Living with debt can take a toll on more than your bank account. It can create ongoing stress, keep you up at night, and make it harder to plan for the future. But even if your situation feels overwhelming, there are ways to reduce the pressure.

These 10 practical steps may help you get debt under control — and in the process, bring more peace of mind. As a bonus, some of these changes might also support better credit over time.

1. Make a complete list of what you owe

It’s hard to tackle debt when it’s unclear where you stand. Start by listing every debt — credit cards, loans, overdue bills — along with balances, interest rates, and minimum payments. Having everything in one place can reduce anxiety and help you see what needs attention first.

2. Create a realistic monthly budget

A workable budget can relieve stress by giving you more control. Track your spending and look for places to cut back, even temporarily — like unused subscriptions or frequent takeout. Freeing up even a small amount may help you make meaningful progress.

3. Prioritize high-interest debt

Tackling the highest-interest debt first (known as the avalanche method) might reduce the interest you pay overall. Over time, that could ease financial strain and help your payments go further.

4. Consider the snowball method for momentum

Prefer a quick win? Paying off the smallest balance first (the snowball method) can create a sense of accomplishment and build motivation. Either approach could reduce stress — choose the one that fits your mindset and money habits.

5. Automate your payments

Late payments can lead to fees, stress, and potential credit harm. Setting up automatic payments for at least the minimum amount can help you stay on track and avoid last-minute scrambles.

6. Explore refinancing options

If high interest makes it hard to keep up, refinancing might help. Balance transfer credit cards, personal loans, or home equity loans could offer lower rates, reducing pressure in the short term. Just be sure you understand the terms and have a repayment plan. The Federal Trade Commission’s (FTC) Coping With Debt guide outlines several options.

7. Contact lenders before you fall behind

Some may offer hardship programs, deferments, or adjusted payment plans. For more information, the Federal Trade Commission’s (FTC) guide on How To Get Out of Debt offers helpful strategies and considerations.

8. Use windfalls wisely

Unexpected money — like tax refunds, bonuses, or gifts — can be an opportunity. Applying it to debt could lower your balance, reduce interest, and give you breathing room. Even small lump sums might make a difference.

9. Monitor your credit regularly

Checking your credit may help you spot problems early and track progress over time. It might not relieve stress immediately, but learning how credit scores work, staying informed can give you a sense of control, and over time, improved credit may open the door to lower rates. You can also explore FTC resources on credit and debt to understand better how credit works.

10. Avoid adding new debt

If you’re trying to regain control, avoiding new debt is key. That might mean pausing large purchases or being mindful about credit card use. Keeping balances low can help reduce stress and benefit your credit later.

How to stay ahead of changing rates

Rising interest rates and economic uncertainty can make it harder to pay down debt and easier to feel overwhelmed. But you have options. By organizing your finances, trimming interest costs, and building healthy habits, you may reduce financial stress and set yourself up for stronger credit in the future.

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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice

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Winter is fast approaching, and the holiday season is just around the corner. It’s time to start planning ahead—not just for gift shopping but for ways to trim your household expenses. Saving money doesn’t have to mean making big, expensive changes. With some clever, low-cost strategies, you can keep your home cozy, reduce energy bills, and build up extra savings for the holiday season. Here are seven easy and affordable ways to start saving.

1. Draft stoppers to block the breeze

Cold air sneaking in under doors can send your heating bill skyrocketing. Draft stoppers (or rolled-up towel) are easy, low-cost solutions. You can place them along the base of doors or windows to block out cold air. They’re inexpensive and can make a noticeable difference in keeping your home warmer without turning up the thermostat.

2. Reverse ceiling fans to maximize warm airflow

If you have ceiling fans, flip the switch to reverse the direction (clockwise). This helps push warm air back down into the room, keeping it circulating without cranking up the heat. It’s a quick adjustment that can make your home feel cozier without spending an extra cent on energy.

3. Minimize drafts with blankets, curtains and rugs

Windows and doors are common culprits for heat loss. Upgrading them can be pricey, but there are budget-friendly alternatives. Use DIY window insulation kits to seal any drafts and keep the cold out. Hang thick curtains or blankets over windows to provide extra warmth, and layer rugs over hardwood floors to prevent heat escaping. These easy steps can help you save on heating without a major investment.

4. Close off unused rooms

If you have rooms you don’t use frequently, such as guest rooms or storage spaces, close the doors to keep the heat concentrated in areas you use more often. Heating fewer rooms means you use less energy and spend less money warming up spaces that don’t need it.

