Student loan collections resume in 2025

Federal student loan collections are back. As of May 5, 2025, the U.S. Department of Education is resuming collections on defaulted loans for the first time since the pandemic-era pause began in 2020. For the 5.3 million Americans currently in default, this shift could have significant consequences, particularly for their credit scores.

Although payments officially resumed in October 2023, borrowers were given a 12-month “on-ramp” period, which extended through September 2024. During that time, missed payments were not reported to credit bureaus, and collections were paused. That cushion is ending early for those already in default. As of May 2025, active collections — including wage garnishment and tax refund seizures — are starting again.

This is the formal end of a major COVID-era relief policy that had protected millions of borrowers from aggressive debt collection. The Washington Post reports that this change could impact nearly a quarter of all federal student loan holders.

One tool being reinstated is the Treasury Offset Program, which allows the federal government to collect overdue student loans by seizing tax refunds, garnishing wages, and reducing Social Security payments. Business Insider confirms that garnishments may begin this summer for borrowers who take no action.

According to TIME reporting, the renewed collection effort reflects a policy shift under the Trump administration, which has prioritized fiscal accountability and a return to pre-pandemic enforcement.

Credit scores may take a hit

Once collections resume, many borrowers in default may experience a significant drop in their credit scores. According to the Federal Reserve Bank of New York, millions could experience major declines once missed payments are reported to the credit bureaus.

• Borrowers with excellent credit (above 760) may lose over 170 points.
• Those in the prime range (660–719) could see drops of 140 to 160 points.
• Subprime borrowers may lose an average of 87 points.

A change of that magnitude can have a dramatic impact on your financial standing, making it more difficult or expensive to access credit.

Default status may delay major financial goals

Student loan defaults don’t just affect borrowing. They may also interfere with efforts to:

• Rent an apartment or home.
• Secure a car loan or mortgage.
• Apply for new credit cards.
• Qualify for jobs that require a review of your credit history.

Since credit is used in so many areas of financial and personal life, the effects of default can extend far beyond the loan itself.

What can borrowers do now?

There are ways to resolve defaulted loans and potentially reduce the long-term impact on your credit.

• Loan rehabilitation. This program allows borrowers to make nine voluntary, on-time monthly payments over a period of ten months. Once completed, the default status is removed from your credit report; however, previous late payments may still appear. Business Insider explains that this option may help protect borrowers from garnishment if acted on soon.
• Loan consolidation. Borrowers can combine their defaulted loans into a new Direct Consolidation Loan. This process helps to get you out of default, but does not erase the default mark from your credit report.
• Income-driven repayment (IDR). Borrowers may apply for plans based on income and family size. These plans do not remove a default, but they may help prevent future delinquencies and reduce financial pressure.

Check your loan status and act quickly

If you’re unsure about the status of your loan, begin by logging into StudentAid.gov to check your current status. If your loan is already in default, your servicer can walk you through next steps, including options like rehabilitation or consolidation.

NPR reports that the Department of Education plans to begin sending garnishment notices this summer. Borrowers will have a 30-day window to take action before those collection efforts begin.

Stay alert as collections resume

As collections restart, it’s a good idea to keep an eye on your credit report. Changes to your loan status, new delinquencies, or defaults could begin appearing as soon as servicers resume reporting. Reviewing your credit reports regularly can help you identify issues early and dispute any inaccuracies.

You’re entitled to one free annual report from each of the three major bureaus, Experian, Equifax, and TransUnion, through AnnualCreditReport.com. During periods of financial stress or federal policy changes, free access may be extended, so check the site for updates.

You may also like to try Sesame Grade for a comprehensive overview of your credit score, including the factors behind the numbers and clear actions to reach your goals.

What student loan collections may mean for you

Student loan collections are resuming, and for millions of borrowers, this could result in a significant decline in credit score and reduced access to financial opportunities. Defaults may affect not just loans and credit cards, but also housing, employment, and insurance options.

If your loan is in default, there may still be time to act before collections begin. Check your status, explore repayment or rehabilitation options, and stay alert for any notices from your loan servicer. Taking early steps could help limit long-term financial consequences.

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Federal job cuts often spark debates between those who rely on government services and those who think spending should shrink. But the reality is more complex. As layoffs unfold, it’s clear that the effects ripple well beyond government offices, impacting employment, wages, and economic growth for everyone.

Government job cuts so far

February’s employment report was below the standard of recent months. Job gains of 151,000 were below the average of 168,000 for the prior 12 months. A closer look at the numbers suggests they could get much worse.

In February 2025 alone, the government announced over 60,000 job cuts. And yet, February’s jobs report stated that federal government employment declined by just 10,000 jobs. It seems the bulk of the job cuts are not yet reflected in the official employment numbers.

Many more job cuts are expected. And the disruptive environment may also lead to an upturn in resignations.

