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You can’t have too much money in an emergency fund: Analyst

Matt Schulz, Chief Industry Analyst for LendingTree joins the Yahoo Finance Live panel to discuss money moves to consider for 2021.

Video Transcript

[MUSIC PLAYING]

- Welcome back to Yahoo Finance Live. Congress reaching a deal on a new stimulus package, in it, $600 in direct payments. We also got $300 in enhanced unemployment benefits. We want to bring in Matt Schulz. He's the chief industry analyst for Lending Tree. And Matt, when we look at this and also just what people need to do to set themselves up for success next year, starting with those direct payments and enhanced unemployment benefits, how big of a help is this to Americans? Or is this just too little too late at this point?

MATT SCHULZ: Well, we certainly wish that it could have been bigger. If they had matched what we had done in previous months of the start of the pandemic, it would have been ideal I suppose. But the truth is that this is really important stuff because people have done a really good job of handling their bills and even paying down debt for the most part during this pandemic, which we probably wouldn't have expected going in. But the truth is that that wasn't going to last all that much longer without some sort of stimulus. So it's good that it's here.

BRIAN CHEUNG: Hey, Matt. Brian Cheung here. So I want to ask you about on the whole, how should people be approaching their emergency funds, if you will? Because it has been a lot of a moving target over the course of 2020 when in summer maybe it looked like the case count was going lower. Maybe you can decrease that emergency fund. But now it seems like with the COVID cases rising across the country, maybe more lockdowns, people should be more prepared.

So with the stimulus bill package, should that change the calculus for how much money people have stored in their rainy day fund?

MATT SCHULZ: I'm a believer that you really can't have too much money in an emergency fund. I think 2020 kind of taught us that. And the truth is that if you have debt and you're wondering whether you should knock down that debt or put money into your emergency fund instead, the answer is that you should do both.

Because if you just focus on paying down debt and you don't have anything in that emergency fund, the next time you have some sort of issue like a car repair or a medical expense, you're going to end up having to use that credit card, build that debt up again, and then the cycle of debt just keeps on spinning. So if you can afford to put some of this stimulus money into that emergency fund, it's a good idea.

- And we just had up on the screen some other things that you could do. It says check your credit scores more often. Also re-evaluate where your points are from your credit cards and whether or not your life going forward in 2021, whether or not some of these credit cards still make sense. When you are making those types of decisions, what's important to keep in mind?

MATT SCHULZ: It's really about kind of knowing yourself and how you spend. With any time you're looking for a credit card, you need to ask yourself, what do you typically spend on? And what do you want to get from the card? And in reality, the pandemic and the chaos of 2020 might have changed both of those things for a lot of people.

And the banks have even recognized that where you can now use-- you can now apply travel credit money from some of these high end travel cards to things like groceries. And nobody gets a high end travel card hoping to use that money on groceries. But that's where we are in 2020. So it's really important that you make sure that your card fits your lifestyle because that's how you're going to get the most out of that card

BRIAN CHEUNG: And then aside from credit cards themselves, among the total debt that households might be holding, what is the proper way to approach it right now if people are getting a $600 stimulus check and might not be that large to put a substantial dent in it? So should people be taking that money if they can't stash it away and using it to pay down their credit card debt or other types of debt? Should they be consolidating it before they do that? What's the proper approach here?

MATT SCHULZ: Yeah. If you can consolidate your debt or refinance your debt, it's a really good idea if only to keep things simpler because the more that you can knock down that interest rate, whether it's on a card or whether it's on other things like student loans or mortgages which are other issues, the better you'll be. And with rates really low, it's a really good time to try and do that refinance, whether you do it through a balance transfer credit card, or a personal loan, or even just calling your credit card issuer and saying, hey. Can you work with me on this interest rate? Chances are they probably will.

- Matt, real quick. How would you characterize the consumer right now? Because we got that consumer confidence number out this morning falling to its lowest level since May. When you look ahead to next year, is this a trend that you think is going to continue?

MATT SCHULZ: I've actually been really surprised at how confident consumers have been for the most part through this pandemic. But the reality is that there's this massive divide where you have people who are doing just fine and maybe even doing better than they were. But you have an awful lot of people who are really, really struggling. And this stimulus is going to help things from-- it's going to help keep things from bottoming out for a lot of people. And it's going to help a lot of them make payments.

And I do think that it'll help confidence in the short term. But the only thing that's really going to bring that confidence back is a successful vaccine and life returning to normal. And who knows when that's coming?

BRIAN CHEUNG: All right. Well, like everything, everything comes back to the vaccine. But Matt Schulz, chief industry analyst for Lending Tree. Thank you so much for joining us this afternoon.

MATT SCHULZ: Yeah. Thank you.