5. Use timers and smart plugs

Plug your lights and holiday decorations into timers or smart plugs so they’re only on when you need them. This saves energy and cuts your electricity bill without sacrificing the festive glow. You can also use the same trick for space heaters or other electronics that might stay on longer than necessary.

6. Install a programmable thermostat for smarter heating

A programmable thermostat is an affordable way to control your heating more efficiently. By lowering your heat when you sleep or are away, you can save significantly on energy bills. Many models are inexpensive, easy to install, and allow you to adjust temperatures according to your daily schedule.

7. Plan potluck holiday gatherings

Hosting a holiday party doesn’t mean you have to shoulder all the costs. Organize a potluck with friends and family, where everyone brings a dish. Not only does this save money on food, but it also brings people together in the true spirit of the holidays. You can also skip cooking a full meal and opt for finger foods and snacks, which are generally cheaper and less work to prepare.

These simple actions to cut winter costs allow you to save money and make the holiday season easier on your wallet. Cutting winter costs doesn’t have to mean sacrificing comfort or festive cheer. Instead, a few budget-friendly changes can keep your home cozy and help you save for the things that really matter.

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We all have monthly expenses and bills to pay, but it’s also important to try to fit savings into our personal monthly budget. Some people have enough disposable monthly income to afford to save on a regular basis. For others, forced savings is the only way to ensure that they continue saving on a regular basis.

Regardless of how much money you earn and regardless of your personal monthly budget, there are several ways to ensure that everyone can afford to save on a regular basis.  Even if you are currently repaying personal debts, student loans, or credit cards, you can use these five helpful tips to keep you on track so that you continue saving for your personal financial goals on a regular basis.

1. Budget in your savings

When you sit down to plan or revise your personal monthly budget it is a smart financial idea to add in regular savings as a monthly expense. This ensures that you continue to save money on a regular basis.

2. Save what you can afford

It’s important to be realistic and save only as much money as you can afford so that your money remains in your savings and investment accounts. If you under-budget and try to invest too much money, the odds are that you will probably end up making a withdrawal from your savings account, which completely defeats the purpose of saving. It’s a better idea to save a little bit of money at a time—letting it build slowly rather than not saving at all.

3. Force your savings

The best (and most effective) way to save is to set up automatic transfers from your checking account to your savings account and investment accounts if you have them. To keep up with your budgeting and savings goals, you can set up automatic transfers to coordinate with your pay period, whether it’s on a weekly, biweekly, or monthly basis.  This way, when you wake up on the morning of payday, your money has already been transferred to your savings account(s), and you will be less tempted to spend the money.

4. Think long term

Building up your personal savings (like most personal goals) takes time. The key to successful savings is to think long-term and stay focused on your goals.  Most people don’t get rich overnight—jackpot and lottery winners excluded, of course, so you have to keep in mind that even saving $50 per month can add up to a lot of money over time.

5. Know your savings options

Traditional or high-yield savings accounts are great options if you’re looking to save cash for emergency funds or short-term goals. However, if you’re searching for more long-term investment options – to save for retirement, for example – you might consider investing in mutual funds, exchange-traded funds, or even individual stocks. With these types of long-term investment options it’s best to consult with a financial planner or someone you trust that knows the ins and outs of each option so that you fully understand them before you decide on which savings plan is right for you.

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Conflicting financial data can be a real head-scratcher. A mid-March 2024 report from the Federal Reserve showed that household net worth had reached an all-time high. The same report showed that household debt was also at a record high. This seems like a contradiction: Americans are wealthier than ever before yet owe more money than ever before.

The key to understanding that contradiction is recognizing that the data represents two types of people: net savers and net borrowers. Not only are these two groups in very different financial shape, but conditions recently have shifted decidedly in favor of one group over the other.

Wealth and borrowing are at record levels

One way to understand the apparent contradiction is to consider the various data points separately. Since the Great Recession ended in 2009, total U.S. household wealth has risen steadily to an all-time high of $156 trillion.

The chart shows that from the end of 2009 through the end of 2023, U.S. household net worth rose from $61.6 trillion to $156.2 trillion. It’s been a reasonably smooth ride, with just a few minor hiccups. The latest setback was in 2022, but household wealth shook off that setback and rose to new heights in 2023. This progress was thanks to strong asset growth.

From the end of 2009 through the end of 2023, the value of household assets grew from just under $76 trillion to $176.7 trillion. Net worth is calculated by subtracting liabilities from assets. Liabilities have grown even as assets have soared:

That period from the end of 2009 through the end of last year also showed persistent growth in household liabilities, which include various forms of debt. The pace of this growth has picked up over the past three years, bringing household debt to a record high of $20.5 trillion.

