Many Americans are working on their New Year’s financial resolutions. And for a few, that includes increasing their savings, a survey reported.
In fact, 31% of Americans are interested in increasing their emergency funds in 2023, according to a survey by Personal Capital.
That’s more than those planning to buy a home (9%), buy a car (15%) or host a wedding (8%), according to the survey.
But bolstering emergency funds can be challenging, especially considering that inflation remains high and high-interest debt could be preventing people from taking full advantage of their savings strategy.
If high-interest debt is keeping you from building a sizable emergency fund, you might consider paying it off with a lower-interest personal loan that can help lower your monthly payments. Visit Credible to compare options from different lenders and see if this option is right for you.
INFLATION CAUSES AMERICANS TO REDUCE SAVINGS: HOW TO STAY ON TRACK
Paying off high-interest debt could help you build an emergency fund
Debt can get in the way of building a sizable emergency fund. In fact, total household debt increased by $351 billion (2.2%) to $16.51 trillion in the third quarter of 2022, according to the latest data from the Federal Reserve Bank of New York.
Notably, credit card balances increased by $38 billion in the third quarter of 2022, according to the report. The average interest rate for credit cards was 19.07% as of November 2022, according to data from the Federal Reserve Bank of St. Louis.
But there are many ways to pay off high-interest debt, like credit cards. Here are some tips.
Open a High Yield Savings Account: A savings account could give you a place to park your emergency savings as it earns interest. If the Federal Reserve keeps raising interest rates to reduce inflation, interest rates on savings accounts could also rise. This money can be used to pay off the debt.
Use the snowball method: Try to pay off the smallest credit card balance first and then the next highest until you have paid off all of the credit card debt.
Consider the avalanche method: Pay off the credit card with the highest interest rate, and then keep going down.
Apply for a personal loan: Get a personal loan at a lower interest rate. The average rate on personal loans is 11.23% as of November 2022, according to the St. Louis Federal Reserve.
Using a balance transfer card: A balance transfer card allows you to transfer your credit card debt to a new card. These cards often offer 0% APR introductory periods.
If you’re having trouble paying off credit card debt, you might consider applying for a balance transfer card. Visit Credible to compare balance transfer cards without affecting your credit score
NEW YEAR’S FINANCIAL RESOLUTIONS: AMERICANS PLAN TO TAKE CAUTION IN 2023
Increase your retirement savings
As people pay off high-interest debt, they may have more money left over to divert into their emergency funds, as well as their retirement savings.
Yet nearly half of workers don’t have access to 401(k) plans, according to a study by T. Rowe Price.
However, almost anyone can open a traditional IRA or Roth IRA through a bank or investment management company.
A traditional IRA works much like a traditional 401(k). Contributions to a Traditional IRA are tax deductible and therefore may reduce taxable income for the year the contributions are made.
On the other hand, a Roth IRA does not allow for tax-deductible contributions. But withdrawals from Roth IRAs are tax-free as long as account holders are at least 59.5 years old and their accounts have been open for at least five years.
If high-interest debt is keeping you from getting the most out of your emergency fund and retirement savings, you might consider paying it off with a personal loan at a lower interest rate. Visit Credible to speak with a personal loan expert and see if this option is right for you.
THE SECURE 2.0 LAW AIMS TO RENEW THE RETIREMENT SAVINGS SYSTEM: WHAT IT MEANS FOR YOU
Have a finance-related question but don’t know who to ask? Email credible money expert at firstname.lastname@example.org and your question could be answered by Credible in our Money Expert column.