BALTIMORE — If you took a hit financially in 2020, you’re not alone. Last year, many consumers were forced to rack up debt and deplete savings.
Looking ahead this year, Loyola University Maryland Department Chair of Accounting JP Krahel said to focus on digging yourself out of bad debt.
“So if I’m paying maybe $150 a month in just interest, then getting rid of that is giving myself an after tax raise of $150. And then later, because you’ve dealt with this problem, that’s first likely to improve your credit score, reducing problems in the future and it also makes you more able to handle the unexpected later on because you don’t already have one problem weighing you down,” said Krahel.
To do this, he recommends taking an approach like the experts.
“I use what’s called an amortization calculation, which sounds more complicated than it is. Basically, it’s saying you can plug in some numbers and here’s the amount I owe, here’s the interest rate and here’s the term. And then you can plug in some hypotheticals and say here, if I can put in $50 a month towards paying this debt how much more quickly will I be done and how much more interest will I save?,” said Krahel.
Eliminating debt may not be an option, so there are other things you can do like contacting your lenders about COVID-19 financial hardship options. Ask if they’re allowing deferred, delayed or skipped payments? Or will they waive fees or penalty interest rates?
Krahel advises against increasing debts to build an emergency stash.
“If the pandemic takes a turn for the worse, having a better credit score still puts you in better shape,” said Krahel.
And once you have debt under control, work through this list:
- Setup an emergency fund
- Save for retirement
- Save for your or a loved one’s education
The important thing is to call your creditor if you need help and ask about your options before you get hit with a penalty.
Also, set an amount or percentage you plan to put towards debt or savings and schedule automatic transfers so you’re not tempted to spend that money.
And don’t forget about saving for retirement. The earlier you do the more that compound interest grows.
The state also offers 529 plans for education with a $500 annual bonus for eligible applicants.