One explanation for why both assets and debt have grown so consistently over this period is that it was a great time for investment returns and a great time to borrow money. Different households embraced one or the other of those two experiences.

2010 to 2021 was a great time to borrow

First, let’s look at why so many households found borrowing money so attractive in the period following the Great Recession from mid-2009.

The above chart shows the Fed funds rate over the past 50 years. Since interest rates represent the cost of borrowing money, this chart can give you some idea of when borrowing has been expensive and when it’s been cheap. Over the past 50 years, the Fed funds rate has averaged 4.8%. However, in the aftermath of the Great Recession, it plunged to nearly zero—and stayed there until 2022.

While interest rates like credit card APRs and mortgages vary, the Fed funds rate gives a general idea of interest rate trends. What this chart shows is that from roughly 2010 through 2021, borrowing was unusually cheap. In effect, people were strongly encouraged to borrow during that period.

Stocks and real estate have provided strong asset returns

The flip side of low interest rates is that they are not very rewarding to people with traditional deposit products like savings accounts and CDs. These people earned very little return on their savings from 2010 to 2021, often not even enough to keep up with inflation.

On the other hand, though, the period following the Great Recession has been very good for real estate and stock market returns. Since the end of 2009, home prices nationally have more than doubled. The value of the S&P 500 has more than quadrupled.

Rates returned to normal last year, but borrowing kept on growing

In short, since the Great Recession, the U.S. has seen an extended period when borrowing was unusually cheap. That helps explain the record amount of debt American households amassed. The same period saw unusually strong growth in asset values, which explains why net worth has reached a record high. This isn’t so much a contraction as it is a view of two distinctly different types of financial behavior.

While many households have assets and liabilities, what matters is net worth, whether they have significantly more assets than liabilities or vice versa. While borrowing was unusually attractive for many years, that has now changed. The last few years saw the Fed funds rate rise to 5.33%, about half a percent above its 50-year average.

Most of the years since the Great Recession featured extremely low interest rates that encouraged record borrowing. Those same low rates punished savers in traditional deposit accounts, helping to push money into investments. This helped boost stock and real estate values.

Now that interest rates are higher, savers who invested in stocks and real estate still benefit from high asset values. For heavy borrowers, though, the script has flipped. The super-low interest rates are gone, leaving many in debt for extended periods.

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The principles of budgeting are the same whether you are a child saving for a new toy or an adult saving for a new house. Learning how to budget effectively can help get you on track to achieve your financial goals.

1. Prioritize high-interest debt

There is little point in setting money aside for saving if you are paying interest charges on other debts. Before funneling money into savings, focus on reducing high-interest debts. Allocate extra funds to eradicate these financial burdens and save on interest payments. As soon as the debt is paid off, start saving those funds instead.

2. Understand your income

For most employed people you know exactly how much income you receive every week. For gig workers and freelancers, estimating income can be tricky. Be conservative in your estimates and track your earnings diligently to align with financial goals. Do not rely on credit cards to fund spending in excess of your income.

3. Embrace weekly allowances

Allocate a fixed weekly spending allowance for all expenses, including non-essential expenses. Once you deplete your non-essential funs, exercise discipline until the next week begins.

4. Track receipts digitally

Utilize apps for real-time expense tracking to gain insights into your spending patterns and make informed financial decisions. Check if your online banking App has this functionality. If not, there are other Apps that provide real-time insights into your finances.

5. Meal planning and smart shopping

Plan meals ahead to curb unnecessary dining expenses. Leverage online tools and discounts to optimize grocery shopping. If you prepare food at home instead of ordering your usual takeout, give yourself an extra $5 in your non-essential allowance. Cook twice as much food and freeze half for another day.

6. Budget for the occasional splurge

A balanced budget allows for occasional treats from your non-essential allowance. Learn to enjoy planned splurges you know you can afford rather than impulse spending that leaves you short.

7. Use technology for price-tracking

If you need to make a purchase, be sure to compare prices at different outlets. Leverage price-tracking apps and websites to find the best deals. Harness the power of technology to make informed purchasing decisions.

8. Set clear financial goals

It can be easier to budget if you define specific financial goals, such as paying off debts or saving for a home. Clarity in your objectives enhances your commitment to achieving them. Look forward to the satisfaction of making your purchase when you can afford it.

