How to Prepare for a Recession If You are Already Struggling
- If you, can't pay all of your bills, prioritize them.
- Ask for help from your creditors.
- Debt relief may be a solution for serious problems.
Are we heading into a recession or are we already there? A recent Freedom Debt Relief survey found that 41% of respondents think we are in a recession now. You might be thinking the same thing.
In the same survey, Freedom Debt Relief found that 56% of respondents say that thanks to the downturn, they are concerned about being able to afford to feed themselves and their families. Many reported that they are likely to miss payments on rent, auto loans, and utilities. There is little doubt that times are tough.
But in these tough times, you can find some reassurance by facing your financial fears the best you can and preparing for what comes next. Below, we have outlined some steps that you can take to figure out how to prepare for a recession in a way that is best for you and your family.
You may find yourself in a situation where you might not be able to pay all of your debt obligations each month. Competing bills can feel overwhelming. If you pay all of them, you won’t have money left over for the essentials. If you leave money for the essentials, you risk letting debt go into default.
Now is the time to prioritize your debts. Which ones need to be paid immediately and which ones can take a back seat? The most important things to cover during a recession are your basic needs. Your rent or mortgage payment, utilities, gas, and food must be taken care of first before paying your other debts.
This plan is a temporary one, however. You’ll have to pay your debt at some point. Debt settlement could be an option if you qualify, or you can work out a new debt payment plan directly with lenders.
Talk about it
When you are struggling financially, it can feel isolating. Money problems may be the last thing you want to disclose to family and friends, but talking about it might be a step in the right direction. Someone you know could be going through something similar and be able to help.
Reach out to someone you trust and open up about what’s going on. When you sit with a problem by yourself, the problem can overtake your thoughts. Sometimes all it takes is someone to climb down into that hole with us and be a support. It might not change your financial outcome, but it can be incredibly uplifting to know someone is listening.
Write it out
Lying awake at night stressed about your finances can lead to sleepless nights. It can also lead to impulsive decision-making if you’re not careful. A good way to organize your thoughts is to write out what you know about your finances. Break it down into five main categories: income, expenses, debt, savings, and investments.
Use a spreadsheet or just a piece of paper to get organized. Financial issues can balloon in our minds, but when it’s laid out on paper, it can be easier to know what step to take next. A written budget is a good place to start. You might not even realize that you’re overspending on online purchases or takeout orders until you see it written down. This could help you tighten up the purse strings during a recession.
Can you change your income?
Sometimes it isn’t about what money is going out, it is about what money is coming in. If your skills allow you to shift industries, consider trying for one that is a bit more recession-proof or provides more stability. For instance, freelancers and independent contractors could join a company full time; now could be a good time to trade that independence for a more reliable paycheck. You may want to consider government jobs or work in an industry that thrives in a recession.
During the 2008 recession, discount retailers, healthcare, and basic transportation performed well. While those industries might be affected differently in the time of coronavirus, a proactive approach to shifting jobs now, before the deeper impact of the recession, could still prevent you having to scramble for a new job later.
Apply for deferment programs
The coronavirus pandemic has caused a lot of disruption to our daily lives. If your ability to work has been disrupted due to illness or job loss, look for deferment programs that can help in the short-term while you explore long-term plans for correcting your finances. Lenders have shown unprecedented willingness to accept financial hardship loan deferments. Here are some deferment programs you may want to learn more about:
Federal student loans
Federal student loan payments and interest are waived until September 30. If you made regular payments in the past, you can put them on pause until the end of September. You don’t have to apply for this. Your account will be put into administrative forbearance automatically. Check your account to ensure this action has been applied.
Private student loans
Although private student loans aren’t implementing the same recourse as federal student loans, you do have some relief options. Many private student loan servicers offer financial assistance during the coronavirus pandemic; options range from deferring payments to receiving reduced interest rates.
Personal loans, car loans, and mortgages
There are also relief options on personal loans, car loans, and mortgages. If you sign up for any assistance with these lenders, make sure you understand the terms. Here are a few good questions to ask your lender (and yourself) before agreeing to a deferment:
If you take the deferment, how much money does this free up for you?
How long is the deferment period?
Does deferment extend the life of the loan or is the deferred amount immediately due after deferment?
How much interest will accrue during deferment?
Are you willing to pay additional interest in order to defer payments? Will interest be waived too?
Obtaining a deferment on your credit card payment will depend on your relationship with the credit card company, your debt amount and other factors. Look for options like waived late fees or a change in your minimum payment amount.
Use your stimulus check
Stimulus checks are already trickling in, so this could be a good time to make plans on how to use yours best. Whether you live paycheck to paycheck or have a little savings, there are some smart ways to spend your stimulus check. Make sure you use the money in the order that takes care of your most basic needs first. The entire stimulus package has a variety of built-in assistance programs which could benefit you, too.
We’re in this together
You and your finances matter. There are things that are within your control that can help you prepare for a recession. Reach out to a loved one to share what’s going on. Write down your current financial state. Look at your options without judgment. You don’t have to struggle to make ends meet by yourself. Get connected with the Freedom Debt Relief community by checking our blog each week to learn more about money skills, debt management.
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