I recently interviewed Sundeep Yerapotina, Chief Risk Officer (CRO
What advice do you have for consumers in today’s environment? Any advice on managing their current debt or for those planning to take out new loans?
On the positive side, many consumers and households can take advantage of low mortgage rates for up to a few months back to refinance their existing home loans or buy new homes. With those rates locked in for the next 30 years, this certainly puts households in a good position in terms of monthly payment burden.
Now, it’s important for consumers to revisit their home balances to account for higher costs due to inflation but also to start accounting for higher payment burdens. their existing variable rate loans and future loans while also planning for any disruption to their income streams in the near future.
Because of the high probability of a recession within the next year, consumers should try to make enough savings to withstand the loss of their income for up to three or four quarters.
From a credit management perspective, consumers should first categorize their current debt based on credit characteristics and interest rates. Debt with varying interest rates or high interest rates, such as credit cards, should be considered first. Consumers should explore options for consolidating these debts into a fixed, lower-rate loan so they can reduce their payment burden. Due to the appreciation of home values, it may be wise to get 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, such as non-essential home renovations, that require taking out more credit. Finally, there are some credit decisions that we cannot delay, for example, taking out a student loan for a child’s education or a loan for medical emergencies. Consumers should plan to refinance loans if interest rates fall in the future.
From your position, what are some mid- to long-term risks to watch out for?
This is a good question. The United States economy faces several medium- to long-term risks. In my view, the following are some of the important risks:
- Geopolitical tensions: Diplomacy and de-escalation of political conflicts are essential to maintain focus on economic development and other looming challenges facing the country such as climate change.
- Sovereign Debt: With our national debt exceeding 31 trillion dollars and reaching more than 120% of GDP, the response of the government and the central bank after the start and after the next recession, and in the longer term will be critical.
- Persistent trade deficit: The persistent trade deficit in the United States has harmed the overall economy and particularly the middle class of the country due to long-term job losses in many industries, stagnant wages and real incomes, declines on trade competition in US industry, and shifting balance of power with major trading partners.
- Climate change: The disruption caused by climate change in human life conditions and the economic cons demand for urgent action. Not to mention its severe impact on our natural ecosystem and flora and fauna.
- Inflationary pressure due to restriction of supply of natural resources: I believe the answer lies in continuous innovation in addition to evolving living standards.
- Social and political divisions: The disparity of wealth and the economic stress on the working class will continue to create more differences in views on various topics in parts of our society. A deepening schism will limit consensus on key policy measures. The lack of long-term focus and determined action, for example, on the issues mentioned above, will only increase the risks.