9. Review tax withholding regularly

Ensure your tax withholding aligns with your financial situation. Adjust it promptly for significant life changes to prevent surprises during tax season. There’s nothing worse than completing your return and finding you have a big tax bill.

10. Build an emergency fund

This may seem like an impossible task when you first start budgeting. But when you have any debt under control, aim to build an emergency fund covering at least six months of living expenses. This financial cushion safeguards against unforeseen circumstances.

11. Cut costly habits

Identify and cut down on expensive habits. Cancel that gym membership if you don’t know the last time you went, and redirect those funds toward healthier lifestyle choices or savings. The financial benefits of quitting smoking or moderating alcohol consumption can be substantial.

12. Overestimate necessary expenses

When budgeting for essentials, overestimate by 10% to create a buffer. This safeguards against unexpected price hikes or emergencies. If you find you have funds left over after purchasing everything you need, pay down some debt, add to your savings and give yourself a little extra in your non-essential allowance.

13. Involve the Entire Family

Foster a budget-conscious environment by involving the whole family. Collaborate on expenses, and teach children about financial responsibility. Decide together what the family can splurge on.

14. Explore budgeting apps

Leverage modern finance apps from your bank or other financial institution for seamless budget management. Stay on top of your finances with real-time updates.

15. Monitor your credit

Implementing a robust budget can positively impact your credit. Controlled spending, timely payments, and debt reduction demonstrate good financial management and can lead to a healthier credit score. Be sure to review your credit reports regularly for accuracy and address any discrepancies.

16. Automate payments and savings

Set up autopay to ensure your credit cards and utilities get paid on time. Create an autotransfer to your savings account. Ensure this aligns with your overall financial strategy, especially if high-interest debts exist.

17. Embrace side hustles

Explore side hustles for additional income streams. Digital platforms offer various opportunities to supplement your earnings. What are you good at? Can you sell it?

18. Stay informed about financial trends

Regularly update yourself on financial trends and economic shifts. Being informed enhances your ability to make proactive financial decisions. How should the state of the economy and inflation impact your budgeting plans?

19. Green and sustainable choices

Opt for sustainable living choices, saving both the environment and your budget. Embracing eco-friendly practices often leads to cost savings. Learn about green living to make budgeting more fun and have an additional purpose. Energy-efficient appliances save on electricity costs. Reusable shopping bags save on disposable alternatives.

20. Assess and adjust often

Regularly assess and adjust your budget as life changes, ensuring flexibility for evolving financial plans. Flexibility ensures your budget remains effective over time. This does not mean you should change it just because you want to spend more on eating out this month.

Mastering budgeting is a continuous process that will change as you reach milestones, pay off debts, and increase (or decrease) your income. By incorporating these tips into your financial routine, you can stay on budget and pave the way for a more secure and prosperous future.

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At least, that’s what they would do hypothetically if they received a hypothetical pay raise. A recent survey suggests that some consumers are starting to get the message that rising debt, late payments, defaults and low saving rates cannot continue. Too many households practice unsustainable financial habits. Coming out of pandemic lockdowns, people went on an epic binge of spending and borrowing.

The Federal Reserve Bank of New York’s Survey of Consumer Expectations Household Spending Survey found that in 2024, respondents would like to put a higher priority on debt reduction than they have in recent years. How many will put their good intentions into action?

New York Fed survey shows hypothetical good intentions

The survey found that 38.4% of households would, in theory, put an unexpected 10% pay increase towards paying down debt. That’s up from 33.8% a year earlier and is the highest reading since August of 2016.

On top of that, 45.6% say they’d put a 10% pay windfall towards saving or investing. So combined, that makes 84% of Americans who would put the extra money towards improving their long-term finances rather than towards immediate spending.

This suggests that people are starting to get the message that they need to save more and borrow less. Notably, the survey question concerned a hypothetical pay raise rather than how people intend to handle their current financial resources.

Saving and borrowing behaviors belie those good intentions

What they are doing with their income currently tells a different story. As of late 2023, the personal saving rate of American households stood at 4.1%. That’s well below the 50-year average of 7.6%.

The year-end numbers aren’t in yet, but it appears very likely that 2023 marked the eleventh consecutive year in which American households increased their debt.

While people say they would put an unexpected pay rise towards saving and debt reduction, they have yet to start putting their good intentions into practice.

Don’t wait for a windfall to begin good financial habits

The question from the New York Fed survey asked what people would do with an unexpected 10% pay raise. Most people aren’t fortunate to receive unexpected pay raises. This may mean the good intentions expressed by the responses are unrealistic.

