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Budgeting, Consumer Protection, Credit, Debt, Savings

Inflation, Interest Rates and Sanctions: A Wicked Brew of Financial Stress Looms for Americans

By Bruce McClary | Thursday March 17th, 2022

Inflation Storm

A recent National Foundation for Credit Counseling (NFCC) survey revealed the state of consumer financial well-being and how prepared Americans may be as they face continued inflation and the prospect of rising interest rates. What was not factored in at the time the data was released were the events currently taking place in Ukraine and the resulting sanctions against Russia. In the survey conducted by Harris Poll and sponsored by Wells Fargo, less than half of the general population have a budget and keep close track of how much they spend on such things as food, housing, and entertainment. Additionally, 3 in 10 are spending more compared to a year ago, and over a fifth are saving less compared to a year ago.  

Having a clear idea of where financial pressures are expected can help households adjust accordingly, but without tracking spending it makes it more difficult to stay afloat financially. Here are some tips to help prepare for leaner spending in the months ahead: 

Inflation 

It has been forecast that inflation is here to stay for a while, at least until the second half of 2022. Already we are experiencing the highest rates since 1981 as we move past the 7% mark with some predicting we could reach 9% by mid-year. Anyone who has been grocery shopping recently knows all too well the impact price increases are having on spending. All six major grocery store food categories have been impacted by increases in consumer prices, with meat and poultry among the items taking the lead.  

Here are some cost-saving tips to fight inflation on grocery items: 

  • Make lists and plan ahead before grocery shopping 
  • Use coupon apps and in-store discounts 
  • Have a plan “B” with substitutions for costly or out of stock items 
  • Limit trips to the store if driving or using public transportation 

Interest Rate Increases 

For some time the Federal Reserve has been expected to announce interest rate increases that will take effect this year, so it should come as no surprise. There are some debates about how many rate hikes we may experience, but the real issue is how much will it cost. Some forecasters predict that the Fed will raise rates by 1.75 percentage points in 2022, which would be the largest single-year increase in more than 15 years. This rate adjustment will have a trickle-down effect on consumer finance interest rates linked to your credit cards or mortgage. How much depends on a number of variables, but the level of pain may be directly related to the amount of debt you are carrying from month to month. 

  • Refinancing, consolidating, and transferring high-interest rate balances to more affordable lines of credit can be an option for those with healthy credit. Check your report and score before shopping around.  
  • The recent NFCC survey found that 38% of Americans carry credit card debt from month to month. Consider strategies that can help you pay off your balances faster to save money on interest over time.  
  • Depending on several factors, it may be a good time to consider refinancing your mortgage to lower your interest or to convert a variable interest loan to a fixed rate.  

Economic Sanctions 

Many nations have levied sanctions against Russia in response to their invasion of Ukraine, but it is too early to accurately determine the full impact at the moment when this article is being written. Regardless of the intended impact on the Russian economy, it is reasonable to expect that there will some degree of additional financial pressure felt by American consumers. How much and for how long remains to be seen, but it’s a good idea to plan for the worst but hope for the best. Automobile gasoline, heating oil and consumer goods made of certain types of metal may end up being costlier and harder to find.  

  • Economize the number of times you travel in your personal vehicle and consider the benefits of rideshare or public transportation as a cost-saving measure when available. 
  • Keep up with a regular maintenance schedule on your vehicle, appliances, and other regularly used items. This can save money in the long run by helping avoid costly repairs due to neglect. 
  • Check your savings cushion to see how much you have set aside for financial emergencies and other unexpected expenses. Make sure you have a plan for how and when you will use that resource, and how you will replenish it when you return to a more financially stable footing. 

Dealing with all of these issues can be overwhelming and there are times when you may feel that your financial challenges are impossible to overcome. It’s times like those when you can benefit from the advice and help of an NFCC Certified counselor who can be your financial advocate. To get help now, visit the NFCC online or call toll-free 800-388-2227.