As millennials, we’ve learned about money the hard way. From the Great Recession to stratospheric student loan debt to a pandemic, life has not failed to give us lemons.
While the long-term economic effects of the pandemic have not yet fully realized, you may have noticed a positive trend in the short term: for once, your debt may have gone down.
Credit card balances fell $ 76 billion from April to June, the biggest drop on record, according to an analysis by the Federal Reserve Bank of New York. NerdWallet research confirmed this, finding that monthly carry-over credit card balances fell 9.15%, or more than $ 600 per household with this type of debt. Overall household debt fell by almost $ 1,000 among households that incurred any type of debt during the same period.
If stimulus checks, suspended student loan payments, and staying close to home have helped you reduce debt, here’s how to keep that momentum going.
EVERYTHING COMES DOWN TO THE BUDGET
The idea of budgeting may have seemed too time-consuming or stressful in a pre-pandemic time. But if you’ve recently taken a look at your spending and saving habits – as many of us have done out of sheer necessity – you’re already on your way to budgeting.
“Take what you’ve been doing over the past few months and put it into a spreadsheet,” says Luke Lloyd, wealth advisor and investment strategist at Strategic Wealth Partners in Cleveland.
You’ve probably focused on basic needs this year and sacrificed wants, or found creative ways to have fun instead. Lloyd says the pandemic has made it clear that “we don’t always have to go out and spend all this money on entertainment.”
The 50/30/20 budget is an easy guiding principle to follow. It allocates your take home pay between needs, wants, and savings, as well as debt repayment. Use the money-saving techniques you’ve practiced to make that budget work – maybe you’re saving on restaurant meals because you’re cooking at home, or maybe you’ve ordered a lot of food from take away but save on gas, movie tickets or a gym membership. Take that extra money and apply it to needs or savings and debt compartments instead.
BUILD A SAVINGS HABIT
“Times like this renew people’s attention to financial stability,” says Leigh Phillips, president and CEO of SaverLife, a national, San Francisco-based nonprofit that helps people build community. habit of savings through play processes and rewards. Phillips says the company has seen more people sign up for its savings program in the past six months than in the entire last year.
If you weren’t a saver before but started saving money during the pandemic, keep this money-saving habit.
“Set up automated payment from your checking account to a savings or investment account,” says Lloyd.
Prioritize the extra money you have in an emergency fund, as this can keep you from getting into debt during a crisis. Set an initial goal of $ 500 to $ 1,000 in emergency savings, which can protect your budget from irregular expenses that arise, like a car repair. Next, look to match your employer’s retirement savings account if you have access to it. Finally, pay off high-interest debt like credit cards, personal loans, or payday loans.
If you have money left over, consider using it to pay off your student loans, Lloyd says. Federal student loan borrowers are on an interest-free automatic payment break until January 2021. But you can always make payments now to make it easier later.
“Since you can defer the interest, you can reduce the principal” by making a payment, Lloyd explains. Your entire payment goes to principal at that time, so you’ll have a lower balance when interest picks up and this will save you money over the life of the loan.
ASK FOR HELP
Money can be confusing at the best of times, and especially when the situation changes every day and it is difficult to keep up with the assistance programs you may be entitled to. Don’t feel like you have to figure it out on your own. Talking about money and asking for help is a habit you can take with you long after a crisis is over.
For people worried about bills they may carry over, whether they can negotiate with creditors, or whether they are protected from eviction or foreclosure, discussing these topics can be emotional, says Phillips.
“There are great credit counseling and financial coaching services available,” she says.
“I would encourage people to get as many resources as possible.”
Credit counseling agencies offer free or low-cost advice on managing your debt, budgeting, or even refinancing a home. Visit the National Foundation for Credit Counseling website to find an agency near you. You can also check if you qualify for assistance by calling 211 or visiting 211.org.
• This column was provided to The Associated Press by the NerdWallet personal finance website. Amrita Jayakumar is a writer at NerdWallet. Email: [email protected] Twitter: @ajbombay.