Rather than dreaming of unexpected pay raises, a sudden inheritance from an uncle you didn’t know you had, or a lottery win, people may be better off basing their financial habits on resources they actually have.

If you have low savings and/or high debt, the key to improving your finances is coming up with a budget that makes room for debt reduction and saving within the pay you’re currently earning.

Paying off debt can be like giving yourself a raise

Financial discipline is easier to talk about than to actually do. People are reluctant to budget for debt reduction or saving if it means sacrificing any of their current lifestyles.

In the long run, though, improving your financial discipline doesn’t have to involve making sacrifices. If you crunch the numbers, you’ll find reducing debt can be like getting a pay raise.

According to the latest Survey of Consumer Finances (SCF) from the Federal Reserve, the median family income in the United States is $70,260. The same study showed that the average amount of credit card debt is $6,120 per family. However, that isn’t representative of how big a burden credit card debt is to families with those balances.

Slightly under half (45.2%) of families have credit card debt. So, adjusting the average amount of debt for the percentage of families that carry that debt reveals an average balance of $13,540 for families with credit card debt.

At today’s average credit card rate, a balance of that size would incur $3,080 a year in interest charges. That’s what a typical family with credit card debt can gain by paying off their credit card balance. On a typical family income of $70,260, that would be the equivalent of a 4.4% raise, on top of whatever regular pay increases the breadwinners in those families were able to earn.

It doesn’t take long for a little budget discipline to turn into the ability to afford a better standard of living. As an added incentive, the credit score improvement that would be likely to result from paying down debt would reduce future borrowing costs. When you consider those benefits, the money you put towards debt reduction should seem less like a sacrifice and more like an investment.

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The New Year is commonly associated with hope. It’s a fresh start and a time to set goals for the year ahead. The idea is that this year can be better than the last. That’s all well and good, but a brighter 2024 will not happen by itself. The key to making 2024 better financially than 2023 is to figure out what to do differently.

Credit management resolutions for 2024

At the end of 2023, here are seven personal finance and consumer credit resolutions for 2024 that may help make this year a better year for you.

1. Take control of your credit score

2024 is shaping up as a year when bad credit will be very costly. Lenders are tightening their standards in response to rising risk. That means credit will be harder to get, loan sizes and credit limits will be smaller, and riskier borrowers will be charged much higher interest rates. A lot of people will wish they had better credit. If you want to make it happen, you have to make the right moves. Start by getting your free credit score, and then consider signing up for credit monitoring so you can keep track of developments. Then, take steps to reduce your credit utilization and keep your payments on time. Some of the resolutions that follow may help.

2. Pay down debt

Americans set a new record for consumer debt in 2023. If your debt level reached a new high last year, it threatens your credit score in two ways. High balances raise your debt utilization ratio, a negative factor in calculating credit scores. Also, large balances at today’s high interest rates make payments harder to keep up with. A debt reduction strategy is the key to turning this around in 2024.

3. Reset your budget for today’s prices

High inflation is a major reason why debt levels have gotten so high. Surprised by rapid price increases, consumers reached for their credit cards to fill the gap. That’s an understandable short-term reaction, but it isn’t sustainable in the long run. Fortunately, inflation has slowed entering 2024. However, that doesn’t mean prices will return to their former levels. Update your budget for today’s prices and figure out what you can afford to buy without relying on continued borrowing.

4. Prioritize your debt payments

While you should be sure to make all your scheduled payments on time, ideally, put extra money towards attacking your high-interest debt first. With interest rates having changed so much over the past couple of years, you should take a fresh look at what you’re paying on each of your credit cards. Rank them from highest to lowest interest rates, and put any extra payments towards the one with the highest interest rate first.

5. Refinance high-interest debt

Looking at your credit card interest rates can also help you identify refinancing opportunities. If you have too much credit card debt to pay off within a few months, consider refinancing it. The average interest rate on an unsecured personal loan is about 10% lower than the average charged on credit card balances. A 0% interest balance transfer card can also be a good tool for refinancing. If you refinance, you should do it as part of a broader strategy to rein in spending. Otherwise, you may build your balances back up in addition to the debt you’ve refinanced.

6. Start saving for a larger home down payment

2023 was a rough year for would-be home buyers. Mortgage rates reached their highest level in decades, and home prices rose steadily. Don’t hold your breath waiting for either of those things to get much better. Today’s mortgage rates are actually much closer to their historical norm than those of the past 20 years. A chronic shortage of properties for sale may keep prices high. Instead of waiting passively for a better opportunity, saving up for a larger down payment is the best way to use your time. That will leave you less dependent on mortgage rates and help make the payments on your loan more affordable.

