If you’ve been watching the news lately, you wouldn’t be at fault for feeling a little jittery about the state of the economy. And while this latest shock to the system is certainly worse than others, it’s still just a shock. As in something temporary…
Fortunately, the strength of the economy before this downturn—which by most indicators was solid—will help soften the blow and speed up the recovery when we rebound.
The Fed’s recent decision to lower rates to near zero is aimed at stimulating the economy and keeping financial markets stable. And while it can help consumers save on interest payments for certain loan products, it’s not always the best news, especially if you’re a saver. Understandably, you may find yourself asking “What should I do?” Here are a few things to keep in mind:
Manage your credit availability and credit score.
One card to keep up your sleeve during a time of uncertainty is having the flexibility to draw on your credit when needed. Whether it’s through your credit card or through the equity in your home, having an open line of credit to use at your disposal could make all the difference.
At the same time, make sure you don’t fall into the trap of sacrificing the future of your financial well-being for the sake of the present. Exceeding your credit limit, as well as making late payments or not making payments at all, is a surefire way to damage your prospects for obtaining a favorable home, auto or personal loan. It can even impact your ability to rent an apartment, get a cell phone plan or even get another loan in the future. Your credit score follows you, and unfortunately, repairing it doesn’t happen overnight. It’s something that takes time.
Take another look at your savings.
While most economists suggest you put aside 3-6 months of living expenses to draw on in a pinch, the most important thing is just saving something—even if it’s as little as a couple hundred bucks. Every little bit counts. The unexpected, whether it’s a medical expense or a flat tire, can happen at any time, so building your savings when something isn’t completely unexpected—like a period of economic volatility—is a wise policy.
Something else to consider as it relates to your savings portfolio is your comfort level with locking up your money for a period of time. For example, many of Navy Federal’s certificates (a type of account at a credit union similar to CDs at a bank) have different maturity windows, meaning the availability of your funds depends on the terms of the product. Additionally, should you need the funds before the maturity date and need to withdraw early, there’s a possibility there will be a penalty or fee. It’s important to consider these factors before committing long-term, especially if you think you’ll need to draw upon this money sometime in the near future. One strategy to manage this effectively is something called “laddering," which allows you to control the terms while getting the liquid availability you want.
Consider refinancing and/or consolidating your debt.
Your financial institution may also be able to offer options for debt consolidation. Often, folks are able to lower their overall monthly expenditure by consolidating debts into one payment at a lower interest rate. Refinancing student and auto loans is another strong option that could lower your monthly payments. These are all great ways to help yourself financially, not just in a time of economic uncertainty, but at any point. Over the years, I’ve helped countless members who have been able to improve their entire financial picture by starting with these options.
Don’t forget about unused gift cards or credit card rewards.
All too often, it’s easy to forget about unused gift cards and/or credit card rewards, but these points, rewards or whatever you want to call them have real value and can really help out during a difficult situation. According to a Bankrate study, approximately 50 percent of U.S. adults have unredeemed gift cards or store credits, worth more than $20 billion total. And, a separate Bankrate study found approximately 31 percent of U.S. adults have never redeemed credit card rewards at all. This is money simply being left on the table.
A solid financial plan to me is very much like keeping good health habits. They’re similar in a lot of ways. Establishing a habit of saving and paying yourself first is much like exercising, eating healthy foods and getting plenty of sleep. It can be difficult at first, but making and sticking to a solid plan will help you to remain strong until it becomes natural.
Times like these can serve as a reminder of the importance of having a plan. By taking proactive steps like establishing an emergency fund, managing your credit, refinancing your debt and taking advantage of unused gift cards or credit cards, you, too, can weather the storm. These are good practices no matter the circumstances; it just so happens to be even better during a time of uncertainty. So if you take nothing else from this, remember—hard times are temporary, but great habits will last a lifetime.
Anne Marie Ferdinando is a member outreach manager in the membership division at Navy Federal Credit Union. She has been working in financial services for 30 years, the last 20 of which have been with Navy Federal.