Are you prepared for the next recession? If you think a stash of food and water is enough to get you through the next big recession, think again.
While it’s important to feed your family, how will you pay your credit card debt?
Nobody knows when the next recession will hit and you don’t want to be in debt when that happens. If you’ve been thinking about increasing your efforts to get out of debt, here are 5 reasons to make it happen before the next recession hits.
1. You might need to file for bankruptcy
If you have major credit card debt, a recession could make it difficult or impossible for you to pay your bills. If you can’t pay your credit card bills, your account(s) will fall into delinquency.
Although we’re not currently in a recession and former Federal Reserve chairman Ben S. Bernanke doesn’t see a recession in the near future, delinquencies are already on the rise. A recession would further skyrocket those delinquencies.
If you end up with multiple accounts in collections, you might need to file for bankruptcy to avoid losing your home or car.
2. Paid debts will free up cash you can use to repair your credit
If you’re done paying old debts when a recession hits, you can use your free cash to rebuild your credit. For instance, you can get a secured credit card with a low limit and use that to pay your bills and reestablish credit a little bit at a time.
You might qualify for a small line of credit. However, if you think you’ll struggle to pay the bill, only use a line of credit for a set amount each month so your bill is predictable. For the remainder of your expenses, use a prepaid credit card. Prepaid credit cards won’t affect your credit, but they will make life easier if you’re required to use a credit card for certain transactions you can’t afford to put on a real credit card.
Just make sure you choose the right kind of card for your intended purpose. When you understand the difference between prepaid credit cards and credit cards, you’ll have an easier time managing your finances during a recession.
3. When a recession hits, you’ll struggle harder to pay existing debts
If you think you’re struggling to pay your debt now, wait until a recession hits. With credit card interest rates on the rise, a recession will only make it harder to keep up with payments.
Current credit card interest rates are higher than they’ve been in a long while. In September 2019, CNBC reported a national average of 17.61%. To put that into perspective, interest rates were just 13% when the 2007 recession began.
Depending on the industry you work in, you could see reduced hours, reduced pay, or you might even get laid off. Work on paying your debts while you’re in a decent financial position. Don’t wait too long – recessions can be unpredictable.
4. You might need a loan during the next recession
If the next recession hits your finances hard, but you’ve already handled your debts, you won’t feel the impact as deeply as others. Especially when you need to take out a loan.
With decent credit during a recession, you might be one of the few people who qualify for a loan or a credit card.
You might need money to survive during a recession. Existing bad credit will bar you from getting a loan. Repair your credit ahead of time so you’re not sideswiped by a recession and left without the funds necessary to survive.
5. You might need money to run your business
During a recession, banks are hesitant to hand out business loans. A recession slows down commerce on all fronts, and banks need to be careful about handing out loans to businesses that may not be able to pay it all back.
To sidestep this, you can tap into your personal credit to get a small loan to keep your business going. However, if your personal credit is bad, that won’t work.
If you repair your credit now, you’ll be thankful in the future when you need to tap into that good credit to get a loan.
Don’t wait one more day – start repairing your credit now
The best way to ensure you, your family, and your business survive during a recession is to fix your credit now so you have a financial lifeline when the next recession hits.