How to Prepare for a Possible Recession When You Are in Debt

Despite all economic predictions, events can occur unexpectedly that will change the projected course – whether for better or for worse. With the recent outbreak of COVID-19 disrupting global markets, many economists are anticipating a recession. Oil prices and stock markets are at a record low, and job losses are expected in the industries hit the hardest.

Though economists are optimistic that the low will be temporary, this still could have a major effect on a number of people, especially for those who are struggling with debt. If you’re in this situation, you may feel particularly vulnerable, especially if the state of your employment is in question. Here are some tips you can use to help prepare you for the possibility of a recession.

Check Your Finances

Now is the time to sit down and really take a look at your finances. Assess how much money you have coming in and how much is going towards monthly bills and other payments. If you haven’t done so already, create a monthly budget and work with it to see where you can make cuts.

• Are there any subscriptions you can cancel?

• Can you find a better/cheaper phone plan?

• Are you eating out too much?

Also consider what would happen if you lost your job and had to go on employment insurance. How much money would you receive and how long would it take you to find a new job?

Focus on Debt Repayment

As you’re working on your monthly budget, make sure to prioritize repaying your high-interest debts. In fact, this should be even more of a priority than your rainy-day savings. You should aim to pay off your debt as soon as possible, because you don’t want to be stuck making high interest payments, especially during a time of recession.

For swift relief, consider getting yourself on a non-profit debt consolidation program where a Credit Counsellor will work closely with you to help you be debt-free as soon as possible. They’ll negotiate with your creditors for reduced interest rates and combine all of your unsecured debts into one easy monthly payment. This option is a great idea for people who are struggling to manage things on their own and are not sure where to begin.

Create an Emergency Fund

Between paying your monthly bills and your debt, it may not seem possible to save additional money for an emergency fund. That being said, it’s recommended that you at least set aside $1000 into a starter emergency fund, and then work on it later when you can.

If you’re working with a Credit Counsellor, they may be able to help you budget so that you can do both: pay off debt and save. This may require a bit of sacrifice and penny-pinching, but it’ll be worth it in the end when you’ve successfully paid off your debt and saved some money as well.

Always Be Prepared

The lesson of today is that anything can happen, so it’s always important to be prepared. Even if there’s no recession, getting yourself financially sound will mean you’re ready for anything.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes