Just as the economy is beginning to look up for consumers, economists warn that an impending “fiscal cliff” could threaten to derail consumers who are finally experiencing a sense of financial stability.
Beginning Jan. 1, $500 billion worth of tax provisions are set to expire, including the Bush-era tax cuts and the reduced payroll tax. Once those policies – in addition to the unemployment benefits that have assisted millions of job-seekers – come to an end, nearly 90 percent of Americans will see their taxes rise, according to the Tax Policy Center.
In fact, the Tax Policy Center estimates that the average household will be forced to pay nearly $3,500 more in 2013 than they paid in 2012.
Given these potential increases, it’s more important than ever to be proactive when it comes to handling your debt. Don’t let the state of the economy determine your financial state. The following tips will help prepare you to weather any financial storm:
- Re-evaluate your habits. If your income or expenses have changed, your spending must also. Old habits are hard to break, but your family may need to forgo some traditions like eating out on Friday night, or Sunday movies, until your financial situation changes.
- Small changes count. Even small changes will have an impact, and more importantly, will set the stage for changing your habits. Your family will be stronger financially in the long run, and once you get on the right track, you can begin saving for something great (like a vacation, or new car, etc.).
- Be a smart shopper. Always shop with a list and take cash so that you can’t overspend. Use coupons only if you planned to purchase the item anyway.
- Pay your bills on time. Late fees and over-the-limit charges can quickly add up to a debt problem. Additionally, many creditors have raised their rates and have even closed accounts as penalties for late payments. Refer to these tips to help you pay your bills on time.
- Deal with big issues. If you have large, looming financial issues, such as unpaid debt or tax liens, it is time to deal with them head-on. Contact your creditors and make acceptable repayment arrangements. Implementing a plan to remove these stresses from your life will be good for your mental and financial health.
- Expect the unexpected. Strive to establish an emergency savings account equal to at least three months of your income. If this goal seems too lofty, try having a small amount automatically deducted from your paycheck into a savings account. As they say, out of sight, out of mind – you won’t spend it if it’s not in your checking account.
- Perform a credit check-up. A positive credit report means better loan terms and more borrowing power — two of the most powerful tools you can have. Experts recommend that you review your credit reports annually and before making any major purchase.