Seven ways to avoid the 'fiscal cliff'

Just as the economy is beginning to look up for consumers, economists warn that an impending “fiscal cliff” could threaten to derail consumers who are finally experiencing a sense of financial stability.

Beginning Jan. 1, $500 billion worth of tax provisions are set to expire, including the Bush-era tax cuts and the reduced payroll tax. Once those policies – in addition to the unemployment benefits that have assisted millions of job-seekers – come to an end, nearly 90 percent of Americans will see their taxes rise, according to the Tax Policy Center.

In fact, the Tax Policy Center estimates that the average household will be forced to pay nearly $3,500 more in 2013 than they paid in 2012.

Given these potential increases, it’s more important than ever to be proactive when it comes to handling your debt. Don’t let the state of the economy determine your financial state. The following tips will help prepare you to weather any financial storm:

  1. Re-evaluate your habits. If your income or expenses have changed, your spending must also. Old habits are hard to break, but your family may need to forgo some traditions like eating out on Friday night, or Sunday movies, until your financial situation changes.
  2. Small changes count. Even small changes will have an impact, and more importantly, will set the stage for changing your habits. Your family will be stronger financially in the long run, and once you get on the right track, you can begin saving for something great (like a vacation, or new car, etc.).
  3. Be a smart shopper. Always shop with a list and take cash so that you can’t overspend. Use coupons only if you planned to purchase the item anyway.
  4. Pay your bills on time. Late fees and over-the-limit charges can quickly add up to a debt problem. Additionally, many creditors have raised their rates and have even closed accounts as penalties for late payments. Refer to these tips to help you pay your bills on time.
  5. Deal with big issues. If you have large, looming financial issues, such as unpaid debt or tax liens, it is time to deal with them head-on. Contact your creditors and make acceptable repayment arrangements. Implementing a plan to remove these stresses from your life will be good for your mental and financial health.
  6. Expect the unexpected. Strive to establish an emergency savings account equal to at least three months of your income. If this goal seems too lofty, try having a small amount automatically deducted from your paycheck into a savings account. As they say, out of sight, out of mind – you won’t spend it if it’s not in your checking account.
  7. Perform a credit check-up. A positive credit report means better loan terms and more borrowing power — two of the most powerful tools you can have. Experts recommend that you review your credit reports annually and before making any major purchase.

Jessica Horton is a former copywriter and community manager at MMI.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

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  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.