7. Get your retirement fund on track

When inflation demands more than your paycheck, retirement savings are often one of the first things to suffer. People cut their retirement plan contributions, and some even go to the extreme of tapping their retirement savings early. While these may be necessary emergency measures, you must reverse them so your financial future won’t be jeopardized. Besides getting your savings back up, high inflation means you should recheck your retirement spending assumptions to ensure they are still realistic.

Many Americans have been able to take credit for granted, but 2024 may be the year when access to credit finally becomes more difficult. Being vigilant about your credit score, spending less, and saving more may be the keys to thriving in this tougher credit environment.

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Buying a new car can be one of the most frustrating purchases in a consumer’s lifetime. While it’s not the biggest expense ever, negotiating with a car salesman can be a big enough headache that you’ll never want to do it again. After researching the type of car you want to buy, go to the dealer with a plan for getting the best price. Here are some ideas to help get the best deal.

Shop for incentives

January is typically a slow month for car dealers, who try to boost sales by offering incentives such as cash back or 0 percent financing. Incentives included cash back, sometimes thousands of dollars, and 0 percent financing.

Shop for a loan

Some car companies will finance your car and charge no interest on the loan. They still make money through increased vehicle sales, since the rates are usually only good for certain models.

You’ll usually have to choose between the cash back rebate or the low financing rate from the dealer. Shopping around for a loan will let you get both if you can get a low loan elsewhere.

Before looking for a loan, know your credit score and fix any errors in your credit report. Places to check for loans include Credit Sesame, credit unions, banks, and online auto lenders such as Auto Credit Express. After you’ve found a good loan rate, ask the dealer if they can beat it.

Don’t go to a dealership

Instead of visiting a dealership, call all of the dealers for the car you’re interested in within a 50-mile radius or however far you’re willing to go to buy.

Tell them you plan to buy a specific car and list the options you want on the car, and that you will decide by 5 p.m. today. Ask them for the lowest price they can give you, which should include all taxes, and tell them you’ll go to the dealer with a check for the best price. It’s a great idea if you can afford to pay for a car upfront without financing.

Negotiate everything separately

If you’re trading in your car, you’re unlikely to get much money for it. Don’t let a dealer combine the price of your trade-in with the new car price. It’s confusing and can hide the fact that they aren’t giving you much money for the trade-in. When I bought a new car the salesman quoted me a price with my old car as a trade-in. I asked what the price would be without selling him my old car, and it was $100 less. I sold my old car on my own.

When negotiating everything separately, don’t bargain based on the financing deal or the monthly payments. Focus on the overall price of the car, not how low they can make the monthly payments.

Time your purchase

Since car salesman work on commission, they may be anxious in the final days of the month to meet their sales quotas and may make better deals. Between Christmas and the New Year is a great time to shop for a new car because most people don’t do it at that time of the year and dealers are looking to meet goals for the number of cars sold by the end of the year.

Be ready to walk away when buying a car

If you do go to a car dealer and don’t get the price you want, walk away. You could spend an afternoon haggling, and walking away may be the best way for the salesman to immediately come down to your price. They know you’re unlikely to return if you leave, so it may be their last chance to get you to buy.

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In the 1970s, there was a bit of a fad for vigilante movies. Films like Death Wish and Walking Tall highlighted the idea of a lone man resorting to extraordinary means to right the wrongs of society.

In the 1980s, a less violent but extremely effective vigilante emerged. They were nicknamed “bond vigilantes,” and the enemy was inflation.

It is worth looking back on this era because bond vigilantes appear to have returned. The good news is that they may help in the battle against inflation. The bad news is that in the process they may have a damaging impact on your borrowing costs, economic growth and investments.

What are bond vigilantes?

The phrase “bond vigilantes” does not refer to a specific group of people. Instead, it refers to a type of behavior that is evident in the bond market from time to time.

The nature of most bonds is that they promise a fixed payout over the life of a bond. This can provide a form of security. You can buy into a bond knowing what interest payments you will receive regularly and how much principal you will receive when the bond matures.

If it’s a high-quality bond, like one issued by the U.S. Treasury, the only real threat to this security is inflation. Inflation erodes the purchasing power of those future interest and principal payments. If the inflation rate rises above the yield on your bond, your investment will lose purchasing power over time.