Beyond the decline in federal jobs, such massive layoffs will likely have much broader impacts.

Broader impact on jobs and wages

The news has been full of images of tearful workers carrying boxes of their personal items out of government offices after they’ve been laid off. You may or may not feel sympathy for these workers. Either way, you might like to be aware of the impact of the layoffs on your job situation. Over the last three years, workers have generally benefitted from a robust job market.

• Unemployment has been much lower than usual. Over the past three years, the unemployment rate has averaged just 3.8%, far better than the 50-year average of 6.2%.
• Wage growth has been strong. Over the past three years, the average wage growth rate has been 5.5%. That’s clearly above the inflation rate of 4.1% over that same period. It’s also better than the historical average wage growth rate of 3.8%.

These two things are related. Naturally, when the unemployment rate is low, finding a job is much easier. Also, low unemployment creates a strong labor demand, forcing employers to pay higher wages.

These conditions may change rapidly. Not only will laid-off federal employees have to look for new jobs, but anyone else looking for work will suddenly find much more competition. In the months ahead, many more former government workers will go after private sector jobs.

This sudden surge in the labor supply could also affect wages. When job seekers are plentiful, employers know they don’t have to pay as much to attract and keep workers. This could stunt wage growth in the future.

Impact on consumer spending

Beyond the impact on employment, job cuts can also dent economic growth. Personal consumption represents just over two-thirds of GDP. Strong consumer spending has been a key factor in recent economic growth.

However, the tens of thousands of workers sidelined represent many consumers who will be spending less rather than more. This would make GDP growth harder to sustain.

Impact on government contractors

The cuts to federal jobs could lead to secondary cuts by businesses that depend on the federal government. This includes government contractors who see cuts to spending programs for their goods and services.

It also includes ordinary businesses in areas with large numbers of government employees. Whether it’s a department store or a restaurant, when unemployment rises in an area, employers in that market feel the pinch. That could jeopardize the survival of some of these businesses or at least force them to make layoffs.

Preparing your finances

Massive cuts in federal jobs and programs could affect your finances even if you don’t work for the federal government. Here are some ways to prepare:

• Consider how vulnerable your job is. If your employer is a government contractor or serves a market with a heavy concentration of government employees, you might consider a move to an employer less sensitive to federal cuts.
• Pay down debt. Rising unemployment and slower wage growth could make it more challenging to make ends meet in the months ahead. That could make debt more burdensome.
• Get your credit score in the best possible shape. While you should be reducing debt, you still want to maintain your access to credit. If the economy weakens, expect lenders to tighten standards. Raising your credit score may allow you to continue to meet their standards.
• Build up emergency savings. This is the best way to weather a financial storm. Emergency savings help you avoid the expense of borrowing to make it through hard times.

Navigating the impact of federal job cuts

Federal job cuts have already begun to reshape employment dynamics. While initial effects are visible, the full ripple effect on wages, spending, and private-sector hiring may take time to unfold.

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Financial technology (fintech) is revolutionizing how people manage their money, offering more control, convenience, and security than ever before. From artificial intelligence-driven budgeting tools to blockchain-based transactions, fintech innovations are reshaping personal finance to empower consumers.

Enhanced credit monitoring and fraud prevention

With the increasing digitalization of financial transactions, credit monitoring, and fraud prevention tools have become more sophisticated. Real-time credit score tracking, identity theft alerts, and AI-driven fraud detection help consumers protect their financial well-being.

These tools provide greater awareness and security, reducing the risk of identity theft and unauthorized transactions. Financial institutions and credit monitoring services now offer dark web monitoring, which scans for stolen personal information to alert users of potential breaches before they lead to financial damage.

AI-powered financial assistants

Artificial intelligence plays an increasing role in personal finance, helping users track spending, manage budgets, and even make investment decisions. AI-driven financial assistants can analyze transaction patterns, predict future expenses, and offer personalized financial recommendations.

These tools help consumers make informed decisions without needing extensive financial knowledge. Many banks and fintech companies now offer AI chatbots that can answer financial questions, provide savings suggestions, and even automate bill payments based on user spending habits.

Digital banking and mobile-first services

Traditional banking is no longer the default choice for many consumers, as digital banks and mobile-first financial services provide seamless, user-friendly experiences. Online-only banks often offer lower fees, higher interest rates on savings, and real-time transaction tracking.

Features like instant payments, automatic savings, and fraud alerts help consumers stay on top of their financial health with ease. Additionally, mobile wallets such as Apple Pay and Google Pay have simplified transactions, making it easier than ever to conduct secure, contactless payments both in-store and online.

Buy now, pay later (BNPL) is reshaping credit access

The rise of buy now, pay later services is changing the way people make purchases. By offering interest-free installment payments, BNPL services provide a flexible alternative to traditional credit cards. However, as BNPL data becomes integrated into credit scores, consumers must use these services responsibly to avoid potential negative impacts on their financial profiles.

