How to Prepare for a Recession If You are Already Struggling
- The main thing to prepare for in a recession is a possible loss of income.
- Get ready by paying off any high-interest debt you can, building an emergency fund, and diversifying your income.
- Keep your mental health in mind, and learn positive ways to deal with inevitable financial stress.
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As a country, we've bounced back from plenty of recessions (almost 50!). If another one happens, we can all eventually bounce back from that one, too.
The specific rules are complex, but historically, the term "recession" describes when the gross domestic product (GDP) shrinks for at least six months. Gross domestic product is the value of everything we produce as a country.
You can prepare for a recession, minimize the negative impacts on your finances, and come out in good shape. Let's learn more about those potential impacts and how to be ready for them.
What to Expect During a Recession
During a recession, the economy slows down. This means that many businesses earn less money, which could result in less hiring or even layoffs. Recessions typically include higher unemployment rates.
With less money to spend, families buy less. That adds even more stress to businesses, particularly small businesses that already have narrow profit margins. There's often an increase in the number of businesses that close during a recession.
Banks and creditors may respond to a slowed economy with stricter lending requirements. If interest rates go up, borrowing money becomes more expensive. This could make your current revolving debt—like credit card debt—harder to repay.
Check if Your Finances Are Recession-Ready
Among the key challenges of a recession for most families are layoffs and cuts to work hours. To make your finances recession-ready, be prepared for less income.
Step one is to go over your finances with a fine-toothed comb. You need to have an accurate picture of your total financial situation. That includes your income, assets, debts, and expenses, including who you owe, how much your minimum payments are every month, and the interest rates on your debts.
Laying out all the details helps you discover where to shore up your financial foundation to better prepare for a recession.
Pay off Excess Debt Before the Recession
Paying off debt is easier said than done, it’s true. But you'll be in a better position to weather a hit to your income if you pay off high-interest debt before the recession (or at least reduce it). Here are a few strategies to help you:
Cut expenses. Every dollar you put toward your high-interest debt can help. Review all of your spending. For example, rate-shop your insurance and phone service, look for ways to decrease your energy bill, and use the library for free entertainment.
Pay more than the minimum. Credit card minimum payments are designed to make debt drag out practically forever. You could pay down the balance much faster if you make more than the minimum payment every month. At the same time, avoid making new transactions. Log into your credit card account online and lock or freeze the card if that’s an option. You can always unlock it, but this could help you remember that you’re trying not to add new debt.
Work with a credit counselor. Credit counseling could help you improve your financial education, build a budget, and create a debt payoff plan.
Contact your creditors. In times of financial hardship, creditors may work with you to help you manage payments. This could include accommodations like a temporary pause in payments, a reduced interest rate, or fee waivers.
Research whether you qualify for Chapter 7 bankruptcy. If you have a lot of unsecured debt that you can't afford to repay, Chapter 7 bankruptcy might help you get rid of it. You might qualify if you don’t have much income left over after you pay your essential expenses (the cutoff varies depending on where you live).
Consider debt settlement. If you have a financial hardship and can’t afford to fully repay your debts, your creditors might be willing to accept less than you owe and forgive the rest. You can negotiate your own debts, or hire a professional debt settlement company.
Build a Recession Emergency Fund
After getting a sense of your debt situation and how you might pay it down, focus on building your emergency fund. Experts recommend an emergency fund of at least three to six months' worth of expenses, but anything you set aside helps.
An emergency fund is just what it sounds like: a savings account just for emergencies. Your emergency fund should ideally live in a high-yield savings or money market account where you can access it quickly.
Add Recession-Proof Income Sources
Alright, so nothing is completely recession-proof. An economic downturn can impact any income source. However, adding extra sources of income can help lower the risk to your overall income level in a recession. Consider these ideas:
Focus on jobs that provide services for basic needs. Even when times are tough, people need healthcare, communication, and utilities, home and lawn services, and other essentials.
Freelance using skills. We all have something we're good at, so think about what skills you could turn into a side hustle for extra income. Now may also be a good time to learn new skills for in-demand roles to increase your options.
Become a tutor. Any skill you can monetize you can also teach to others, usually for a profit. You can tutor in-person or online. Advertise your services on your own, or join a tutoring agency that finds clients for you.
Find rental income. If you own a home and don't mind downsizing, you could potentially rent out your house and rent a cheaper home for yourself, coming out ahead. Even renting out your garage or a room in your home could provide a nice boost to your income every month.
