katherine says. “I was barely floating.”
An account manager at a tech security startup, Katherine fell in love with the job and “worked my ass off.” Her biggest financial goal was working hard enough to earn a pay raise. She capitalized on opportunities for growth, and got results.
“People noticed and recognized it,” she says. It led to an offer for a new role with a substantial pay raise. After scraping by for a while on entry-level salaries, it was a huge boost for Katherine’s finances.
Next up: emergency savings
Now that Katherine has her credit card debt under control and is earning more, her monthly cash flow is in a much better place. “I’m more cautious about where my money is going,” she says. “I know how much I have each month and where it’s going.”
She’s also building a savings habit. Katherine plans out big future purchases, like trips, and saves for them so she can pay in cash.
But her ultimate goal is to have a healthy emergency fund in place. She’s working to put away “enough savings that if I lose my job or something happens health-wise, I’m taken care of and not calling my parents to bail me out,” she says.
She’s starting small, socking away $20 to $50 a month. “I don’t have the savings account with five zeros in it right now, but that’s the goal — someday!” Once that’s in place, she hopes to start paying extra on her personal loan and getting the balance down faster.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|