Some financial experts warn that easy access to installment payments can lead to overspending, causing financial strain if users fail to manage their payments properly.

Blockchain and decentralized finance (DeFi)

Blockchain technology is expanding beyond cryptocurrency to power decentralized finance (DeFi) solutions. These innovations enable peer-to-peer lending, digital asset exchanges, and automated financial contracts without relying on traditional banks.

DeFi offers increased accessibility and transparency, but consumers must navigate potential risks, such as regulatory uncertainty and security vulnerabilities. Despite these challenges, DeFi is growing rapidly, with many investors looking to decentralized platforms for alternative financial opportunities.

The role of robo-advisors in investing

Robo-advisors are AI-powered investment platforms that help consumers build and manage diversified portfolios with minimal effort. These platforms use algorithms to assess risk tolerance, recommend asset allocations, and automatically rebalance portfolios.

Robo-advisors have made investing more accessible by offering lower fees than traditional financial advisors and allowing individuals to start with small investments. As more people turn to automated investing, robo-advisors continue to refine their strategies to offer more personalized financial solutions.

The growing impact of biometric security in fintech

Security concerns remain a top priority in fintech, and biometric authentication is emerging as a key solution to enhance financial security. Fingerprint scanning, facial recognition, and voice authentication are increasingly used to verify identity in banking apps and payment platforms.

These technologies not only improve security but also enhance user experience by eliminating the need for complex passwords. As cyber threats evolve, biometric security will play a vital role in protecting consumers’ financial data.

The future of fintech innovations

Fintech is giving individuals more control over their financial lives, making it easier to save, invest, and manage credit. As technology evolves, consumers should stay informed about new financial tools and best practices. Emerging trends such as biometric authentication, voice-activated banking, and predictive financial analytics are set to enhance the fintech landscape further.

By leveraging fintech innovations wisely, people can enhance their financial security and take advantage of new opportunities in the digital economy.

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World Logic Day, celebrated every January 14th, honors the importance of logic in our lives and highlights its role in shaping disciplines like mathematics, philosophy, and computer science. Established by UNESCO and the International Council for Philosophy and Human Sciences, this day encourages critical thinking and rationality in solving complex problems. But logic isn’t just for academics — it’s a powerful tool for managing your personal finances and building a solid credit foundation.

10 Steps to Financial Freedom

1. Track your spending. Analyze your expenses and identify unnecessary spending. Use apps or tools to categorize your spending patterns for a clear picture.
2. Set financial goals. Divide your goals into short-term (saving for a vacation), medium-term (paying off a credit card), and long-term (retirement savings). Logical goal-setting keeps you focused.
3. Create a realistic budget. Use the 50/30/20 rule: allocate 50% of your income to essentials, 30% to wants, and 20% to savings or debt repayment.
4. Build an emergency fund. Save three to six months’ worth of expenses. This ensures you’re prepared for unexpected situations without relying on credit.
5. Understand your credit score. Regularly review your credit report for errors and know the factors influencing your score, like payment history and credit utilization.
6. Pay bills on time. Set up reminders or automate payments to avoid late fees and improve your creditworthiness.
7. Tackle debt strategically. Use logical methods like the snowball (smallest debts first) or avalanche (highest interest rates first) to reduce your debt burden efficiently.
8. Limit unnecessary credit inquiries. Apply for new credit only when necessary to avoid lowering your credit score with hard inquiries.
9. Diversify your credit mix. Maintain a healthy mix of revolving credit (like credit cards) and installment credit (like loans) to boost your credit score.
10. Invest in your future. Once debt is under control, focus on investments, whether through retirement accounts, stocks, or other long-term strategies. Logical planning today ensures financial freedom tomorrow.

This World Logic Day, let logic guide your financial decisions. By following these steps, you can take control of your credit and finances, moving closer to financial freedom with confidence.

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Life is unpredictable, and financial setbacks can happen to anyone. Whether it is a job loss, medical expenses, or unexpected emergencies, these events can disrupt your financial stability and overwhelm you. However, recovery is possible. You can rebuild your credit and regain confidence in your financial future by taking strategic steps.

1. Assess your current financial situation

The first step in recovering from a financial setback is to evaluate where you stand. Take stock of your income, expenses, debts, and credit score. Use a budgeting tool or a simple spreadsheet to list your financial obligations and identify areas where you can cut back.

Understanding your situation is essential for creating a realistic plan. For example, if you have missed payments, check how they have affected your credit report. Knowing the extent of any damage helps you focus your efforts on the most critical areas.

2. Set realistic financial goals

After assessing your situation, set clear and achievable financial goals. These could include catching up on past-due bills, saving for emergencies, or raising your credit score by a specific number of points.

Breaking down your goals into smaller, actionable steps can make them feel more attainable. For instance, if your goal is to pay off $5,000 in debt, aim to pay $100–$300 per month, depending on your budget.

