Paying off debt is really challenging. Imagine how difficult it would be to continue with your payments in the midst of a recession.
A lot of people still remember how the Great Recession ruined their lives. People were left without jobs and a huge amount of debt. The house that they spent so long to pay off was now gone. All their dreams were shattered just because the recession caught a lot of people by surprise.
If you have bad memories of the last recession, then you need to learn your lesson. Since it is bound to happen, again and again, you have to make sure that you are ready the next time a recession hits. If you are paying attention to what is going on around you, the next might just be around the corner.
An article published in The New York Times website discussed the possibility of a recession in 2020. While it seems like we are headed there, thanks to the slowing down of global market connections and the trade war, the article mentioned how it is possible to avoid it.
According to the article, the last two recessions started with the dot-com stock bubble of 2001 and the housing bubble of 2007. The article also mentioned how the 9/11 attack and the subprime mortgage crisis acted as the triggers for both recessions. It seems like experts can identify the “bubble” and the “trigger” that could lead to the downward spiral of our economy.
It is not a matter of “if” but “when” this recession will happen.
The question is, what are you going to do so your finances are secure enough to survive it as you keep on paying off debt?
Tips to keep paying off debt despite the recession
Fortunately, there is still time for you to strengthen your finances before the recession hits. While the experts are hoping that it will not happen, there is a certainty that it will happen. Even if it does not happen next year, there is nothing wrong with being prepared as early as possible. If anything, it will make your finances more secure.
Here are tips that you can use to prepare your finances so you can continue paying off debt even if the recession is happening around you.
Use a frugal budget
Start with a budget plan. It should not just be the usual plan – but a frugal budget. Contrary to what you may believe, this is not about restricting your spending so you can feel miserable. Frugal living focuses on spending on what is important to you. It is being conscious of every little expense that you make – ensuring that you are only spending on what is necessary in your life at the moment. If you have both Netflix and cable, you might want to choose just one instead of paying for both. Buy your food in bulk and cook meals from scratch. Make sure you cook more so you can brown-bag your lunch the next day. These little things will help lower your expenses so you can use it to secure your finances.
Make sure your emergency fund is enough
Once you have gone through your budget plan, you need to look at your emergency fund next. It is very important that you have enough to survive for a couple of months. This will give you financial security and will also help you stay away from more debt. If there is a need to pay for an unexpected expense, you can rely on this fund. Just make sure that you will replace it as soon as possible. When the recession does hit you, this can help you with basic necessities and also paying off debt.
Set up an alternative source of income
Obviously, your emergency fund will not last forever. That means you need to secure your source of income too. That way, if you got laid off as a result of the recession, you are not left without any income. It can be a side gig that you can work on to increase income.
This also means you need to take care of your primary source of income. In case you have plans of shifting to a new job, try to hold off that decision for now. Do not make drastic career changes because recessions are not kind to those who just got their new jobs. Wait until the economy is recovering before you do any changes in your career.
Know what to do about investments
In case you have investments (e.g. retirement funds), make sure you do not touch it. The recession would mean losing money when you withdraw your investments. Although you might find yourself needing the money, you have to resist the urge to dip into your investments to help pay for your monthly expenses. If anything, you should strive to invest more during the recession to take advantage of the low stocks. But if that is not possible because your finances are tight, just make sure that you will not touch your investments.
What to do with debt while in recession
Despite the obvious financial implications of a recession, that will not exempt you from paying off debt. Creditors and lenders will still expect you to pay for what you owe. You will be sharing this dilemma with the consumers who owe part of the $13.86 trillion debt that is the current balance after the 2nd quarter of 2019. But what can you do if your finances are limited because of the current economic situation?
Here are some tips that might be useful.
Use a debt relief program
If you do not have one yet, it might be time to find a debt relief program that will make things easier for you to completely pay off what you owe. There are debt solutions that will make paying off debt easier. It will allow you to restructure your monthly payments to help make it more affordable. If you want to pay off a significant part of your debt before the recession hits, there is a specific debt solution for that. If you want to lower your monthly payments so you can save more, that is also possible through a specific debt relief program.
Have a backup plan
Once you have found a debt solution that will help in paying off debt, you should come up with a backup plan. This will ensure that you can continue with your payments despite the difficulties that the recession will bring. This could be your emergency fund. Or it can be your side gig. You should also research your options in case you are unable to pay off what you owe. You can declare yourself in a state of financial hardship so you will be allowed to send really low monthly payments without getting into trouble. There is also the option to negotiate to have your debts reduced. Researching the options will help you make a smarter decision about everything.