Inflation has slowed, but consumers still face generally higher price levels than existed a few years ago. That puts stress on household budgets, often forcing people to borrow more. Loan delinquency rates are inching higher, though they remain at fairly modest levels.
So it’s safe to conclude that inflation and debt levels will remain topical for a while longer. Here are some recent tips for dealing with debts and living costs:
Pay attention to auto insurance
Americans have battled rising costs across the board in recent years, but few categories lately have outpaced auto insurance.
Nationally, full-coverage policies now average $2,543 a year, according to a new Bankrate.com study. That’s up $529 or 26% over the past year, at a time when overall inflation has been closer to 3%. Arizona motorists pay about the same, or $2,535 on average.
To save money, it’s smart to compare policy prices perhaps once a year or so. Other factors that can help keep a lid on insurance prices include opting for high deductibles and maintaining a clean driving record: few, if any, accidents, speeding tickets, lapses in coverage or, especially, citations for driving under the influence.
Bankrate.com also recommends getting an insurance-price quote before purchasing a new vehicle, as more expensive and flashier models can be more expensive to cover. And pay attention to maintaining or boosting your credit score.
Scoring is one tool that insurers use to set rates and, despite a controversial reputation, it’s allowed in Arizona and most states.
But while credit scores are built to predict the odds of a person becoming delinquent on loans, insurance scores are focused more on predicting losses or claims and thus typically aren’t used in isolation. Scores on the widespread FICO scale range from poor (579 and below), fair (580 to 669), good (670 to 739), very good (740 to 799) and excellent (800 to 850).
Avoid overdraft fees
Consumers pressured by inflation and other expenses sometimes incur overdraft fees to make payments, which can get expensive.
Overdraft fees are charged by banks and credit unions that temporarily cover a transaction when consumers overdraw their accounts.
Some institutions also levy non-sufficient funds fees when they decline to cash a check that would result in a negative balance on an account. Most fees were charged on transactions of $24 or less, and primarily borne by lower-income consumers, according to the federal Consumer Financial Protection Bureau. If the proposal is implemented, the agency expects bank and credit union customers could save $2 billion annually.
Overdraft fees are incurred by a relatively small proportion of banking customers, though these are often the people who struggle the most.
“Far too many banks continue to pad their profits by collecting steep overdraft fees from those least able to afford it,” said Chuck Bell, advocacy program director at Consumer Reports, which has studied this issue. “Bank overdraft services are essentially short-term lending programs with extremely high interest rates.
Even so, the federal Consumer Financial Protection Bureau has proposed more protections. The agency might require banks and credit unions with assets exceeding $10 billion to disclose overdraft fees expressed as an interest rate so consumers can better understand the costs in that way. The proposal also would give large banks the option of charging a fee in line with their actual costs, typically in the range of $3 to $14.
The American Bankers Association contends the new regulations aren’t needed, accusing the Consumer Financial Protection Bureau of conjuring up a bank fee “that the bureau itself concedes few — if any — banks charge.”
Pay down credit-card balances
Americans continue to borrow across the board, and more strains are showing up. Overall household debts reached $17.5 trillion in the fourth quarter, with delinquency rates rising, the Federal Reserve Bank of New York reported. Mortgages account for the lion’s share of indebtedness, but credit-card and auto-loan balances are becoming more problematic.
About 0.8% of mortgages became 90 or more days late during the fourth quarter, compared to 2.7% of auto loans and 6.4% of credit cards.
“This signals increased financial stress, especially among younger and lower-income households,” said Wilbert van der Klaauw, economic research adviser at the New York Fed, in a prepared statement.
Roughly half of all households pay their credit card balances in full, but lofty interest rates are putting a strain on those who can’t. “High inflation and high interest rates are a big part of the story,” said Ted Rossman, senior industry analyst at Bankrate, which pegs the average credit card rate at a record-high 20.74%.
He urges indebted consumers to pay down lingering card balances. One tip worth heeding: Look for balance transfer offers. Some card companies will let you move and consolidate higher-cost debts into accounts offering introductory rates as low as 0% for as long as 21 months.
Compare your budget to your area
Americans tend to speak of inflation as if it’s a monolithic number. Yet living costs vary greatly.
To illustrate regional differences — and to help people assess whether their own budgets are in line with their neighbors’ — the Economic Policy Institute has unveiled a family budget calculator with 2023 data for all counties and metro areas across the nation. The calculator estimates seven basic expense categories — housing, food, transportation, child care, health care, taxes and other basic necessities — for 10 family types (one or two adults with zero to four children).
San Francisco topped the list as the most expensive metro area with a basic budget of $181,277 a year for a two-parent, two-child household. Holmes County, Mississippi, had the lowest average expenses of $76,455 for the same family configuration.
In Arizona, the same budget in metro Phoenix would run $107,866 — higher than in Tucson ($93,043) but lower compared to Flagstaff ($116,510).
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