3. Create a budget that works for you

A well-crafted budget is your roadmap to financial recovery. Start by prioritizing essential expenses like housing, utilities, and groceries. Allocate funds toward debt repayment and savings, even if it is a small amount initially. The 50/30/20 rule might be helpful way to divide your income.

• 50% to necessities.
• 30% to discretionary spending.
• 20% to savings and debt repayment.

You can adjust these percentages based on your circumstances. The goal is to ensure you live within your means while making progress toward recovery.

4. Address overdue debts

If you have fallen behind on debt payments, it is crucial to address them quickly. Contact your creditors to explain your situation and explore repayment options. Many lenders offer hardship programs, including reduced interest rates, lower payments, or temporary payment deferrals.

If you have multiple debts, consider using either the debt snowball method (paying off the smallest debt first) or the debt avalanche method (focusing on the debt with the highest interest rate). Both strategies can help you gain momentum and reduce financial stress.

5. Monitor and improve your credit score

Your credit score plays a significant role in financial recovery. Start by checking your credit report for errors, such as incorrect balances or accounts that do not belong to you. Dispute any inaccuracies with the credit bureaus to ensure your report reflects your actual financial situation. Take steps that can improve your score:

• Pay all bills on time. Payment history accounts for 35% of your credit score.
• Reduce your credit utilization ratio by paying down balances. Aim to keep it below 30%.
• Avoid opening too many new credit accounts, which can temporarily lower your score.

Building positive credit habits over time helps you regain financial stability and open up opportunities for better loan terms in the future.

6. Build an emergency fund

Establishing an emergency fund is one of the best ways to protect yourself from future setbacks. Saving might feel challenging during recovery, but even small contributions add up over time.

Aim to save three to six months’ worth of living expenses. Start with a more manageable goal, such as $500 or $1,000, and gradually work your way up. This cushion provides peace of mind and reduces reliance on credit cards or loans during unexpected expenses.

7. Rebuild confidence through financial education

Recovering from a financial setback is not just about the numbers—it is also about rebuilding your confidence. Educate yourself on personal finance topics to feel more in control of your money.

Many free resources are available, including online courses, blogs, podcasts, and books. Learning about budgeting, investing, and credit management can empower you to make informed decisions and avoid future pitfalls.

8. Explore alternative income streams

If your financial setback stemmed from a loss of income, consider exploring additional ways to earn money. A side hustle, freelance work, or selling unused items can provide extra cash to help with debt repayment or savings.

Platforms like Upwork, Etsy, or TaskRabbit make finding opportunities that align with your skills and interests easier than ever. A few hours a week can make a difference in your financial recovery.

9. Celebrate small victories

Recovery can feel like a long road, so it is important to celebrate progress along the way. Whether paying off a credit card, reaching a savings milestone, or improving your credit score, acknowledge your achievements.

Celebrating small wins can boost your morale and motivate you to stick to your plan. Treat yourself to something modest, like a favorite meal or a movie night, to mark these moments.

10. Seek support if needed

Financial recovery can be challenging, but you do not have to face it alone. If you are struggling to create a plan or manage your debt, consider seeking help from a financial advisor or credit counseling service.

Nonprofit organizations like the National Foundation for Credit Counseling (NFCC) offer free or low-cost assistance. A professional can help you develop a customized plan and provide guidance on navigating complex situations.

Recovering from a financial setback takes time, effort, and resilience. By assessing your situation, setting realistic goals, and adopting smart financial habits, you can rebuild your credit and regain confidence in your financial future.

Setbacks are a normal part of life, and recovery is part of the process. With patience and persistence, you can turn your financial challenges into an opportunity for growth and long-term stability.

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Since early 2020 and for the next few years, life was dominated by the pandemic and its after-effects. In 2024, life seemed to be back to normal. The pandemic also had a huge impact on the U.S. economy. The effects have mostly faded, but that does not mean the economy is completely healthy.

What was the pandemic effect?

The pandemic effect had three prominent characteristics.

• Manic growth. Shutdowns followed by a reopening with government stimulus led to drastic swings in economic activity.
• Compulsive spending. After being unable to spend as much during pandemic lockdowns, consumers made up for it with a vengeance when the economy reopened.
• High inflation. Supply chain interruptions, pent-up demand, and government stimulus caused high inflation to sweep through most of the world’s developed economies.

To a large extent, these effects have subsided, but there may be lingering problems ahead.

Consumer appetite for borrowing may be slowing

According to the Federal Reserve Bank of New York Household Debt and Credit Report, credit card debt grew by 15.19% in 2022 and 14.50% in 2023.

As the economy reopened following the pandemic, there was pent-up demand from consumers. Most of them had government stimulus checks to spend. When those checks ran out, many used their credit cards to continue the spending spree.

