New Year's financial resolutions: Americans look to boost emergency funds in 2023

Many Americans are working on their New Year’s financial resolutions. And for a handful, that includes boosting their savings, one survey reported. 

In fact, 31% of Americans are interested in growing their emergency funds in 2023, according to a survey conducted by Personal Capital. 

That’s more than those planning to buy a home (9%), purchase a car (15%) or host a wedding (8%), the survey said. 

But strengthening emergency funds can be challenging, especially considering inflation is still high and high-interest debt could be preventing people from making the most out of their savings strategy. 

If high-interest debt is preventing you from building a sizable emergency fund, you could consider paying it down with a personal loan at a lower interest rate which can help you lower your monthly payments. Visit Credible to compare options from different lenders to see if this option is right for you. 

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Paying off high-interest debt could help you build an emergency fund

Debt can stand in the way of building a sizable emergency fund. In fact, total household debt increased by $351 billion (2.2%) to $16.51 trillion in the third quarter of 2022, according to the latest data by the Federal Reserve Bank of New York. 

In particular, credit card balances increased by $38 billion in the third quarter of 2022, the report said. The average interest rate on credit cards was 19.07% as of November 2022, according to data by the Federal Reserve bank of St. Louis.

But there are many ways you can pay off high-interest debt such as credit cards. Here are some tips. 

Open a high-yield savings account: A savings account could give you a place to park your emergency savings as it earns interest. If the Federal Reserve keeps raising interest rates to lower inflation, interest rates on savings accounts may climb too. This money can be earmarked to pay off debt.

Use the snowball method: Aim to pay off the smallest credit card balance first and then the next highest until you’ve cleared all credit card debt. 

Consider the avalanche method: Pay off the credit card with the highest interest rate and then work your way down. 

Apply for a personal loan: Take out a personal loan at a lower interest rate. The average personal loan rate is 11.23% as of November 2022, according to the St. Louis Fed. 

Use a balance transfer card: A balance transfer card allows you to roll over your credit card debt into a new card. These cards frequently offer introductory periods with 0% APR. 

If you’re having trouble paying off credit card debt, you could consider applying for a balance transfer card. Visit Credible to compare balance transfer cards without affecting your credit score

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Boost your retirement savings 

As people pay off high-interest debt, they may have more money left over to divert to their emergency funds as well as their retirement savings. 

However, nearly half of workers don’t have access to 401(k) plans, according to a study by T. Rowe Price.

Nonetheless, nearly anyone can open a traditional individual retirement account (IRA) or Roth IRA through a bank or investment management company. 

A traditional IRA works much like a traditional 401(k). Contributions toward a traditional IRA are tax-deductible and can thus lower taxable income for the year in which contributions are made.

On the other hand, a Roth IRA doesn’t allow tax-deductible contributions. But withdrawals from Roth IRAs are tax-free as long as account holders are at least 59.5 years old and their accounts have been open for at least five years. 

If high-interest debt is preventing you from making the most of your emergency fund and retirement savings, you could consider paying it off with a personal loan at a lower interest rate. Visit Credible to speak with a personal loan expert and see if this option is right for you. 

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