KOFE TALK – Post-Pandemic Spending and Saving

Post-Pandemic Spending and Saving How to be Smarter and Richer in a Brand-New World Beatriz: Hello, and welcome to KOFE Talk. Today we’re going to talk about what happens as this awful pandemic ends. But we’re not going to talk about your health. We’re going to talk about your money. Why? Because COVID-19 didn’t just change how we think about, you know, not dying. It changed everything. And that includes how we spend money, save money, and even think about money. Joining me today is April Lewis Parks. Her full-time job is thinking about money. But she’s not an investment adviser. Far from it. She’s a certified credit counselor and communications director at Consolidated Credit. Consolidated Credit is one of the country’s largest nonprofits for getting people out of debt. April joins us to talk about what you can do to avoid debt and save money as we all get back on our feet. Hello, April! April: Hello, Beatriz! Nice to see your face! Beatriz: Yes, we’re not wearing masks today, because we’ve both been vaccinated. But just to be safe, we’re keeping our social distance. I don’t think this pandemic will so much end as gradually fade away. April: Yup, I agree. I just hope all the good financial practices that happened during the pandemic don’t fade away, too. Beatriz: That’s true. I know it sounds cold and crass to say that good things happened during the pandemic, so let’s just say right now that we’re in no way minimizing the human suffering that COVID-19 brought our country and the world. At the same time, how we responded to the pandemic was amazing in some respects. One of those was financial, right April? April: Very much so. Poll after poll showed that Americans sheltered at home on the cheap. I wondered if they would run up bigger bills because they’d be cooped up. You know, max out their credit cards on Amazon and Uber Eats. But it didn’t happen. Instead, most of us are emerging from the pandemic with less debt than when this awful thing started. Beatriz: Can you give us some quick numbers on that? April: Let’s start with the latest, shall we? An insurance company called Northwestern Mutual polled more than 2,000 Americans just a few weeks ago. Here’s their big conclusion, and I’m quoting here: “A third of Americans say their financial discipline has improved during the pandemic, and 95 percent say they expect their newfound habits will stick after the health crisis subsides.” Beatriz: If I remember correctly, before the pandemic, financial discipline was in short supply. April: Yeah, unfortunately. Before all this happened, Americans just kept adding to their credit card balances. It seemed like every quarter, we were setting new records for credit card debt. Beatriz: So we’ve gotten a lot better with our credit cards? April: Oh yeah. In 2019, the average person carried an average balance of $6,194. In 2020, that dropped to $5,315. That means, during this awful pandemic, we wiped out a grand total of $83 billion. Eighty-three billion! That’s enough money to buy every NFL football team. Or if you don’t like football, you could buy every TV and cable network and program all your own shows. Beatriz: And that’s just from the credit card balances we reduced during the pandemic? April: Amazing, isn’t it? Imagine if that continues. Beatriz: So the big question is, will it? April: I got to be honest, I don’t think so. I’m an optimistic person, but I’ve also been a credit counselor for nearly two decades. I’ve seen how we just can’t resist the allure of easy money, whether it’s credit cards, student loans, auto loans, or even personal loans. Beatriz: So you think we’ll forget what we learned during the pandemic? April: Well, I think those lessons will wear off slowly. I’ll know for sure when the holidays roll around. Beatriz: Why is that? April: Because that’s when Americans historically overspend the most. And not be a little bit, either. Before the pandemic, 3 in 4 Americans spent so much on the holidays in December, they couldn’t pay it off by the end of January. Of those, 16 percent couldn’t even pay it off by the following May. Beatriz: So we’ll know by the end of the year… April: Actually, we’ll know by the time January’s credit card bills come due. All those people who told pollsters that they’re gonna be financially responsible? We’ll know by then if they really meant it. Beatriz: OK, so let’s talk now about what our listeners can do to stick to the plan. Coming out of this pandemic, what are the most important financial things to remember? April: I think we can reduce them to just three things. Want to hear the first and most important? Beatriz: Of course! April: It’s actually the easiest: Wait. Beatriz: For what? April: For everyone else to spend too much. Then when prices drop, you pounce. Here’s an example: Because of the pandemic, supply chains all over the world got messed up. So cars are selling at ridiculously high prices right now. Beatriz: How ridiculous is “ridiculous”? April: You know, I just saw the results of a poll the other day. It was conducted by Cox Automotive, and it had a shocking stat: 40 percent of new car shoppers are willing to pay $5,000 above the Manufacturer Suggested Retail Price. They’re so eager for a new vehicle, they’ll pay five grand more than even the carmakers suggest. Beatriz: Wow, imagine what you could do with $5,000…. April: Coincidentally enough, the average credit card debt is just over $5,300. That’s per household. So you can either overpay for a new car right now, or you can pay off your credit cards instead. Beatriz: What’s the interest rate for credit cards these days? April: It fluctuates all the time, but it usually hovers near 15 percent. That means for every five dollars you carry as a balance, you owe 75 cents to the credit card company. Imagine what you could do with all those extra dollars in your pocket. Beatriz: That’s the worst part about debt. It feeds on itself. You owe so much money in interest, you can never pay off the principal. You’re always behind. April: That’s why we need to come out of this pandemic much smarter than when we went in. Beatriz: So besides waiting for prices to come down on items we don’t need right away, what else can we do? April: Sometimes, you need to do the opposite of waiting. You need to spend