How to navigate credit and financial risk in a shaky economy

I recently interviewed Sundeep Yerapotina, Chief Risk Officer (CROCRO
) for Rewards Branded Cards at Citi, who is an expert in the field of personal finance and credit risk management on how people can navigate credit and financial risk in today’s volatile marketplace.

What advice do you have for consumers in today’s environment? Any advice on how to manage your existing debt or for those planning to take out new loans?

On the plus side, many consumers and households could take advantage of the low mortgage rates of just a few months to refinance their existing home loans or buy new homes. With those rates locked in for the next 30 years, it certainly puts those households in a good position in terms of their monthly payment load.

Now, it’s crucial that consumers review their household balance sheets to account for higher expenses as a result of inflation, but also begin to account for the increased payment burdens on their existing variable rate loans and future loans. , while also planning for any interruptions in their income streams. in the near future.

Given the high probability of a recession within the next year, consumers should strive to accumulate enough savings to withstand the loss of their income for up to three or four quarters.

From a credit management perspective, consumers must first categorize their existing debt based on the nature of the credit and interest rates. Pay attention first to debt with a variable interest rate or high interest rates, such as credit cards. Consumers should explore options to consolidate such debts into a lower rate fixed loan so they can lessen their payment burden. Given the appreciation in home values, it may be wise to take out a home equity line of credit at a favorable rate to consolidate these debts. Second, consumers should cut back on discretionary spending and delay personal projects, like nonessential home remodeling, that require extra credit. Finally, there are some credit decisions that we may not be able to delay, such as taking out a student loan for a child’s education or a loan for medical emergencies. Consumers should plan to refinance those loans when interest rates drop in the future.

From your point of view, what are some risks in the medium and long term to take into account?

It’s a great question. The US economy faces some risks in the medium and long term. In my opinion, the following are some of the main risks:

  1. Geopolitical tensions: Diplomacy and the de-escalation of political conflicts will be vital to keep the focus on economic progress and other imminent challenges facing the country, such as climate change.
  2. sovereign debt: With our national debt surpassing $31 trillion and reaching more than 120% of GDP, the response from the government and the central bank after the start and after the next recession, and in the long run, will be critical.
  3. Sustained trade deficit: The sustained US trade deficit is hurting the economy in general and especially the country’s middle class due to the long-term trend of job losses in many industries, stagnant real wages and incomes, lower industry trade competitiveness and changes in the balance of power with major trading partners.
  4. Climate change: The disruption that climate change is causing to human living conditions and the economy demands urgent action. Not to mention its severe impact on our natural ecosystems and flora and fauna.
  5. Inflationary pressure due to restrictions in the supply of natural resources: I believe the answer lies in continuous innovation as well as evolving living standards.
  6. Social and political division: Wealth disparity and economic pressure on the working class will continue to create further differences in views on various issues between segments of our society. The deepening schism will limit consensus on key policy measures. The lack of a long-term focus and determined action, for example, on the issues mentioned above, will only increase those risks.

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