The holidays can be a season of joy, merriment, and gift giving; however, it can also be a time of excessive spending. We get it. There are so many people on your gift giving list, the retailers are pushing an abundance of sales and promotions, the needed decorations, you want to freshen up your home for guests, and the list goes on and on. Plus, added to the aftermath of traditional holiday spending is an ongoing pandemic, supply chain disruptions, and inflationary prices. This is the perfect recipe for a holiday spending hangover.
According to recent data from the Federal Reserve Bank of New York, credit card balances rose by $17 billion in the third quarter of 2021. In addition, the national credit card average balance is now hovering around $5,500 or moreˡ. Couple this with the prospect of rising interest rates, and it’s no surprise that it may be a good time to incorporate better money management on our list of resolutions for 2022.
We’d like to offer you some money management strategies to help you start 2022 off on the right financial track:
1. Analyze your spending to find potential savings opportunities. By finding extra opportunities for saving each month, this frees up money for longer-term savings, like college, wealth building, and retirement. Could you cut back on dining out each week? Perhaps you can do without one or two of your streaming services. Are you utilizing the gym membership that is auto-deducted from your account each month? Take a good, hard look at your statements for the last two to three months in First Bank’s eBanking portal and find anything that really stands out to you. You may also utilize the household cash flow calculator to help find any areas that could be improved upon. Remember, small sums can really add up over the course of a year.
2. Establish a debt payoff plan. Although there’s no one-size-fits-all solution to help pay down higher-interest debts, there are a variety of debt payoff options available. The two most popular plans are the snowball and avalanche methods. The debt snowball method encourages borrowers to list all debts from smallest to largest. You then pay down each debt in balance order, while staying current with minimum payments on all of the other balances. You’ll pay more toward the lower balance debt and pay that one off first, continue to build your snowball payments to the next higher balance, and work your way through each of the debts until you’ve paid them all off. This plan allows you to celebrate small wins as you pay off debts incrementally.
Another viable option is the debt avalanche method which encourages borrowers to pay more toward the debt with the highest interest rate first (versus the balance amount), stay current on all of the debts’ minimum payments, and then work your way through paying off the debts and, ultimately, tackling the one with the lowest rate last.
“You could also combine the two methods or even develop your own plan and do what works best for you and your financial situation,” said Angie Moleski, Assistant Vice President and Senior Product Management Officer at First Bank. “I highly recommend taking advantage of our credit solutions and digital tools to help you reach your goals.” To help keep you on track, you may want to set up monthly auto-payments on a schedule that works best to meet both the payment due date and your paycheck date(s). When paying extra, you may find that it works better to break that up over a weekly or bi-weekly repayment schedule versus trying to pay the minimum payment and extra payment all at the same time. “Again, it’s really what works better for your income, debts, and budget,” she added. “The important thing is that you have a plan to make your payments on time, reduce your debt-to-income ratio, and build a solid credit score.”
3. Consider debt consolidation. Credit tools, like a lower-interest home equity line of credit or a credit card like First Bank’s Maximum Rewards® World Mastercard® that offers a low introductory APR on purchases and balance transfers², can offer you the solution you are looking for this year. With a qualified credit score, either tool could help you consolidate your outstanding debts into one manageable payment, allowing you to pay them down at a lower rate.
Learn more about tapping into your home’s equity with a home equity line of credit.
Moleski said, “Consolidating debts into a low-interest card and paying it off within the promotional offer timeline is an ideal way to manage your finances as it can help free up extra money in your budget each month.” She added that when using the promotional period offer on a credit card, to just be mindful of the terms and promotional period dates.
4. Set up savings goals. It’s a good idea to establish your short and long-term savings goals at the beginning of the year. Are you saving for emergencies? What about necessary new appliances or a long-overdue vacation? Think about what goals you want to meet this year and set them up in Plinqit, First Bank’s integrated savings app. It’s easy, convenient, and secure! Another option is to set up transfers in your eBanking portal to automatically move money from your checking account into one of First Bank’s savings accounts. Just set it up and watch your money grow.
Read more at Financial Check-Up for 2022: Three Areas to Evaluate
5. Stay on track for retirement. This is also an ideal time to set up a meeting with a First Bank Wealth Management advisor and assess where you are with your retirement. Are you on track with the retirement goals you have in mind or should you set a goal to start contributing more this year? Has your timeframe for when you plan to retire changed? Have you not started a plan for retirement or unsure where you stand? No matter where you are at in your retirement saving journey, schedule an appointment with one of our knowledgeable advisors and get started today!
Whether you are paying down debt, establishing your savings goals, or creating a plan for retirement, the important thing is that you are getting started. Work with the First Bank team and let’s get you on track – or back on track – in 2022!
ˡAverage American Credit Card Debt in 2021: $5,525, www.fool.com/the-ascent/research/credit-card-debt-statistics
² You must pay your entire statement balance (including all promotional purchase and balance transfer balances) by the due date each month to avoid being charged interest on new purchases from the date those purchases are made, unless your new purchases are subject to a 0% interest rate.