Money Management

The Bureau of Labor Statistics released the data at the beginning of the month. 

1969 was a historic year for Americans: Buzz Aldrin and Neil Armstrong became the first men to land on the moon, Bryan Adams got his first real six string, and the nation’s unemployment rate sat at around 4.3%. Over 50 years later, we’ve once again hit that same benchmark. What economic lessons can we learn from the year when Elvis, The Beatles, and The Rolling Stones all topped the charts? Read on to find out.

The good news for workers

One of the most immediate effects of the strong labor market may have already begun to play out in your office. For the first time in years, workers have a lot of leverage over employers, thanks in part to the state of the economy.

Keeping good employees has gotten a lot harder for businesses in the last few years. Encouraged by a hot job market, workers who feel underpaid are more likely to take their chances and leave their current job. Following the Great Resignation, companies are raising wages at a rate not seen in a quarter of a century.

The hiring market can be a tough place for employers looking to replace lost employees. Recent estimates suggest that for every one unemployed person in the United States today, there exist two job openings. That may explain why the number of jobs offering a signing bonus has tripled over the last few years.

The state of inflation

For millions of Americans, the last few years have put a serious strain on their personal finances. Inflation has run rampant in almost every spending category, especially for the everyday needs of families. Unfortunately, a strong jobs report might also mean higher inflation.

The Federal Reserve, tasked with keeping inflation down and employment up, likely views the job report as a mixed signal. Inflation and unemployment often work as flip sides of the same coin. And a multi-trillion dollar economy is subject to momentum, so perfect balance is very difficult to achieve and maintain.

Specifically, a low unemployment rate means that more Americans are earning a steady income. This steady income may lead to increased consumer spending, putting additional inflationary pressure on the economy. In terms of Fed versus inflation, a strong job market may be another factor on the side of inflation.

Economic forecast

Since at least October, Treasury Secretary Janet Yellen has been downplaying the threat of a recession. Following the jobs report, Yellen doubled down on her earlier comments, saying “You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in 50 years.”

Beyond Yellen’s comments, it can be very difficult to forecast how low unemployment affects the prospects of the economy. While some economists believe that low unemployment is the beginning of an economic recovery, others argue that it could make a future recession worse. Looking back to 1969, low unemployment was shortly followed by a recession, but one that was so mild some economists don’t count it as a recession at all.

So, is the recent jobs report a good sign or a bad one? It depends. On one hand, a hot job market could give workers the upper hand in employment negotiations. On the other hand, more workers means more money in circulation, which could make inflation worse. And while the Treasury secretary is assuring the American people that the report is a good sign for the economy, only time will tell.

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What happenedU.S. credit card balances increased nearly 6.6% to $986 billion during the final quarter of 2022 as per the Federal Reserve Bank of New York. All told, consumer credit card balances rose $61 billion during the quarter, allowing total credit card debt to surpass the pre-pandemic high of $927 billion.So whatInflation surged in 2022, and that no doubt impacted consumers’ ability to cover their bills. It’s therefore not surprising to see an uptick in credit card balances.
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Younger borrowers are having an even harder time coping financially. New York Fed researchers said consumers in their 20s and 30s are struggling to keep up with credit card and auto loan payments. “Although historically low unemployment has kept consumers’ financial footing generally strong, stubbornly high prices and climbing interest rates may be testing some borrowers’ ability to repay their debts,” said Wilbert van der Klaauw, economic research adviser at the New York Fed.Now whatCarrying credit card debt is common. But now’s a dangerous time to have a balance hanging over your head.The Federal Reserve is not done with its fight against inflation. And it’s likely to continue implementing interest rate hikes in 2023, some of which may err on the aggressive side to make progress on the inflation front.Now the Fed doesn’t set consumer borrowing rates directly. But when it raises its benchmark interest rate, the cost of consumer borrowing tends to rise. And that means that consumers bearing the weight of the aforementioned $986 billion in credit card debt might see the interest rate on their balances rise.Unlike personal loans and mortgages, which commonly come with fixed borrowing rates, credit card interest rates can be variable. And in a rising interest rate environment, that could lead to costlier monthly payments. As such, those with credit card debt should do what they can to whittle their balances down as quickly as possible. Of course, in an age of high inflation, freeing up cash for debt payoff purposes isn’t an easy thing. The good news, though, is that today’s labor market is strong. Boosting their income via a higher paying job or a second job is a possibility some consumers can explore, and that could make paying off credit card debt far more feasible.Top credit card wipes out interest until 2024If you have credit card debt, transferring it to this top balance transfer card secures you a 0% intro APR for up to 21 months! Plus, you’ll pay no annual fee. Those are just a few reasons why our experts rate this card as a top pick to help get control of your debt. Read our full review for free and apply in just 2 minutes.We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy. 

What happened

U.S. credit card balances increased nearly 6.6% to $986 billion during the final quarter of 2022 as per the Federal Reserve Bank of New York. All told, consumer credit card balances rose $61 billion during the quarter, allowing total credit card debt to surpass the pre-pandemic high of $927 billion.

So what

Inflation surged in 2022, and that no doubt impacted consumers’ ability to cover their bills. It’s therefore not surprising to see an uptick in credit card balances.

Younger borrowers are having an even harder time coping financially. New York Fed researchers said consumers in their 20s and 30s are struggling to keep up with credit card and auto loan payments.

“Although historically low unemployment has kept consumers’ financial footing generally strong, stubbornly high prices and climbing interest rates may be testing some borrowers’ ability to repay their debts,” said Wilbert van der Klaauw, economic research adviser at the New York Fed.