This perhaps excessive borrowing eased in 2024. Through the first nine months of the year, credit card debt grew by just 3.28%. VantageScore reported that applications for new credit card accounts were down year-over-year through November 2024.

Slowing the pace of borrowing is not the same as paying down debt. Borrowing is still increasing, just more slowly now.

Economic growth has stabilized

The pandemic gave rise to a variety of economic disruptions: fouled supply chains, labor shortages, shutdowns, then re-openings, and inflation. Fiscal stimulus from the federal government and monetary stimulus by the Federal Reserve added to the unusual conditions.

The result was a manic economy with sudden slowdowns followed by bursts of growth. From 2020 through 2022, the average change in the real GDP annual growth rate from quarter to quarter was 12.6%. When the economy fluctuates wildly, it is difficult for businesses or individuals to plan ahead.

Fortunately, that erratic pace has settled down. Since the beginning of 2023, annual GDP growth has stayed within a range of 1.6% to 4.4%. The average quarter-to-quarter variation has been just over 1%.

Inflation threat has evolved, not gone away

Snarled supply chains and aggressive government stimulus pushed inflation to a high of 9.0% in 2022. Fortunately, things have calmed down since then. Year-over-year inflation reached a low of 2.4% through the end of September.

Still, there were hints the threat of inflation hasn’t completely gone away. The inflation rate started to inch up again after September 2024. The prospect of tariffs and immigration crackdowns created concerns about the impact of trade wars and labor shortages on inflation in 2025.

As a reflection of these concerns, the Federal Reserve raised its 2025 inflation and interest rate projections. The Fed now expects inflation to end 2025 at 2.5% instead of the 2.2% previously forecast. As a result, it now expects the Fed funds rate to end 2025 at 3.9% instead of the 3.4% previously forecast.

What can consumers do to mitigate the pandemic effect?

The direct impact of the pandemic on the economy has faded, but new inflation threats have emerged that may prevent interest rates from falling as far or as fast as people had hoped. What can consumers do in 2025 to stay on top of their finances?

• Take a deep dive into your budget. Pandemic stimulus checks and the surge of inflation in 2022 scrambled the normal spending habits of many households. It’s time to reset and create a new budget based on today’s prices and your current income.
• Pay down debt. Consumer debt soared in the immediate aftermath of the pandemic. If this happened to you, it’s time to pay down some of that debt. The more progress you can make, the less you will pay in interest charges.
• Focus on saving. Getting your finances back on track involves more than just paying down debt. For years, American consumers have neglected savings. Resetting your budget should include an ample provision for the future.
• Boost your credit score. If interest rates may not fall as much as previously hoped, one way to drive the rates you pay down is to work on your credit score.

The pandemic caused massive economic swings, compulsive spending, and soaring inflation. By 2024, stability returned, but challenges like continued borrowing, debt accumulation, and persistent inflation linger. In 2025, consumers would be wise to reset budgets, focus on saving, pay down debt, and take steps to improve credit scores to navigate evolving financial pressures and secure economic well-being.

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The Federal Reserve delivered one of the most unpopular rate cuts in recent history at the December 18 meeting, the last in 2024. The Federal Open Market Committee (FOMC) announced a 0.25% rate cut. The news was widely expected, yet the stock market’s reaction was strongly negative. The FOMC is the subgroup of the Federal Reserve that makes monetary policy decisions.

The sour mood among investors is less about the rate cut and more because of the Fed’s updated financial projections. Those projections show inflation may slow the pace of rate cuts in 2025. This change in outlook is a reminder of the limits of the Fed’s power to control inflation.

The Fed shares changing expectations

People expected a 0.25% rate cut, and that’s what they got. It’s what they didn’t expect that was the problem.

Once a quarter, the FOMC releases a set of economic projections. These show the Fed’s expectations for the next few years. They include what the Fed expects from economic growth, the job market, inflation, and the interest rates that the Fed sets.

In September 2024, the Fed’s projections indicated that it expected the Fed funds rate to end 2024 at 4.4%. The Fed’s rate cut to 4.25% to 4.50% on December 18 is consistent with that expectation. However, the updated economic projections released on December 18 differed significantly from the previous set. For one thing, FOMC now expects the Fed funds rate to be 3.9% at the end of next year. The September projections expected the rate to fall to 3.4%.

There was also a change in expectation for where rates are projected to be by the end of 2026. Whereas the FOMC had previously projected them to fall to 2.9%, they now expect them to end 2026 at 3.4%.

In short, over the next couple of years, the Fed still expects the rate to fall, but not as far or as fast as previously thought.

Markets were not satisfied with the rate cut

Rate cuts are usually catnip for investors. But not this time.

The S&P 500 fell by 3% following the Fed’s announcement. Bond rates rose on December 18, which means bond prices fell.

As much as investors like rate cuts, the 0.25% cut was fully expected and already reflected in market prices. However, the FOMC’s updated economic projections showed that it expects future rate cuts to be milder than previously planned. That’s what sent investors yelling, “Sell!”

