agchouston.org Summer2026Cornerstone17 large purchases. Interest-based products such as credit cards, personal loans and balance transfers also calculate rates based on several factors, including credit scores. Individuals with lower credit scores are often charged higher interest rates, increasing the total amount repaid even when minimum monthly payments initially appear manageable. Interest rates are not the only area where credit affects costs. Essentials such as auto insurance and housing are also impacted by credit history. In most states, auto insurance com- panies use credit-based insurance scores to help determine how likely someone may be to file a claim. Drivers with lower credit scores may be viewed as higher-risk customers and, as a result, may pay sig- nificantly higher monthly premiums. Housing applications frequently involve credit checks as well. Applicants with lower credit scores may be denied access to certain apartments or required to pay larger security deposits upfront. Higher borrowing costs, larger deposits and more expensive insurance premi- ums can place additional pressure on household budgets and reduce financial flexibility over time. Economists sometimes refer to this phenomenon as the “poverty premium,” where households with fewer financial resources end up paying more for the same essential goods and services. Higher interest rates, increased insurance premiums, larger deposits and limited access to lower-cost financial products can compound over time. Individually, these added costs may not seem overwhelming. However, when they occur across multiple areas of daily life, they can quietly increase the overall cost of maintaining a household. Financial margins are already tight for many Americans. According to Empower, one in three Americans has no emergency savings fund, and 29% say they could not afford an unexpected expense greater than $4001. Adding high-interest debt to 1 “The Safety Net: Americans Have $500 in Emergency Savings.” Empower, 2026, www.empower.com/the-currency/money/ safety-net-emergency-savings-research. an already tight budget can create a ripple effect throughout a household’s finances. Higher monthly payments leave less income available for savings, making it even harder to build an emergency fund. Financial planners often recommend saving three to six months’ worth of expenses for emergencies. Without that cushion, unexpected costs such as vehicle repairs, medical bills or temporary job loss may force households to borrow money. If that borrowing occurs at a high interest rate, the cycle can quickly repeat itself. As monthly expenses continue rising and wages struggle to keep pace with inflation, falling into this cycle can happen more easily than many people expect. However, there are proactive steps that can help reduce the likelihood of becoming trapped in a debt cycle. One helpful strategy is creating sep- arate “buckets” for different categories of money. For example, a household might maintain: ] A savings account dedicated to emer- gency expenses ] A checking account used strictly for necessities such as housing, utilities and transportation ] A separate account for irregular expenses like vehicle repairs or maintenance ] Another account for discretionary spending Each paycheck can then be divided among these categories according to income and financial priorities. Over time, as these accounts gradually grow, dependence on debt may decrease. Even if savings are not fully established when an emergency occurs, having some money set aside can reduce how much needs to be borrowed and make repayment more manageable. For debt that can’t be avoided, it’s important to review interest rates care- fully, make payments on time and develop a strategy to pay balances down as effi- ciently as possible. Small improvements in debt management and credit habits can gradually improve credit scores and reduce future borrowing costs. Life will always bring unexpected expenses and financial surprises, but building small financial cushions can help households better absorb those shocks. Over time, consistent improvements in savings habits, credit health and debt management can provide families with greater financial flexibility and reduce the long-term cost of borrowing. The information contained herein has been derived from sources believed to be reliable, but no repre- sentation or warranty, express or implied, is made by RBC Wealth Management, its affiliates, or any other person as to its accuracy, completeness, or cor- rectness. All opinions and estimates constitute the author’s judgment as of the date of this publication, are subject to change without notice and are pro- vided in good faith but without legal responsibility. Neither RBC Wealth Management, a division of RBC Capital Markets, LLC (“RBC WM”), nor its affiliates or employees provide legal, accounting or tax advice. All legal, accounting or tax decisions regarding your accounts and any transactions or investments entered into in relation to such accounts, should be made in consultation with your independent advisors. No information, including but not limited to written materials, provided by RBC WM or its affiliates or employees should be construed as legal, accounting or tax advice. Economists sometimes refer to this phenomenon as the ‘poverty premium,’ where households with fewer financial resources end up paying more for the same essential goods and services.
