As emergency savings drop and credit card balances rise, experts say taking 3 steps can help

Americans have suffered in “declines in overall financial well-being,” according to a new annual Federal Reserve report on economic well-being of U.S. households released last week.

Only 63% of all adults can cover an unexpected $400 expense, the report on 2022 found, down from a high of about 68% in 2021. The results are in keeping with other recent surveys that likewise show the cash cushion Americans have set aside for emergencies has dwindled in the face of record high inflation.

To slow the price growth, the Federal Reserve has steadily raised interest rates, which has posed another problem for households: higher interest rates on debt.

U.S. credit card debts now total nearly $1 trillion — or $986 billion, to be precise — as of the first quarter of 2023, according to the Federal Reserve Bank of New York. That marks the first time in 20 years balances have not fallen following the holiday season, according to the central bank’s research.

In February, Bruce McClary, senior vice president of the National Foundation for Credit Counseling, told CNBC an “ugly stew is brewing” as individuals and families juggle the pressures of rising prices, lower savings and higher costs on their debts.

Now, experts say they’ve seen those pressures continue.

“It’s obviously a time for many people of rising stress levels with respect to their personal finances,” said Mark Hamrick, senior economic analyst at Bankrate.

The situation will continue for as long as economic growth is subpar and inflation is elevated, Hamrick predicted.

Nevertheless, there are several ways consumers can try to ease their financial stress, experts say.

The National Foundation for Credit Counseling is seeing two trends: an increasing number of people reaching out to nonprofit credit counselors for help, and elevated demand for the debt management programs offered by these nonprofits, according to McClary.

“We’ve seen over the past year that there’s less and less wiggle room in people’s budgets,” McClary said.

Some people are seeking help after they’ve already fallen behind and have started to get debt collection calls, he said.

“My advice to people is: Don’t wait until the debt collector calls you,” McClary said.

“If you’re at the point where you’re going to miss a payment, reach out and get help,” he said, from your lenders, a credit counselor or another trusted financial professional.

If a person waits until after they have missed a payment, they may have fewer options, he said.

As prices and interest rates have gone up, it’s a good time to think about putting off unnecessary purchases, according to Hamrick.

“Think seriously about delaying discretionary purchases or at least keep them on or under budget,” Hamrick said.

In the years Bankrate has been doing surveys on top financial regrets, respondents never regret not spending more money, Hamrick noted. But the regret that often ranks highly is not saving more for long-term goals such as emergency savings or retirement, he said.

Delaying big-ticket purchases, such as replacing a car, may free up more of a household’s budget to cover other expenses or possibly to set cash aside.

In the same way individuals and families spend time planning their daily, weekly or monthly activities, they should also be setting aside time to keep tabs on their finances, Hamrick said.

This may be as simple as going through bank account transactions to make sure they’re on budget. It may also include keeping tabs on subscriptions and other monthly charges to see where it might be possible to trim costs, he said.

People may be surprised at how much money per month they’re able to save by canceling services, renegotiating rates or finding another provider, he said.

If there is extra cash to set aside, high interest rates have made it a great time to get a better return on those funds, he said.

“High-yield savings is a remarkable opportunity right now,” Hamrick said.