A reminder of the limits to the Fed’s power

This recent chain of events was a reminder that while the Fed sets monetary policy, it does not do so in isolation. It has to make its decisions in the context of economic developments.

In this case, the Fed accounted for recent signs that inflation may be more stubborn than expected. Faced with that and the prospect of inflationary tariffs next year, the new economic projections show less progress expected toward driving inflation down.

That, in turn, explains the Fed’s expectation that it won’t be able to cut rates as aggressively as previously thought.

Smaller interest rate cuts implications for consumers

Where does this outlook for more stubborn inflation and slower rate cuts leave consumers? Here are some things to expect:

• Get used to the current level of mortgage rates. At 6.72%, 30-year mortgage rates are about a full percentage point lower than when they peaked at the end of October 2023. However, all that progress was made in the last two months of 2023. Since then, mortgage rates have fluctuated but are now higher than they were when this year began. While inflation seems a threat, don’t expect mortgage rates to make much sustained downward progress.
• Savings and CD rates may stay higher for longer. Once the Fed started cutting interest rates, savings account and CD rates started coming down. If your bank has been especially quick to cut rates, it may have overshot the mark, given that the Fed now expects fewer cuts in 2025. This might be a good time to shop around and see if you could do better with another bank.
• Credit card rates may depend more on credit conditions than on the Fed. There was some hope that big interest rate cuts could bring some relief to people with credit card debt. Now, it seems those cuts may be milder than previously expected. Improving your credit score might be a surer way of getting a lower credit card rate than counting on Fed rate cuts to make a difference.
• No free ride for investments. Both stocks and bonds get a lift from falling interest rates. With fewer rate cuts on tap for 2025, stock gains may depend more on individual company earnings performance than an across-the-board boost from falling rates.

The Fed’s change in outlook shows how unpredictable the economy can be. The Fed may control specific interest rate decisions, but they cannot predict with certainty where those rates will be in a year.

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As the end of 2024 approaches, people may reflect on what went right or wrong over the past year. One thing that mostly went well was the Federal Reserve’s mission to control inflation.

However, any optimism about lower inflation must be tempered by the reality that the fight against inflation may not be as successful next year. Consumers would be wise to prepare for 2025 by reducing their exposure to inflation.

The inflation-fighting success story

Here’s how far the US has come in subduing inflation:

• Year-over-year inflation hit a 40-year high of 9% in mid-2022.
• With inflation rising, the Fed started raising interest rates in March 2022.
• The Fed ultimately raised interest rates by a total of 5.25% to cool off demand.
• By mid-2023, inflation had fallen below its 50-year average rate.
• Year-over-year inflation hit a low point of 2.4% in September of 2024

So far, so good. However, economic forces suggest 2025 might see inflation make a comeback.

Threats on the horizon

Several factors point to the possibility of inflation rising in 2025.

The Fed’s limited power to control inflation

The Fed can raise interest rates to slow demand. This has an impact, but other economic forces are also at work. For example, economic demand might be so strong that people keep spending despite higher interest rates. New cost factors might also raise the price of goods and services in the marketplace, forcing inflation to rise.

Recent turns in the CPI and PPI

Inflation tends to feed on itself. When merchants see prices starting to rise, they are quick to raise their prices to defend their profits. When individuals see prices starting to rise, they demand stronger wage increases to keep up.

Though it’s been a subtle shift, the Consumer Price Index (CPI) has been picking up steam lately. The last two months have seen bigger CPI increases than the corresponding months last year. The result is that after the year-over-year change in the CPI hit the low point of 2.4% as of the end of September, it has since risen to 2.7%.

Producer prices have also been rising faster, which might give rising inflation impetus. After rising by just 1.4% in 2023, the Producer Price Index rose 3.0% through the first eleven months of 2024. If producer prices continue to gain momentum, retailers will pass some rising costs on to consumers.

Consumer overspending

Consumers continue to spend aggressively, which might give retailers the confidence to raise prices.

A recent Federal Reserve Bank of New York survey found that consumers expect household spending to rise by 4.7% over the coming year. That’s significantly faster than the expected pace of household income growth or inflation.

In other words, consumers seem intent on increasing spending rather than restricting themselves to keeping up with inflation. Many will follow through on this plan even if they have to borrow.

Tariff increases

Tariff increases are one of the great unknowns the economy faces. In recent years, politicians from both parties have advocated using tariffs not just as an instrument of economic policy but also as a foreign policy tool. Whether it’s to encourage other countries to crack down on the flow of immigrants or to pressure them to behave as better global citizens, tariffs have been a stick the government has tried to use to enforce its policy goals.

Regardless of the political goals, enforcing them through tariffs is inflationary. Levying a tax on imports raises the cost of goods and allows domestic producers to raise their prices.

