I asked ChatGPT for financial advice. Here’s how it went.

ChatGPT has taken the world by storm since OpenAI released it to the public in November 2022. Today, people use it for literally everything – from planning their trips around the world and debugging code to creating dinner recipes, scripting social media posts and customizing cover letters. until . But how reliable and accurate is ChatGPT when it comes to providing financial advice? And should you trust this AI chatbot to help you make high-stakes money decisions?

According to a survey by Consumer Finance, 46% of American households will have accumulated credit card debt in 2022. So I decided to try out an AI chatbot: Can it help me come up with an actionable plan to tackle credit card debt? Here’s the scenario I plugged into the AI ​​chatbot:

“I want to pay off $16,260 in credit card debt across three credit cards in 12 months. The first card has a balance of $4,505 with a 17% APR. The second card has a balance of $9,529 with a 19% APR, and the third card has a balance of $2,226 with an 18% APR.

Within a second, ChatGPT had a pretty straightforward answer:

“It’s a step-by-step, 12-month loan repayment plan based on your balance and interest rate. I’d prefer the loan avalanche method, where you make the minimum payment first and then everything. Focus on paying off cards with higher interest rates than others. This method saves you the most money on interest.”

Step 1: Calculate the monthly minimum payments.

Assume the minimum payment is approximately 2% of each card’s balance:

• Card 1: $4,505 × 2% = $90.10
• Card 2: $9,529 × 2% = $190.58
• Card 3: $2,226 × 2% = $44.52

Step 2: Determine the total monthly payment.

To pay off $16,260 in 12 months, you would have to pay about $1,500 ($16,260 ÷ 12) per month. This amount will cover the minimum payments plus additional payments towards the loan.

Step 3: Focus on high-interest debt first.

• Card 2 (19% APR, $9,529 balance): Pay as much as possible after the minimum payment.
• Card 3 (18% APR, $2,226 balance): After card 2 is paid, focus on that card.
• Card 1 (17% APR, $4,505 balance): Make the final payment.

Step 4: Allocate payments.

Here’s how to break down your $1,500 monthly payment:

Months 1-8: Focus on Card 2.

• Card 2: Pay $1,184.80 ($1,500 – $325.20 minimum payment).
• Card 1 and Card 3: Continue the minimum payment ($90.10 + $44.52).

After 8 months, Card 2 will be paid off (about $9,529 + interest).

Months 9-10: Focus on Card 3.

• Card 3: Pay $1,365.38 ($1,500 – $134.62 minimum for Card 1).
• Card 1: Continue with the minimum payment ($90.10).

After 2 months, Card 3 will be paid off (about $2,226 + interest).

Months 11-12: Focus on Card 1.

• Card 1: Pay $1,500 per month.

Card 1 will be paid off by the end of 12 months.

The decision

ChatGPT did a beautiful job creating a loan repayment plan. However, this can only work for someone who is making enough money to comfortably pay their minimum payments each month and set aside extra cash for the down payment. For a more tailored plan, you’ll need to refine your indicator and provide specific details about your financial situation — and it may take some effort and some back-and-forth to get it right.

Where ChatGPT falls short is in explaining the math behind its calculations. For example, in the example above, the chatbot suggested paying $1,500 per month to pay off $16,260 over 12 months, even though $16,260 divided by 12 months is $1,355 per month. It was only when I asked to clarify the discrepancy that he provided a more detailed breakdown:

Final Adjusted Calculation:

• Total debt: $16,260
• Total interest: ~$739
• Total to pay: $16,260 + $739 = $17,000 (approx).
• Monthly payment: $17,000/12=$1,416
• By rounding up to $1,500/month, you’ll ensure that the loan is paid off even if there are slight variations in interest charges.

This shows one of ChatGPT’s limitations: while it’s a helpful tool, you’ll have to play around with it and double-check the calculations because its specifications aren’t always clear at first. And ChatGPT can make mistakes, so you have to be extra careful when it comes to financial planning because one small mistake can lead to costly decisions that derail you from your goals. If you are not familiar with personal finance and all its jargon, it is best to consult a professional.

Where ChatGPT shines and where it doesn’t

Because ChatGPT is trained on large amounts of existing data and information, such as text, images, audio or video, it does not have access to real-time market updates and current regulations. In other words, it is unreliable for investment advice or decisions that depend on up-to-date information.

Even for more general financial topics like retirement planning, advice can be oversimplified or, in some cases, wrong. That’s why Steven KibbleA certified financial planner and senior editor at InternationalMoneyTransfer.com believes that ChatGPT is a helpful guide to general concepts, but is not a substitute for professional financial advice.

“Financial planning isn’t just about number crunching; it’s about understanding the human side of money. Your emotional connection to savings, your dreams for the future, and your tolerance for risk all play a role. play a role.” Kabal said. At least for now, ChatGPT is simply not equipped to offer holistic and personalized money advice that accounts for these deeply personal factors.

Instead, ChatGPT is better suited for basic research. “For example, if you want to learn the difference between a Roth IRA and a traditional IRA, it can explain it in plain English,” he said. “It’s also useful for learning about budgeting methods, the basics of financial planning or broad investment principles.”

Is AI the answer to your money problems?

Well, yes and no.

“You can ask ChatGPT basic questions, learn from it, and see it as a helpful assistant,” Kible said. “But when it’s time to make serious decisions with your money, I recommend leaning on the expertise of a professional who can look you in the eye, ask the right questions and make a decision that’s just for you. can give suitable advice.”

For example, if you’re struggling to understand certain financial concepts and need help defining terms, ChatGPT can serve as an interactive dictionary or help you create basic budget plans. can do (Just be sure never to share sensitive financial information, such as your bank account number or Social Security number, as ChatGPT is not a secure platform for personal data.) But if you have something complicated Facing a financial situation — such as estate planning or assistance. When making big investment decisions in the stock market, you’ll want the help of a true professional.

ChatGPT is a great starting point for tackling your money problems, but it’s just that – a starting point. So use it only as an additional tool, not a substitute for professional advice.

“Unlike ChatGPT, real financial advisors don’t just analyze your accounts — they listen to you,” said Kibble. “They weigh factors that are beyond AI’s calculation. ChatGPT, for all its usefulness, can’t do that. At least, not yet.”