6 steps to make the most of the economic recovery - KTTC Rochester, Austin, Mason City News, Weather and Sports

6 steps to make the most of the economic recovery

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By Andrew Housser


Although the U.S. economy has essentially recovered from the Great Recession of a few years past, many people still are juggling significant personal debt. In fact, some economists cite personal debt as one of the reasons the recovery has been fairly slow. These same economists also point out that the nation may be due for another recession. And most observers believe that the U.S. Federal Reserve will raise its key interest rate sometime this year – for the first time since 2006.

The good news is that these warnings provide some lead time. But now is the time to take action to improve your financial situation. Here are six ways to build a better financial future, starting today.

1. Save for a rainy day with an emergency fund.

Reduce the likelihood that, in a future emergency, you will need to rely on credit cards or payday loans. First, work to save at least $500 to $1,000 to cover unexpected expenses such as a car repair or medical bill. Build this amount as quickly as possible by stashing a financial windfall, saving a raise, putting away earnings from a yard sale, or taking on extra work. Then, going forward, aim to accumulate enough to cover six to nine months of living expenses. Keep the funds in a dedicated savings or money market account. You want to be able to access the money when you need it, but you also do not want the money to be too accessible, lest you spend it inadvertently.

2. Pay down credit cards.

Credit card debt is likely to be hit hardest by rising interest rates. Credit card interest rates are almost always tied to the Fed's interest rates. In addition, the zero-interest balance-transfer offers that have flooded mailboxes for years are likely to disappear. When rates increase, banks will no longer be able to profit on those very-low-interest offers. Now is the time to buckle down and eliminate those balances instead. It can be worthwhile to take advantage of a zero-interest offer if you have the discipline to resist charging more, and instead pay off the balance. If your credit is not good enough to qualify for those offers, consider seeking out a personal loan to lock in an interest rate that is lower than the credit card lenders offer.

3. Evaluate your mortgage.

Some observers argue that interest rates available for fixed-rate mortgage rates will not increase rapidly. If you still have a mortgage loan with a high interest rate, and have good credit, now may be a great time to refinance and lock in a low fixed-rate mortgage loan.

4. Be cautious of adjustable rate mortgages.

Adjustable rate mortgages (ARMs) and home equity lines of credit may be causes for concern. These mortgages may be tied to the prime rate, and they may increase rapidly once the Fed raises rates. If you have an ARM and can refinance out of it, you may wish to do so. If you are purchasing a home, avoid locking into an ARM. Your mortgage payment could shoot out of your price range as rates increase. Many homebuyers are not alert to this risk, because rates have not risen in nearly a decade.

5. Avoid adding other new expenses.

Do not be lulled into a false sense of security by positive economic indicators. Be wary of adding additional expenses, such as an RV, second home or expensive new vehicle, unless you are completely out of debt, maintain a fully funded emergency fund, and are absolutely sure you can afford them.

6. Pay off debt before you invest.

Savings accounts, money market funds and bonds still will offer low interest rates for some time. If you are repaying debt, you may be paying anywhere from 7 percent (for some personal loans and student loans) to 18 percent, 23 percent or even more (for some credit cards). In the long run, you will benefit the most financially if you pay off high-interest debt before focusing on investing. The exception is saving for retirement. If at all possible, put at least 10 percent of your income into retirement funds. This is particularly important if your employer offers matching funds.

As always, if you are struggling to make even minimum payments on your debt, seek help from a credible debt relief professional. Whether you achieve the goal of debt freedom on your own or with help, now is the time to prepare for your financial future.



Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.
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