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It’s best to stay away from debt for the next couple of months.


Key points

  • Taking on debt right now could mean bearing higher borrowing costs.
  • There’s something to be said for kicking off a new year debt-free.
  • A recession could be coming, and interest rate hikes could make your debt even more expensive in 2023.

The holidays are coming, and for many people, the shopping season has already begun. But with that comes one big risk — racking up credit card debt.

It’s not uncommon for people to take on some amount of debt around the holidays. After all, you’re grappling with a host of added expenses, from gifts to travel to the giant tree you want to put out on display at home. And this year, your holiday purchases might cost even more than usual thanks to rampant inflation. But while holiday debt may be a normal thing for you, here are a few good reasons to do your best to stay out of debt for the remainder of 2022.

1. You want a clean slate for the new year

Kicking off a new year with a pile of debt could wreak havoc on your outlook and mental health. And if you start off 2023 feeling discouraged from a financial standpoint, it could prevent you from working toward other important goals, like building up your savings.

2. There could be a recession

Being in debt isn’t a great thing in general — but it can be especially problematic during periods of economic decline. If a recession hits in 2023, which many financial experts seem convinced of, it could spur a wave of unemployment. And that means your job could end up on the line.

Now, think about how tough it is to work debt payments into your budget when you’re gainfully employed. Well, imagine what a challenge that might amount to if you lose your job and are forced to live on a fraction of your former earnings in the form of unemployment benefits. But if you manage to steer clear of debt for the rest of 2022, you might also manage to avoid it in 2023 — and you might put yourself in a position to manage better during a downturn.

3. It could cost more due to interest rate hikes

The whole reason so many people are worried about a recession is that the Federal Reserve has been aggressively raising interest rates in an attempt to slow the pace of inflation. Now, the Fed doesn’t directly set consumer borrowing rates, like the interest rate you pay on a personal loan or credit card. Rather, it oversees the federal funds rate, which is the rate banks charge each other for short-term borrowing purposes.

But the Fed’s actions commonly influence consumer rates. And so if you rack up debt in the next month or so, you may find that you’re stuck with a higher interest rate than usual. And you know what that means — your debt will be more expensive to pay off.

Many consumers will inevitably rack up debt over the next couple of months, but you don’t have to be one of them. Instead, you can spend cautiously during the holidays, cut back on gifts, or boost your income with a side job to steer clear of debt — and avoid the many issues it could lead to.

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