NOW. But it has to be smart spending. Remember what I said about holiday spending? The best time to do that is right now, before anyone else starts thinking about it, and before prices jump on holiday-themed stuff. That’s how prices work, after all. Supply and demand. And right now, there’s no demand for holiday stuff, so the supply will cost you much less. Beatriz: What should I buy exactly? April: Everything you need when you can score a deal. So, for instance, Amazon Prime Day is a good time to stock up on gifts for loved ones. You know another good time to do that? Beatriz: No… April: Back-to-school sales tax holidays. Sixteen states let you shop for back to school without paying sales tax, which can save you 5 to 10 percent, depending where you live. And retailers often run big sales on top of those sales tax holidays. So that’s a great time to stock up on stocking stuffers. Beatriz: Don’t those sales tax holidays have limits and rules? April: Yup, each state is different. Usually, though, you can’t spend more than $100 per clothing item and $1,000 per computer-related item. And there are other rules and exclusions. But a savvy shopper will look for deals that can work all year long, not just for back to school. All you need to do is a search online for your state’s sales tax holiday details. Beatriz: Since most states don’t have those tax holidays, what else can I do to be a smart post-pandemic saver and spender? April: To be honest, many of the rules that applied before the pandemic apply afterward. Of course, it’s easy to say, “Don’t spend more than you earn,” but that’s not the world we live in. So if you’re running up credit card balances, there are a few things you need to do right away. Beatriz: Give us the top three. April: Well, the first thing is to look for a new credit card. Not one with lots of perks, but one with low interest rates. Check out zero-percent balance transfer cards. These special credit cards let you roll over your big balances and pay absolutely no interest. Beatriz: That sounds too good to be true. There must be a catch. April: Several, actually. You’ll pay a fee to move over your balances. That’s usually between 3 and 5 percent. But that’s not the big problem. The big problem is that these zero-percent offers are limited. They last anywhere from six to 18 months. But after that, the interest rates zoom up – sometimes higher than what you were originally paying on your old cards. Beatriz: So why get one of these at all? April: If you’re disciplined and you don’t have too much credit card debt, they’re a great way to pay off your credit cards. Think about it, you’re no longer paying 20 percent in interest, so you can use that freed-up money to pay down your debt. Unfortunately, many people don’t do that. In fact, studies show many people actually ring up bigger credit card bills. Beatriz: So what can I do if I’m not so disciplined, or if my balances are just too steep? April: Then you might need professional help. Beatriz: What?! April: I’m talking financial help! Beatriz: Oh… April: It’s called credit counseling. Basically, you call a certified financial counselor, who gives you a really thorough analysis of your debts right over the phone. You’ll need to answer a lot of questions about what you owe and what you earn, but by the end of that call, you’ll know exactly where you stand. And you might even have a plan for getting out of debt for good. Beatriz: OK, so like those balance transfer cards, what’s the catch? April: This time, there is no catch. Beatriz: How much does it cost? April: Nothing. If you call a nonprofit credit counseling agency, it’s free. But I guess if there’s a catch, it’s finding a good one. You should look for three things: Have they been around a long time? I’m talking decades, not even years. Do they have an A-plus rating from the Better Business Bureau? And are there lots of glowing client reviews online? Now Consolidated Credit has all of that, but of course I’m biased. Stil, you should make sure any place you call has all of that, too. Beatriz: So you said the counselor would help me get out of debt. How do they do that? April: If you’re not too deeply in debt, your counselor can help you budget better and show you some other nifty life hacks that can save you money. But if you have a lot of stubborn debt, they might recommend a debt management program, which is the third item on my debt-busting list. Beatriz: What does a debt management program do? April: A DMP, as it’s called, is actually an agreement between you and your credit card companies. If you qualify, you can cut or even get rid of the interest charges on your account. You definitely stop all penalty fees. You can save up to a third or even half on your monthly payments, depending on your circumstances. Beatriz: Is there a catch to a DMP? It’s not free, is it? April: No, this one isn’t free. A DMP charges a fee, but it’s rolled into one monthly bill you pay for all your debts. And it’s much, much, much less than you’ll save. So that’s not reality a catch, but this is: You can only get a DMP through a nonprofit credit counseling agency like the one I work for. Beatriz: Why is that? April: Well, because the credit card companies want to work with one point of contact, and an organization that understands all of the complexities of DMPs. You know, DMPS have been around for decades and thousands of people enroll each year. Beatriz: It’s amazing so many people use a DMP, but most people have never heard of it. April: Ya, I know… it’s just one of those things. You probably don’t know where the nearest fire extinguisher is, right — but when you really need it, your going to find one. Beatriz: So, are more people enrolling in DMPS now that the pandemic is over? April: You know, it’s too early to tell, but I predict that will happen.. Like I said, once we see how holiday spending goes, we’ll know for sure. But I really hope that doesn’t happen. Everyone in my line of work would love to see DMPs and credit counseling go the way of the dinosaurs, simply because no one needs them anymore. Beatriz: April this was so helpful. Thank you so much for all this great information and before you leave, I hope we can grab lunch soon. April: Oh, I hope we do – we’ll make it a date. Let’s look at our calendars. Beatriz: Yes – thank you