On the show this week we tackle the very latest on your job and your spending. Without one you can’t do the other and both are at critical turning points. On jobs, the signs are improving. For people who are newly out of a job, the chance of getting a new one again quickly is better than it has been in three years. For those out of work six months or longer, it is still the same old depressing story. The longer you are out of work, the harder it is to get hired. On spending, there are signs Americans are falling into old patterns. Credit card bills are going to start coming in from the holidays, probably starting next week. And we know Americans have been using their plastic again. Consumer credit surged before the holidays by the most since Nov 2001 – we are charge, charge, charging again either because we are more confident about the economy, or because we are more strapped. Both trends – on jobs and spending, again highlight how there are two Americas: One where a growing economy is felt and another where it isn’t.
For some, there is justifiable confidence in the economy and they are using credit cards because they can. But for too many others, they are saving less and using more credit because they are falling out of the middle class. A stunning report this week by the Economic Mobility Project found nearly one third of Americans who were raised in the middle class dropped down the economic ladder as adults - and that's before the Great Recession hit.
We’re saving less, too. The savings rate has dipped back to 3.5%. It’s too low. Given all the uncertainties in the world – Europe’s debt crisis, a slowing China, too-high unemployment – Americans are starting to live close to the edge.
And I have the sneaking suspicion that only two weeks into the New Year, we’re forgetting those resolutions to spend less, save more, and try to begin investing. In markets there are no certainties. But in personal finance there is. The stock market, on average according to a survey of economists by CNNMoney,com, could return 7 percent this year. You’re probably paying way more than that on your cards. The best investment you can make this year is to pay down high interest credit card debt. Even after the CARD Act and reforms to protect consumers from credit card companies, the typical APR on a credit card now averages 15.99 percent. It’s been slowly rising and there’s no reason to think it will stop.
- Pay down your highest-interest credit card debt first. *Cut your spending. If you can’t afford it put it down. Strive to live on 70% of your income.
- To limit spending, start using a debit card (and do not activate the overdraft protection)
- If you can pay your credit card balances each month, a credit card has valuable protections you should take advantage of. Keep your balances below 30% of the overall limit on the card to keep your credit score in the best shape.
- Check your credit history at annualcreditreport.com It’s free and a valuable resource to help clean up any mistakes.
We want to hear what you are doing to pay down your debt this year. Tell us what is working for you, and what you plan to do with that money once it is not going to credit card bills anymore. Good luck!