5 Ways to Position Your Wallet for an Uncertain 2023

With cost-of-living inflation and rising interest rates in response, 2022 has been an expensive year. The talk of a recession continues, so 2023 could have its own financial problems. And consumers are concerned: NerdWallet’s annual household debt survey found that nearly 7 in 10 Americans (69%) are financially anxious about the next 12 months.

The new year can be stressful financially, but there are things you can do to improve your situation – even without extra money. Here are five steps to consider as we head into a financially uncertain 2023.

1. Double (or more) your minimum payment

According to research by NerdWallet, the median balance of households with revolving credit card debt is $7,486. To stay in good standing with the credit card company, cardholders only have to pay the minimum amount due each month. But the minimum payment on that amount of debt could end up costing tens of thousands of dollars in interest, and taking decades to pay off.

Let’s say you have an average amount of credit card debt and your minimum monthly payment is 2% of your balance or $25, whichever is greater. Assuming an interest rate of 18.43%—the average rate for accounts that earn interest, according to the Federal Reserve Bank of St. Louis—it would take you over 40 years to pay off that balance, and the interest would cost $21,780 .

However, if you double your minimum payment – ​​paying 4% of your balance or $50, whichever is greater – the interest paid drops to $4,226 and the repayment period is reduced to less than nine years. It’s still big money and for a long time, but it’s a huge step up from the minimum payments. Don’t double the minimum and your savings will increase even more.

Credit card debt is expensive, especially now that interest rates have risen. In 2023, add whatever you can to the minimum monthly payment; every little thing saves time and money.

2. Pay now or buy later

The use of the “buy now, pay later” service is becoming increasingly popular, including for essentials. Nearly one in five Americans (18%) have used BNPL in the last 12 months, according to a NerdWallet survey. And while these services may give you more time to pay interest-free, they can also lead to over-expansion — taking on too many loans in a short amount of time — which can affect your ability to meet other financial obligations.

For non-essential purchases, if you can’t pay now, consider setting them aside while you save money. You may find that after the money has been saved and some time has passed, you are generally less inclined to shop. And if you still want to buy, you can do it for free and clearly – no need to worry about payments.

3. Postpone big purchases

A recession has not been officially declared, but some experts predict that it will occur in 2023. This could mean loss of income, reduced credit limits or more difficult credit, and stock market volatility. With this in mind, it may be a good idea to delay making large financial commitments.

If you can, avoid increasing debt and put off big purchases—at least for now. If this frees up some extra money for you, increasing your savings could help you financially prepare for what 2023 has in store.

4. Automate your savings

Speaking of savings, in times of economic uncertainty, having cash can bring much-needed peace of mind. If you don’t save regularly, set up an automatic regular transfer of money to a savings account. While experts recommend creating a reserve fund for three to six months of expenses, even a few hundred dollars can help you stay out of debt in the event of an emergency.

5. Ask for help

The past few years have been financially challenging for many — 45% of Americans say their overall financial health is worse than it was before the COVID-19 pandemic, according to a NerdWallet survey — and there’s no shame in needing help covering essentials. Several programs can help you, including financial advice, rental assistance, and legal assistance.

Not sure where to start? 211.org can connect you to local options if you are food insecure, need financial assistance with housing or utilities, or cannot access or pay for health care.

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