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CNBC recently reported that consumer spending remains very strong despite severe economic headwinds.
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The U.S. economy is on the rise again, but 96% of Americans are concerned about the current state of the economy, according to a recent CreditKarma report. At the same time, 27% of Americans are having “catastrophic spending” to cope with stress, and 32% have gone into more debt in the past six months while spending has increased by 27%. This increase in spending does not necessarily indicate an improvement in Americans’ financial situation.
The survey further explains that when it comes to the economy, 56% of Americans are concerned about inflation, 50% are concerned about the rising cost of living, and 23% are concerned about housing affordability. .
Of those worried about the economy, 48% say their biggest concern about how an economic recession will affect them is not having enough money to buy necessities like food, clothing, and rent. I’m answering. This was followed by 34% who said they were afraid of getting into debt, and 30% who said they were worried they wouldn’t be able to use their money for fun things.
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What is Doom Spending?
Disastrous spending refers to shopping as a way to cope with the current economic or diplomatic situation. This is a type of retail therapy, an emotional response to dealing with a negative event, and perhaps an action that can ultimately lead to higher levels of debt.
Caitlin Walsh Epstein, chief marketing officer at Laurel Road, explained her perspective on catastrophic spending.
“From economic uncertainty to restarting student loan payments, the past six months have been extremely stressful for many Americans,” Walsh-Epstein said.
She explained that when people feel like their financial goals are out of reach, they can develop unfavorable habits, such as destructive spending, which can set them back even further.
How catastrophic spending negatively impacts household finances
Catastrophic spending can negatively impact household finances in several ways.
increase in debt: Excessive and destructive spending can certainly lead to increased debt. If you have credit card debt, high interest rates can make it worse quickly. As your debt increases, your monthly interest payments also increase, eating into your finances and making you deeper into debt.
More time needed to achieve life milestones: If you overspend too often, you may be spending money that could be earmarked for important milestones in your life. This includes buying your first home, having a child, pursuing higher education, and taking memorable vacations with loved ones.
Cash flow for daily necessities decreases: If catastrophic spending goes unchecked, it can reduce the cash flow in your bank account to cover monthly necessities like rent, utilities, and groceries. Cash should be set aside for these essential expenses first each month before being spent on anything else.
Overall, it’s important to control catastrophic spending to avoid long-term financial problems.
Tips for dealing with catastrophic spending
Walsh Epstein offered some more tips on how to deal with catastrophic spending.
Find the balance between spending and saving: This is important to ensure that your spending is in line with your financial goals and vision for the future.
Please take a short break before purchasing: Take a moment to consider whether a particular purchase is fulfilling a need or want, is getting in the way of meeting another financial obligation, or is it just an impulsive purchase for short-term gratification. Please take your time and judge carefully.
Add money to savings instead of increasing spending: Instead of making impulse purchases, put the money you’re willing to part with into a high-yield savings account. By watching your money grow over time instead of increasing your spending, you can reach your financial goals faster.
“A tip that I often share with others is that when you want to make a big purchase or buy something online that you don’t necessarily need, add it to your shopping cart and think about it for a day. After 24 hours. If they go back to their cart and still feel like they want or need the item, they buy it,” Walsh-Epstein said.
GOBankingRates Details
This article originally appeared on GOBankingRates.com: “Crushing Spending” Feels Only Therapeutic — 3 Reasons Why It’s Harmful to Your Financial Well-Being
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