As a result, bond investors tend to be very sensitive to signs that government policies or economic trends are becoming too inflationary. Under these conditions, bond investors may react swiftly and decidedly when they see any hint of further inflation. They do this by selling their bonds en masse.

These sell-offs cause bond prices to plunge. When that happens, bond yields – akin to interest rates – rise. This is one way the economic system self-corrects when inflation gets too high. A sharp rise in interest rates chokes off economic growth by raising borrowing costs, causing inflationary pressure to ease.

There’s a mistaken belief that the behavior of bond vigilantes is a form of protest against certain fiscal or monetary policies. While it may seem that way, sending a message is not what bond investors have in mind when they start selling. They are just protecting themselves when high inflation threatens the value of their investments.

Bond vigilantes in the early 1980s

This happened in the early 1980s when the phrase “bond vigilantes” emerged. As inflation rose in the late 1970s and early 1980s, investors began to flee the bond market. This exodus peaked in September of 1981 when 10-year Treasury yields reached a high of 15.84%. This was far above their 50-year average of 5.98% and well above the Fed funds rate at the time which was 10.59%.

This was important economically because while the Fed funds rate directly impacts short-term lending to banks, Treasury yields have more in common with long-term rates like mortgage rates and corporate bonds. Also, Treasuries are traded every day, so they can react more swiftly than the Fed, which meets ten times a year.

In the early 1980s, the spike in Treasury yields had a brutal impact on the economy and the job market. Rising bond yields helped send the economy into a recession that lasted for 16 months. During that recession, the unemployment rate reached 10.8%.

Still, for all the negative impact on economic growth, the surge in bond yields did help to tame inflation. The year-over-year increase in the Consumer Price Index peaked at 14.6% in 1980. By mid-1983, it was down below 3%.

The willingness of the bond investors to take extreme measures to tame inflation earned them the nickname “bond vigilantes.”

Have bond vigilantes returned?

When inflation started rising in 2021 and 2022, bond investors were slow to react. There was a general belief that the flare-up of inflation was just a temporary reaction after pandemic lockdowns. At first, this left the inflation-fighting job primarily to the Federal Reserve, which began raising interest rates in early 2022. By early 2023, the Fed funds rate had risen above Treasury bond rates, though both still trailed inflation.

The first column of dots in this chart shows the 50-year averages for 10-year Treasury yields, the Fed funds rate and inflation. Historically, Treasury yields have been more than a full percentage point above the Fed funds rate, and both have been comfortably above inflation. By early 2023, these relationships had been turned upside down. Inflation had leaped well ahead of the Fed funds rate, and Treasury yields trailed even further behind. However, over the past several months to the end of September 2023, things have begun to normalize. The Fed funds rate has gotten ahead of inflation. Treasury yields have risen even faster than the Fed funds rate, which has allowed them to surpass inflation and close the gap with the Fed funds rate.

What this means for rates and consumers

The surge in Treasury yields means that bond investors recognize that inflation is proving to be more stubborn than originally thought. Inflation has come down somewhat but remains far above the Fed’s 2% target. A variety of economic forces lately have turned the inflation trend back up. The rise in bond yields since the end of August 2023 means that effectively, the bond market has joined the Fed in the fight against inflation. Bond investors are now wary enough of inflation that they are demanding higher yields before they put their money into the market. Bond vigilantes are back.

Long-term bond yields have more in common with long-term loan rates than the Fed funds rate does. Notably, the recent rise in bond yields has been accompanied by a rise in mortgage yields. Besides home buyers, governments and corporations will have a harder time borrowing due to higher long-term rates. That discourages spending and takes some fuel away from the inflationary fire.

As in the early 1980s, the surge in bond yields may help bring inflation under control. However, the price to be paid for the help of bond vigilantes may be a period of high interest rates and slow growth.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post The return of bond vigilantes appeared first on Credit Sesame.

To some extent, financial fitness is in the eye of the beholder. Survey data compiled in late 2022 by Credit Sesame suggest that there are some measurable things that may influence how financially fit people consider themselves.

The things that seem to go hand in hand with how good people feel about their financial fitness are pretty straightforward. However, the survey generated some numbers that can be used as yardsticks for how Americans generally measure their financial condition. A look at those numbers allows you to see how your finances stack up.

Americans overall are feeling in reasonably good shape financially

Overall, the survey found that most people are feeling pretty good about their finances. This was a somewhat pleasant surprise, given how high inflation, rising interest rates and recession fears have been weighing on consumers.

