NerdWallet: Paying off debt, or trying to save more and spend less? Consider these tactics.

by | Jan 18, 2023 | Stock Market

This article is reprinted by permission from NerdWallet.  Between inflation driving up the cost of living and interest rates rising in response, 2022 was an expensive year. Talk of a recession continues, so 2023 may come with its own money challenges. And consumers are worried: NerdWallet’s annual household debt study found that nearly 7 in 10 Americans (69%) have financial concerns about the next 12 months.

The new year may be financially fraught, but there are still things you can do to put yourself in a better position — even without a lot of extra cash. Here are five moves to consider as we head into a financially uncertain 2023.1. Double (or more) your minimum payment According to NerdWallet’s study, households with revolving credit card debt are carrying an average balance of $7,486. To remain in good standing with their credit card company, cardholders have to pay only the minimum amount due each month. But paying the minimum on that amount of debt could end up costing tens of thousands of dollars in interest and take decades to pay off. Let’s say you carry the average amount of credit card debt and your minimum monthly payment is 2% of your balance or $25, whichever is higher. Assuming an interest rate of 18.43% — the average rate for accounts that are charged interest, according to the Federal Reserve Bank of St. Louis — it would take you more than 40 years to pay off this balance and would cost $21,780 in interest. However, if you double your minimum payment — paying 4% of your balance or $50, whichever is higher — the interest paid goes down to $4,226 and the repayment period falls to less than nine years. That’s still a lot of money and a long time, but it’s a huge improvement over making just minimum payments. Go beyond doubling the minimum, and your savings increase furthe …

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