What's Trending Post-COVID for Homeowners
TLDR; Homeowners are turning to HELOC’s or cash-out refinance’s instead of personal loans and credit cards.
Kick ‘em When They’re Down...
(your credit card and personal loan debt, that is.)
Clearly, the COVID-19 pandemic has impacted our economy greatly. Businesses have been shuttered, unemployment rates have soared, and the Fed has dropped rates to historic lows. But there are signs of hope - reopening and restarting, and an opportunity to better your finances.
In regards to debt, the guiding principle you may have heard time and time again: “Savings is good, and debt is bad.” But as we all know, debt is a necessity in today’s world. Whether you’re paying for a home, college, or a car, debt likely is helping you meet your needs daily.
Economic downturn or not, the key is to manage debt correctly and ultimately use it in your favor. High-interest debt in the form of credit cards and personal loans can be costly. According to ValuePenguin, the average APR for credit cards is 17.4% and the average APR for personal loans is 14.5%.
Many Americans are inclined to leverage credit cards to pay for immediate expenses. Then when those bills pile up, some end up paying off credit card debt with personal loans, only to find that they are still paying a fairly steep interest rate tacked onto a growing balance. Here are some tips to getting rid of high-interest debt.
Recessions are Normal
While many things still seem uncertain, there is some good news. Recessions are a normal part of the economic cycle. To put this in perspective, since World War II, we've gone an average of about five years between recessions. The last recession ended over 10 years ago. All things considered, we were overdue.
If you’re cognizant of your finances, and understand how to leverage debt, you can be better prepared in the case of an extended economic downturn. A good rule of thumb is:
50% of income goes to necessities (like your housing, food, clothing, medical expenses and other essentials)
30% of income can go towards entertainment, travel, and more enjoyable needs
20% of income should be put towards your savings, investing, and/or paying off debt
The most important takeaway is that your total spending should be less than your total income each month. Be sure you’re setting aside money for retirement and emergency needs.
Don’t ignore the debt. It’s easy to assume you’ve minimized costs on dining out, entertainment, and transportation, but it’s still crucial to be aware of how much you spend. Some helpful tips include:
Look for easy areas to cut, starting with mindless spending.
Make a list of “necessities” versus “wants” on a monthly basis to orient your spending habits in the right direction.
Know the costs of recurring subscriptions that can add up and renew automatically.
With Amazon and other online retailers offering one-click ordering and stored credit card information, you should keep an eye out for these purchases specifically.
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© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