The Credit Sesame survey asked over 1,500 members to rate their financial condition. The choices ranged from a high of “very fit” to a low of “very unfit.” Nearly half of respondents (48.75%) rated their personal finances as either fit or very fit. Another 36.53% put themselves in a middle category between fit and unfit.

Just 14.73% rated their financial condition as either unfit or very unfit. While that’s a fairly small number in percentage terms, when you apply it to the full population it projects out to tens of millions of people. That makes it well worth a closer look at some of the things that seem to make people feel good or bad about their finances.

Credit score and income correlate with how people feel about their finances

Credit scores are designed to help lenders assess the risk of potential borrowers. The numbers suggest that consumers tend to consider some of the same things when thinking about their own financial fitness. Unsurprisingly, respondents with higher credit scores tended to have higher incomes and rated themselves as financially fit.

Income is a big contributor to financial fitness

Salary has a lot to do with how people gauge their financial fitness. Still, having some actual numbers to use as benchmarks is helpful: While having a high income makes it easier to keep your finances healthy, there is more to the story than that.

Ultimately, how well you live within your means is the key to financial health. There are high earners who manage to overspend. There are also people who succeed at living on a modest income by maintaining a tight budget. It is possible to have great credit scores on a low income and vice versa (low credit scores on a high income).

Having savings helps people feel more secure

While earning a lot is great, being able to build up savings contributes even more to financial health. Savings help you withstand financial setbacks and prepare for retirement.

In some cases, the savings numbers were skewed by a couple of people with huge amounts of savings, so Credit Sesame calculated the median savings of each group to produce numbers that were more representative of most of the group.

People who described their finances as very fit had the highest median savings, at $30,000. However, that is not a very high level of savings. Anyone aged 40 or older should have more savings than that built up.

The next two fitness levels each had lower median levels of savings. What is even more telling is that most people who described their finances as unfit or very unfit had no savings at all.

One way to think about financial health is that your first goal should be to make ends meet from year to year. However, an important next step is to start to get ahead by accumulating savings over time.

Late payments are a sign of poor financial fitness

Unfortunately, many people haven’t yet reached the first goal of making ends meet. The survey found that late payments and accounts that have been assigned to a collection agency are very rare among financially fit people. Not surprisingly though, they are more common among people who describe themselves as financially unfit or very unfit.

The problem with late payments or defaulting on debts is that they make the problem worse in the long run. Late fees and higher interest charges will only add to what you owe. Plus, you’ll find it more expensive to borrow in the future.

Getting caught a little short every now and then happens to a lot of people. However, when you habitually have trouble paying your bills on time, it’s a sign that something has to change.

Rate your financial fitness

With the survey results as background, you can better assess your own financial fitness. Here are some things to consider in that assessment:

• Credit score. This only measures how you’ve used credit historically. It doesn’t capture important factors like income, savings or spending. Still, if you can get your score into the high 700s or better, it’s a sign that you have succeeded at using credit responsibly.
• Late payments/collections. These are like flashing warning lights on your car’s dashboard. Late payments or defaulting on debt are a sign that your finances need serious attention as soon as possible.
• Credit card balance. If late payments and collections are flashing warning lights, your credit card balance may be a gentle reminder that your finances need attention. Credit cards are best used as a short-term cash substitute. If you regularly carry a balance on your cards, it’s a very expensive way to borrow money. To be financially fit, you need a budget that doesn’t rely on continued borrowing.
• Income. In particular, consider how your income is growing. When inflation is high you need to keep your income growing to stay ahead.
• Savings. When you’re in your 20s, you should start by trying to set aside enough savings to cushion you against a financial setback. After that, you should be building savings for retirement and other long-term goals.
• Debt-to-income ratio. It’s important not to let your debt payments get to the point where they crowd out routine expenses. Also, even if you can afford your debt payments now, taking on too much debt puts you at a greater risk if you have a drop in income.
• Non-mortgage debt. Not all debt is the same. Mortgage debt is generally offset by equity in a home. However, debt for shorter term purchases that do not have lasting value only subtracts from your net worth.

Financial fitness is similar to physical fitness: a one-time check-up is useful, but what really matters is maintaining the long-term habits that will help you stay fit.

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Methodology

The Credit Sesame Credit Health and Financial Fitness Survey December 2022 was designed and executed by Credit Sesame using the WebEngage survey tool. The survey sample comprised over 1,500 Credit Sesame members with a credit score distribution resembling the U.S. general population. In aggregate, the sample data is accurate with a 2.5% margin of error using a 95% confidence level.

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post How do Americans rate their financial fitness? appeared first on Credit Sesame.