While the economic outlook is in flux, it’s never too late to prepare your finances so you can weather the storm. Here are 4 ways you can start recession-proofing your finances.
In This Article
1. Pay down debt
Using the next few months to pay down debt, specifically high-interest debt, can be crucial for your financial wellness. While you may not get down to zero, prioritizing what debt to pay off can help give you the breathing room you need in your budget.
Start by focusing on credit card debt. There are three options you have to help you pay down credit card debt:
- Tackle by highest interest (like the debt avalanche method)
- Pay off the lowest balance first, such as the debt snowball strategy
- Consolidate your debt with a balance transfer card, personal loan or home equity line of credit (HELOC)
Once you get a handle on your credit card debt, you can start paying down other loans that have higher interest rates, like an auto loan.
2. Build an emergency fund
As you pay down high-interest debt, it’s important to also start building up your savings so you’ll have cash available for emergencies.
For instance, if you’re able to consolidate your credit card debt, the monthly financial cushion in your budget could go toward your savings.
It’s important to make sure whatever you set aside doesn’t create more debt or financial stress. Start out small if you have to – every bit helps.
While most financial experts recommend that your emergency fund has enough to cover three to six months of income, the answer depends on your budget.
3. Live within your means
Managing your money, so you live within your means is easier said than done. Experts say that when you live within your means, you spend at most 30% of your income on things like clothes, groceries and entertainment.
This is where making a budget comes in handy. Start by cataloging every expense – rent, mortgage, car payment, groceries, entertainment – so you understand precisely where your money is going.
Take it further by tracking every dollar you spend weekly to identify where you can save. You may be surprised by what you discover when you break your budget down like this.
4. Keep your credit score in check
Good credit is always important to maintain, but it’s especially crucial during a recession. Your credit score impacts your ability to borrow money, obtain insurance, even get a job in some states.
That’s why now is a good time to figure out where your credit score stands and clear up any blemishes on your credit report.
You’re legally entitled to one free credit report every 12 months from the three main credit bureaus – Equifax, Experian and TransUnion. You can access your report by visiting AnnualCreditReport.com.
If you need to dispute a problem on your report, here are the steps to take to correct any errors.
While it’s hard to predict what will happen over the next few months, it is possible to prepare financially for an economic recession. If you’re already struggling with debt, here are other options to save while on a tight budget.
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Eligibility for a home equity loan or HELOC up to $500,000 depends on the information provided in the home equity application. Loans above $250,000 require an in-home appraisal and title insurance. For HELOCs borrowers must take an initial draw of $50,000 at closing. Subsequent HELOC draws are prohibited during the first 90 days following closing. After the first 90 days following closing, subsequent HELOC draws must be $1,000 or more (not applicable in Texas).
The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Spring EQ borrowers get their cash on average in 26 days. The time period calculation to get cash is based on the first 6 months of 2022 loan fundings, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications.
Spring EQ cannot use a borrower’s home equity funds to pay (in part or in full) Spring EQ non-homestead debt at account opening. For HELOCs in Texas, the minimum draw amount is $4,000. To access HELOC funds, borrower must request convenience checks.
Interest rates may be adjusted based on factors related to the applicant’s credit profile, income and debt ratios, the presence of existing liens against and the location of the subject property, the occupancy status of the subject property, as well as the initial draw amount taken at the time of closing. Speak to a Prosper Agent for details.
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