If tariffs play a significant role in US foreign policy, expect inflation to be a side effect.

Rising interest rates

If inflation makes a comeback, expect interest rates to rise as well. The steady decline in mortgage rates during the months leading up to the end of September 2024 has halted because of growing inflation concerns. If inflation continues to flare up, the Fed will have less latitude to continue to cut short-term rates.

That’s the double-whammy effect of inflation. It raises prices and raises the cost of borrowing to pay for them.

Reducing your exposure to inflation

Here are some things you can do to prepare for the possibility of higher inflation in 2025:

• Limit spending to necessities. COVID stimulus checks launched a consumer buying spree in the US. Now that the money from those checks is long gone, it’s time to rein in your budget. The less you spend, the less impact inflation will have on you.
• Reduce borrowing. The amount of consumer debt outstanding has been rising since mid-2020. If inflation is poised to make a comeback, this would be a good time to break that borrowing habit. That way, more of your money can go towards buying the things you need instead of to interest charges.
• Work on your credit score. If inflation keeps interest rates elevated, one way you can get some relief is to improve your credit score. People with higher credit scores are often eligible for better interest rates on loans and credit cards.

These tactics can help you stay in control of your finances if inflation resurfaces in 2025. Even if it doesn’t, these approaches can put your finances on firmer footing next year.

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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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Thanksgiving is a time to reflect on what we are grateful for. For many, being thankful for family, good health, a great job, and a stable home is easy. However, for those struggling financially, whether dealing with tight budgets, overwhelming bills, or the weight of unexpected expenses or job loss, finding gratitude can feel especially difficult. When basic needs are a constant concern or the pressure of the upcoming holiday season adds to financial strain, it can seem impossible to feel thankful for anything.

As we approach the holiday season with Christmas fast on its heels, it can feel overwhelming, especially if you are already worried about holiday spending, bills, and debt. But you can take steps toward better financial health and enjoy a meaningful Thanksgiving despite financial stress.

Embrace the spirit of gratitude whatever your circumstances

It may seem difficult to be thankful when you are facing financial hardship. The key is shifting your focus from scarcity to possibility. Gratitude does not mean pretending things are perfect. It means acknowledging the positives, however small, and using those moments to fuel your next steps.

Even in the most challenging times, there are things you can appreciate: the support of loved ones, your resilience, the small things that bring comfort, or perhaps the ability to start making changes. Rather than feeling overwhelmed by the big picture, focus on what you can control, such as taking small actions toward better financial health.

Plan for the months ahead

As Thanksgiving and Christmas approach, many people experience stress about the added financial burdens of holiday shopping, travel, or family gatherings. However, thoughtful planning can ease much of this anxiety. If money is tight, it is important to set clear boundaries for your spending and plan ahead.

• Set a holiday budget. Create a realistic budget for Thanksgiving and Christmas, and stick to it. It is okay to set limits on how much you spend on gifts, meals, or decorations. You can still make the season special without overextending yourself.
• Avoid using credit carelessly. It may be tempting to use credit cards for holiday spending, but doing so can create a cycle of debt that is difficult to escape. If you must use credit, try to pay it off immediately or within the shortest time possible to avoid interest charges.
• Consider alternative gifts. If you cannot afford extravagant gifts, get creative. Consider making homemade presents, offering your time or skills, or organizing a family event that does not require expensive purchases. Thoughtful, low-cost gifts can mean just as much as something more expensive.

Focus on better financial health long-term

Use the holidays to mark when you begin working toward long-term financial improvement. Think of it as a gift to yourself. Taking small, steady steps now can make a significant difference in the coming months and years.

• Start tracking your spending. This may sound simple, but understanding where your money goes can be eye-opening. Begin by tracking your income and expenses. When it is in black and white, it may be easier to see where you can cut back on subscriptions you rarely use, dining out instead of cooking, or impulse buys you do not need.
• Address high-interest debt. If you have credit card debt or high-interest loans, consider planning to pay these off as quickly as possible. Paying off high-interest debt frees up money that can be used for savings or other financial goals.
• Consider additional income sources. If possible, look for ways to increase your income. This could be through a side gig, freelance work, or even temporary holiday jobs. Even small extra amounts can make a big difference in managing your finances.
• Build a financial safety net. Start small and build an emergency fund. Put the money in an account you do not look at often. Having a financial cushion can help reduce stress in the future and give you a sense of security.

Get help if needed

If your financial situation feels overwhelming, you can seek help. Financial counseling from a professional or through community organizations can make suggestions for improving your credit, reducing debt, and creating a more manageable budget. Many resources offer free or low-cost financial education, which can be a great way to start taking control of your financial future.

Find meaning beyond money

Thanksgiving is about is about relationships, community, and shared experiences. Financial health is important, but do not lose sight of the value of what truly matters. Spending quality time with family, expressing gratitude for the small joys, and being kind to yourself through this process are all part of living a fulfilling life, no matter your financial circumstances.

