Despite giving it their best effort, many Americans are struggling financially. The National Foundation for Credit Counseling reports that 53% of adults feel setbacks keep disrupting their progress, while 48% say they’re constantly trying to stay afloat. With 57% citing economic uncertainty as the reason they’re unable to achieve long-term goals, preparing now for unexpected challenges can help you navigate an unpredictable economy more confidently.
To get prepared, here are some steps you can take:
Define Your Essentials
Determining what’s essential and non-essential is the first step to creating a workable budget that will allow you to cut back where you can. Essentials include your rent or mortgage, groceries, utilities, and transportation, while nonessentials include subscriptions, dining out, or other forms of leisure and recreation. Pulling back on what you spend toward the nonessentials frees up money to put toward savings or debt repayment.
Organize and Prioritize Your Debts
Taking control of your debts starts with organizing them, so you know which ones have the largest penalties and highest interest rates. If you’re struggling to repay your debt, call your credit card company and request forbearance, which pauses or reduces your payments temporarily, or ask to enroll in a hardship program. It’s important to note that while in forbearance, your interest rate will likely keep accruing. You may also want to try different methods of repayment, like the snowball method, where you pay off your smallest debt first, or the avalanche method, which targets the debt with the highest interest rate. With either approach, you still make minimum payments on the rest.
Begin Saving Now
Experts recommend following the 80/20 rule, which advises you to put 80% of your monthly take-home toward household bills and 20% toward savings. Building a savings can give you a fallback cushion during financially challenging times, while also allowing you to plan for the future.
Take Advantage of Expert Guidance
Certified credit counselors through nonprofit credit agencies can help you with budgeting, financial literacy, goal planning, and debt management. If you’re struggling and need greater help, a debt management plan can help you pay back your credit card debt in three to five years. A credit counselor will work with your lenders to combine your credit cards and reduce your interest rate, making repayment more efficient.
Bottom Line
Even when the economy is uncertain, you can control your own actions. That means knowing your essentials, managing your debt wisely, saving consistently, and getting help when you need it.