Mitigating Financial Risk: Practical Steps to Guard Against Economic Uncertainty

Worried about what the future of the economy looks like? Me too. We live in a world where both disease and panic can spread faster than ever before. So what do you do when the majority of economic activity comes to a screeching halt? Here are some practical strategies you can implement immediately that (I think) will help mitigate the financial risk related to uncertainty in the current economic environment. 

*Disclaimer: I am not a financial advisor, these are simply my own opinions which reflect the actions I am personally taking. Please consult with a licensed financial advisor for specific advice related to your situation.

Prepare an Emergency Fund

Hopefully you already have a dedicated savings account for emergencies, but if not, now is definitely the time to create one and put any extra money you can save into it. Experts recommend having enough to cover at least three months of expenses and ideally twelve. Personally I like Ally Bank’s High Interest Online Savings Account because they’ve got great service, strong online capabilities and mobile app, plus better interest rates than most (currently 1.5% though this may continue to drop as interest rates in general drop). 

Reduce Interest Payments on Credit Card Debt

Open a New Credit Card and Transfer Existing Balances

If you’re like most Americans and sitting on credit card debt, now is probably a good time to consider opening a new credit card with a promotional 0% APR rate on balance transfers and new purchases, such as the Discover It Balance Transfer Card. This card specifically grants 0% APR (interest charges) on balance transfers done by June 10, 2020 for 18 months, which means you can move the current balance of other credit cards to this one and you won’t pay any interest as long as you pay it off within 18 months. 

In order to help estimate how much this strategy can potentially save you in, I have created the following Simple Credit Card Balance Transfer Expected Savings Calculator, which looks like this: 

Simple Credit Card Balance Transfer Expected Savings Calculator

In the example illustrated above, you can see that doing three balance transfers for a total of $11,500 to a new card with a 0% introductory APR on balance transfers for 18 months and a 3% balance transfer fee could potentially save $1,187.04. This is because the 0% APR on the new card is significantly lower than the current APR for the existing cards (16.99%, 16.24%, and 12.49% respectively) and significantly outweighs the 3% one-time balance transfer fee. 

It’s important to note that you can typically only transfer 95% or less of the credit limit provided by the new card, and you typically cannot transfer between cards at the same institution. This means selecting an institution which you do not already have a credit card with is probably your best bet. Unfortunately this strategy does require that you already have good credit which I realize means it may not be applicable to everyone.

Request an Interest Rate Reduction on Existing Credit Cards

Whether or not you are able to transfer any or all of your existing credit card debt to a new card with a better interest rate, everyone has the ability to call their current credit card providers and simply request a lower interest rate. You should simply be able to cite the current economic uncertainties as a reason and most lenders will likely work with you. Simply call the number on the back of your credit card and ask. The worst that can happen is they reject your request and you’ve lost a few minutes of your time, but likely you can get some reduction which can save you tons of money over time.

Request a Payment Extension

Some companies such as Apple (for their Apple Card credit card through Goldman Sachs) are proactively reaching out to customers to offer support during this period in the form of programs which allow their customers additional time to make normal payments without incurring additional interest or fees. You can see an example of the email communication they sent out below. Be on the lookout for similar offers from your financial institutions because you will likely be required to opt-in to the program in order to receive its benefits. You can also proactively reach out to your credit card companies to inquire about what options they may be able to provide you even if they haven’t contacted you.

Apple Card Customer Assistance Program Email

Reduce Non Essential Spending

This one is likely the most obvious, but it can make a huge impact on your personal finances so I didn’t want to leave it out. Take a good hard look at what you’re spending money on, particularly when it comes to recurring charges for things you aren’t using all that much, and reduce it wherever possible. With high chances of getting stuck at home for extended periods of time, now probably isn’t the time to cancel your streaming video services, but maybe dropping HelloFresh isn’t the worst idea. Tinder Premium? Probably not going to do you much good in a quarantined society. 

Aside from completely cancelling various recurring bills, you may be able to simply downgrade to a lower price tier that better aligns with your usage, pause the service, or even negotiate your current rates. Car insurance, cell phone, internet, and cable TV bills are prime examples of bills that you can likely negotiate down if you simply give them a call and ask.

***I do not receive any kind of compensation from any of the institutions referenced in this post, they’re simply those that I personally like.***

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