Now what

Carrying credit card debt is common. But now’s a dangerous time to have a balance hanging over your head.

The Federal Reserve is not done with its fight against inflation. And it’s likely to continue implementing interest rate hikes in 2023, some of which may err on the aggressive side to make progress on the inflation front.

Now the Fed doesn’t set consumer borrowing rates directly. But when it raises its benchmark interest rate, the cost of consumer borrowing tends to rise. And that means that consumers bearing the weight of the aforementioned $986 billion in credit card debt might see the interest rate on their balances rise.

Unlike personal loans and mortgages, which commonly come with fixed borrowing rates, credit card interest rates can be variable. And in a rising interest rate environment, that could lead to costlier monthly payments. As such, those with credit card debt should do what they can to whittle their balances down as quickly as possible.

Of course, in an age of high inflation, freeing up cash for debt payoff purposes isn’t an easy thing. The good news, though, is that today’s labor market is strong. Boosting their income via a higher paying job or a second job is a possibility some consumers can explore, and that could make paying off credit card debt far more feasible.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Keeping extra cash in your savings account can be a win — even when interest rates are low. 

With today’s high living costs, many of us are looking for more ways to stretch our dollars as much as possible. You can earn interest by keeping extra cash in a savings account. But some may wonder if a savings account is worthwhile when interest rates are low. Find out why it’s good to have a savings account, even if interest rates decline in the future.

Lower interest rates can still be a win for your wallet

While savings account interest rates are more competitive right now, there are times when rates are much lower. You may wonder if it makes sense to continue using a savings account when interest rates decline. Some people may feel that earning potential is minimal and not worthwhile. But a savings account with a lower interest rate is still a win.

Think of it this way: some interest is better than no interest. If you keep all your money in a checking account that doesn’t earn interest, you’ll earn $0 on it. But if you have a savings account with a lower interest rate, you’re still earning interest, which is like earning free money for keeping your cash in the bank. Even if your earnings are minimal, you’re still earning something.

Here’s why savings account interest rates can change

Why do savings account interest rates change over time? The Federal Reserve interest rate, the rate at which banks and credit unions lend to each other, can impact consumer interest rates for products like credit cards and savings accounts. When the Federal Reserve interest rate increases, banks tend to increase consumer savings account interest rates. When the rate lowers, consumers may also see their savings account interest rates decline.

Don’t miss out on the opportunity to earn interest

If you don’t yet have a savings account, consider opening one. If you’re keeping your money in a checking account, you’re missing out on the chance to earn interest. Most checking accounts don’t pay interest, so it does you no favor to stash all your cash there.

You may want to open a high-yield savings account. They’re similar to regular savings accounts but usually have higher interest rates and are often offered by online banks. You can boost your savings by choosing an account with a better interest rate. Check out our best high-yield savings accounts list to learn more.

Switching banks may help you earn more

If you’re unhappy with your bank account’s current interest rate, or if it decreases in the future, you can shop around to see other banks’ savings accounts. You may be able to secure a better interest rate by opening an account with a different bank. Don’t forget to explore other options if you’re not satisfied. The good news is it’s relatively easy to switch banks.

A savings account is a valuable tool

Regardless of current interest rates, you shouldn’t keep all your money in a checking account. Don’t miss out on the chance to earn free money by keeping extra cash in an interest-earning bank account. Even if you only earn a few dollars each year on your money, it can make a difference and help you improve your personal finance situation.

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Hint: It’s not a good situation. 

A lot of people are having trouble keeping up with their bills these days. We can thank inflation for that. But the problem with falling behind on bills is that it can lead to unfavorable consequences.

And speaking of falling behind on bills, auto loan delinquency rates are on the rise. Car loans that were delinquent by more than 60 days increased by 5.3% in December compared to the previous month, according to Cox Automotive. Worse yet, delinquencies of this nature were up 26.7% compared to December 2021.

If you’re at risk of falling behind on your car payments, or if you’re already behind, it’s important to take control of that situation. Otherwise, the consequences could be very unpleasant.

The risk of not paying your auto loan

Any time you fall behind on a debt payment, whether it’s a mortgage loan, credit card, or personal loan, you run the risk of having your credit score take a serious hit. In fact, having a good credit score won’t help you in this regard, because sometimes, the higher your score to begin with, the more damage a single late payment can cause (even though that may seem counterintuitive).

Plus, if you fall far behind on your auto loan payments, you’ll risk having your car repossessed. That could put you in a really tough spot if you rely on your vehicle to get to work. In fact, it could leave you in a position where you lose your job completely.

What to do if you’re struggling with your auto loan payments

If you can’t keep up with your car loan payments, perhaps the worst thing you can do is ignore the problem and hope your lender will just forget about the money you owe. That’s not going to happen. So instead, be proactive. Reach out to your lender, explain your situation, and ask to negotiate the terms of your loan.

Your lender might agree to stretch out your repayment period so that your individual monthly payments shrink. That way, it’s still getting paid something and still making money on the interest portion of your loan. And if you’re able to go from, say, a $500 monthly auto loan payment to $250 a month, you might have an easier time keeping up.

Another option, of course, may be to sell your car and buy a much less expensive one in its place, resulting in a loan monthly car payment. And if you can sell your car and get by without one at all for a period of time, even better. That could allow you to boost your savings account balance so you’re less likely to land in a position where you fall behind on any sort of debt in the future.

These days, inflation is forcing a lot of people to skip bills or pay them late. So if you’re struggling with your car loan, that’s understandable. But do your very best to address the problem before it gets worse — and before you end up with extensive credit score damage and find your car getting dragged out of your driveway by a repo service.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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