How to Prepare for a Recession
When discussing the economy, the term recession is often thrown around. Recessions are hard to define, in no small part because the term gets used so often. In the broadest terms, a recession refers to consecutive periods where the gross domestic product (GDP) shows negative growth. This is caused by an overall drop in employment and manufacturing activity. During a recession, jobs are harder to find, and even if you are employed, you are less likely to spend your money, which causes more damage to the economy.
Typically, a recession only lasts for a short period of time, but it has a considerably long-lasting effect on the economy. After the 2008 recession, it took nearly four years for the U.S. economy to fully recover. As of writing, economists are predicting another recession, or at least recession like symptoms as a result of the Coronavirus. There's no denying a recession is bad, but there are several steps you can take to lessen the effects until the economy bounces back.
Best Credit Card Tips for the Recession
Most Americans rely on their credit cards to make purchases. Normally, the best credit card is whichever one gives you the best benefits, such as getting cash back or points with every purchase you make. During a recession, the rules are different. Your best credit card becomes whichever credit card has the lowest APR. APR stands for annual percentage rate. Your APR represents how much you pay in interest. Ideally, your best credit card has a fixed APR, which means the interest rate typically stays the same. Credit cards have different APR grace periods. During the grace period, any charges you pay off do not accumulate interest.
Some of the best credit card options include 0% APR, usually for a set period. You're still required to make a minimum payment each month, but you don't have to worry about incurring interest until your grace period ends. In most cases, the only way to get 0% APR is by signing up for a new credit card, which is difficult to do right before a recession. If you can't get a new card, make sure you are using whichever credit card has the lowest APR.
Eliminate Debt Beforehand
If you know a recession is coming and your job is at risk, it is important to pay off as much of your debt as you reasonably can. You don't have to pour all of your savings into paying off your debt. If you do this, you risk falling right back into debt when the recession hits.
Cut Unnecessary Spending
If you want to get through the recession, you must learn how to budget. Look at what purchases you make every month and cut down on nonessential spending. Many small expenses over the course of the month quickly add up, such as buying coffee every day on the way to work versus making it at home. You don't have to eliminate your personal budget entirely. The occasional luxury purchase is fine and a good way to manage your stress, but you must be realistic about how much you can reasonably put into nonessential items or services.
Before a recession, it is advised to cement your position at work. The more job security, the better chance you have of getting through the recession employed. If possible, take additional classes to improve your workplace skills. Try and take extra responsibilities to show how important you are to the company. Even if your company is hit hard and still forced to let you go, you can at least boost your resume and standout more in a crowded recession job market. Keep your limits in mind while improving your job security. If you burn out trying to prove you're a super employee, you're only increasing the odds of being let go.