Find Healthy Ways to Manage Recession Fears
One symptom of a recession that's hard to prepare for is the way it makes us feel. Recessions are often associated with a general feeling of economic unease and uncertainty about your financial future.
There are ways to make recession and debt stress easier to manage:
Write it out. Get your finances organized, and make a plan. Put that plan into writing, and re-read it when you're anxious. Having an action plan can do a lot to help you deal with uncertainty.
Talk about it. Reach out to a trusted friend or family member to discuss your fears. You can also search for an online or local support group dedicated to debt stress and debt management.
Exercise. It may sound strange as financial advice, but regular exercise is excellent for relieving debt and financial stress, and can also help with insomnia.
Seek help. You don't have to do this on your own. You have the resources to make it through whatever comes your way.
Debt relief stats and trends
We looked at a sample of data from Freedom Debt Relief of people seeking a debt relief program during June 2025. The data uncovers various trends and statistics about people seeking debt help.
FICO scores and enrolled debt
Curious about the credit scores of those in debt relief? In June 2025, the average FICO score for people enrolling in a debt settlement program was 594, with an average enrolled debt of $26,445. For different age groups, the FICO scores varied. For instance, those aged 51-65 had an average FICO score of 591 and an enrolled debt of $28,619. The 18-25 age group had an average FICO score of 556 and an enrolled debt of $15,107. No matter your age or debt level, it's reassuring to know you're not alone. Taking the step to seek help can lead you towards a brighter financial future.
Student loan debt – average debt by selected states.
According to the 2023 Federal Reserve Survey of Consumer Finances (SCF) the average student debt for those with a balance was $46,980. The percentage of families with student debt was 22%. (Note: It used 2022 data).
Student loan debt among those seeking debt relief is prevalent. In June 2025, 27% of the debt relief seekers had student debt. The average student debt balance (for those with student debt) was $48,703.
Here is a quick look at the top five states by average student debt balance.
State | Percent with student loans | Average Balance for those with student loans | Average monthly payment |
---|---|---|---|
District of Columbia | 34 | $71,987 | $203 |
Georgia | 29 | $59,907 | $183 |
Mississippi | 28 | $55,347 | $145 |
Alaska | 22 | $54,555 | $104 |
Maryland | 31 | $54,495 | $142 |
The statistics are based on all debt relief seekers with a student loan balance over $0.
Student debt is an important part of many households' financial picture. When you examine your finances, consider your total debt and your monthly payments.
Regain Financial Freedom
Seeking debt relief can be the first step toward financial freedom. Are you struggling with debt? Explore options for debt relief to regain control of your finances. It doesn't matter how old you are or what your FICO score or credit utilization is. Take the first step towards a brighter financial future today.
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Author Information

Written by
Brittney Myers
Brittney is a personal finance expert and credit card collector who believes financial education is the key to success. Her advice on how to make smarter financial decisions has been featured by major publications and read by millions.

Reviewed by
Kimberly Rotter
Kimberly Rotter is a financial counselor and consumer credit expert who helps people with average or low incomes discover how to create wealth and opportunities. She’s a veteran writer and editor who has spent more than 30 years creating thousands of hours of educational content in every possible format.
How does credit card debt impact unemployment benefits?
It's more difficult to make regular debt payments while unemployed. On the other hand, unemployment might help convince a creditor to accept less than you owe. There's also a question of whether unemployment benefits can be garnished to pay credit card debt. This varies from state to state.
Can you stop credit card payments if you're unemployed?
If you're unemployed, you can stop making credit card payments, but that could trigger late fees and lead to your account being sent to collections. A better solution is to reach out to your credit card issuer to find out if any hardship or forbearance programs are available that might give you a temporary break from having to make payments.
Should I request severance over several payments instead of a lump sum to save on taxes?
First, unless your income at year-end is higher than the previous years’ income, you won't paya higher tax rate on your severance pay.
However, a large severance payment could push you into a higher tax bracket. If you're nearing the end of the year and can request severance over several payments paid in different years, you may be able to avoid this.
Receiving a lump sum severance payment can also increase the percentage of your severance that the employer withholds for taxes. If your employer agrees, you could reduce this amount by taking your severance as a series of payments.
Keep in mind that receiving regular severance payments from your employer might delay your eligibility for unemployment compensation in some states.