As Christmas draws near, it is easy to feel pressure to keep up or create a picture-perfect holiday. But the most meaningful moments often come from personal connection, thoughtful gestures, and shared memories rather than expensive gifts or extravagant celebrations. Embrace these moments with your loved ones and remind yourself that the season isn’t about how much you can spend but how much you can give through kindness and presence.

This Thanksgiving, take a moment to reflect on what you are grateful for, no matter your financial situation. It can be hard to appreciate your circumstances when financial stress looms, but small steps toward financial wellness, combined with a shift in perspective, can create lasting change. Whether managing debt, saving for the future, or simply making ends meet, Thanksgiving is an opportunity to focus on gratitude, make mindful decisions, and build a better financial future.

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Economic reports often present a mixed bag of news, with both positive and negative trends. However, the current economic landscape is marked by particularly stark contrasts. While some sectors are thriving and experiencing significant growth, others are struggling to stay afloat. Your personal financial situation and how you manage credit can significantly influence your perception of whether the economy is booming or stalling.

Is the economy booming?

There is plenty of data that paints a positive picture of the economy. Here are some examples:

• The job market just logged its 46th straight month of net employment gains. That’s nearly four years of consistent job growth. During that time, the economy has added a net total of over 16 million jobs.
• Consumer confidence is looking up. The Conference Board’s Consumer Confidence Index rose by 9.6% in October. That was the strongest monthly gain in over three years.
• The Gross Domestic Product, a comprehensive measure of economic activity, has grown for ten straight calendar quarters and 16 of the last 17.
• Even inflation is increasingly looking like old news. Over the past 12 months, inflation has been just 2.4%, and annual inflation has been running below its long-term average for 16 months.

All of the above are positive economic indicators signaling economic success.

Is the economy stalling?

With so many good things happening, why are so many people down on the economy? There’s another side to the figures:

• Consumer debt has been rising unabated since mid-2020. The fastest-growing type of debt over the past few years has been credit card debt, which is also especially expensive.
• Interest rates remain high. The average rate charged on credit card balances recently rose above 23% for the first time on record.
• Americans are having trouble keeping up with rising debt balances and high interest rates. The percentage of credit card balances with payments 90 days or more overdue is now the highest since early 2012.
• While consumer confidence rose last month, overall, it’s been up and down. It has remained within the same narrow range for the past two years.
• October 2024’s job gains were the weakest in the 46-month winning streak of rising employment. With a net employment increase of just 12,000, the job market barely continued that streak.

So, while the economy has its bright spots, it’s not all sunshine and roses.

A tale of two economies

The positive and the negative sides of the economy are true but for different people. Consumer perspective depends greatly on whether you’re primarily a saver or a debtor. Many people have both savings and debt. What matters is whether one substantially exceeds the other.

U.S. household wealth reached a record high in the second quarter of 2024, largely driven by surges in real estate and stock market investments. However, this wealth growth has not been universally shared. Those without assets like property or stocks are excluded from the benefits of this upswing. For individuals burdened with debt, rising interest rates have compounded their financial struggles, pushing their net worth deeper into negative territory. As debt levels increase and borrowing costs rise, these households are facing even greater economic challenge

Another way of looking at this divide is in terms of credit scores. People with prime credit scores (between 661 and 720) have generally kept up with credit payments. In this group, the rate of serious delinquencies 90 days or more overdue on credit card payments is just 0.20% (one in every 500 people). For people with credit scores above 720, the serious delinquency rate is close to 0%.

That low serious delinquency rate contrasts sharply with the problems subprime credit card customers are having. Subprime customers are those with credit scores of 600 or lower. The serious delinquency rate for this group is 19.7%. That equates to nearly one out of every 5 customers.

It seems having trouble keeping up with credit card bills is a pretty rare problem for people with good credit. However, it is very common among people with bad credit. That can lead to two distinctly different views of the economy.

Which path will the Fed follow?

The current economic landscape challenges the Federal Reserve as it weighs how quickly to reduce interest rates. While the Fed has signaled its intention to implement a series of rate cuts over the next few years, the pace of these cuts is still up for debate.

As long as the economy grows, the Fed has room to adopt a more gradual approach to rate cuts. A slower rate reduction would help mitigate the risk of a resurgence in inflation. This careful approach balances stimulating growth while maintaining control over price stability.

However, if economic conditions show signs of a recession, the Fed would likely adopt a more aggressive stance, cutting rates more quickly to provide immediate stimulus. This approach, though, comes with the risk of reigniting inflation, which could undermine longer-term stability.

Ultimately, the Fed’s decision will depend on which aspect of the economy it believes is most dominant at the time—the areas showing resilience or those signaling potential decline. The Fed’s challenge is to find the right balance between fostering growth and avoiding the pitfalls of unchecked inflation.

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