Balancing debt and savings
As of the third quarter of 2024, the average consumer had $6,380 in credit card debt, per TransUnion. Meanwhile, the average unsecured personal loan balance per borrower was $11,652.
If you’re juggling debt, it’s important to try to pay it off as quickly as possible, since the longer you carry it, the more you’ll be forced to spend on interest. But it’s also important to shield yourself from further debt, which makes starting an emergency fund a priority. Having a cushion can protect you from borrowing more money if you need it suddenly, such as following an unplanned expense or job loss.
Once you’ve set up a modest emergency fund (be sure to continue making at least minimum debt payments), your focus should be on slashing your debt. There are different methods you can use, such as the snowball method, where you tackle your smallest debts first, and the avalanche method, where you prioritize your expensive debts by interest rate and then move on to debts that are costing you less.
That said, it’s not a bad idea to invest a small amount of money for retirement each month while you’re in the process of paying your debt down. And if you have access to a 401(k) plan through your job with an employer match, aim to contribute enough to collect that match in full.
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Learn MorePreparing for a recession
As part of his election campaign, President Trump pledged to expand tax cuts, impose tariffs on imported goods to spur U.S. production and loosen regulations in key sectors like manufacturing. Whether his policies lead to economic growth versus a slowdown is still yet to be determined.
If you’re concerned about a recession, one thing to recognize is that the U.S. economy is in good shape right now. The unemployment rate in January was only 4%, and annual inflation in January was only 3%. Also, as of January 2025, the Federal Reserve put the likelihood of a recession (based on the difference between 10-year and three-month Treasury rate) in the next 12 months at about 23%.
Still, it never hurts to be recession-ready. A big reason consumers tend to fear recessions is that they can go hand in hand with layoffs. However, if you have an emergency fund to cover your expenses for a period of time, a few months without a job may not land you in debt. And if you’re able to shed your debt (or at least some of it) ahead of a recession, you’ll have fewer expenses to contend with if your paycheck does disappear.
It’s also a good idea to set yourself up with a backup income stream in case you find yourself out of a job. To that end, you can turn to the gig economy. Getting a side gig could not only give you peace of mind, but provide you some extra cash you can use to work toward financial goals like shedding debt, creating an emergency fund and building a nest egg for retirement.
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