According to Bankrate’s latest economic indicator survey, economists say there is a chance (36%) of at least a third of the recession in the next 12 months. A recession is bad news for everyone, and even worse if you have expensive credit card debt.
According to the latest data from Experian, the average credit card debt is $6,730. It can be difficult to face risk during financially challenging times with such amounts of debt. And removing debt is usually a difficult task.
The prospect of bringing your credit card balance into the recession is a valid concern. This is because credit card issuers often tighten underwriting in a recession, making it difficult to access additional credits when needed.
Why you should prioritize credit card debt if you are worried about a recession
We are not in a recession at the moment. Predictions are everywhere as to whether it will be at some point in the near future.
For example, when President Trump announced a massive tariff in April, JPMorgan estimated a 60% chance of a recession this year. By May, tariffs had been dramatically reduced. JPMorgan now sets the risk of a recession below 50%.
Access to credit can be important during economic downturns. It’s a credit card that people often have to use when other options are exhausted, such as relying on savings.
“The bank (credit) cards that issue them are fully aware that there is a possibility of a recession coming, and will strengthen new credit opportunities,” Lynch says. “Storing the credits you have and paying back the balance is a good way to really prepare.”
If you have credit card debt, how to prepare for a recession
It is difficult to deal with credit card debt even at such unstable times. However, it is particularly important to be systematic about this issue amidst financial uncertainty.
Don’t panic
You may feel urgent, but don’t inspire you to action without a strategy. Otherwise, you can choose a wise solution or take irrational actions.
“You can’t panic,” Lynch says. Like inaction, panic explains that it tends to lead to negative outcomes. “You have to create a plan and stick to it.”
Modify your budget to focus on your debt
Look at your budget and see how you can get rid of your debt faster by making room for higher credit card payments. This includes reducing certain costs or seeking additional revenue streams.
Lynch explains that repaying your card balance will help with your credit score. This is because credit usage is the most important credit score factor after your payment history. He will be responsible for 30% of his FICO score. This means that even if you still can’t fully repay your debt, reducing the amount of credit lines you use can help you with your credit. Also, due to their high score, it’s easier to qualify for additional credits in case they’re needed in a recession.
Consider the possible recession scenarios
Plus, prepare your budget for a variety of situations.
“You can try out some scenarios you might encounter during a recession,” Lynch says, providing examples such as loss of income and a certain percentage of it. “(This is) what we call crisis budget… if it’s a married couple, see what they need to do to get along with just one spouse’s income.”
Some versions of budgets tailored to such scenarios have solid plans that depend on whether they will be true or not.
Be careful of debt repayment tools
As you’re working on paying off your debt, you can look into some tools that will help you save interest and repay your balance faster.
For example, a balance transfer card offers an introductory promotion period where you do not pay interest on the transferred balance. Some of these cards offer a 21-month introduction period. If you can repay your debt during that period, you can save a large amount on your interest fee. Once the period ends, the card’s regular APR begins.
Similarly, debt consolidation loans allow you to pay off your credit card and take on a single loan instead. Ideally, the interest rate would be low.
Whichever tool you choose, it’s important to stop charging your old card while you’re paying off your debt.
“The biggest risk is when people defeat balance, but don’t change the behavior that created those high balances in the first place,” Lynch says. “They get a consolidated loan… but they will start charging their cards soon.”
When that happens, you’re not only still in debt, but you’re adding to it too. If you think you might fall into this pattern, these solutions may not be the best for you.
Another thing to avoid is to work with debt settlement companies to find quick results. In addition to being an expensive service, you can’t promise guaranteed results (if that’s definitely a scam). Additionally, debts can have a significant negative impact on your credit score as they must stop paying the debt during negotiations.
Save money if possible
If you pay off your debt, congratulate us on this great success. But don’t stop there. The next step is to keep your credit card balance at $0 while focusing on saving money.
Financial safety nets are especially important during recession times. It prevents you from stealing money from sources like your retirement fund or investment and preventing you from borrowing money. And on an emotional level, savings can make you feel safer and more prepared.
It is generally recommended that you maintain a base cost of at least 3-6 months in the emergency fund. However, if you are worried about a recession, it can help you save more. Even a prolonged unemployment rate in this way does not cause financial difficulties.
Keep your savings in a savings account for a 2 year old, making it easier to access while growing your emergency funds faster.
Conclusion
No one can tell you whether the recession will hit or not. But you don’t need them. It is always a good idea to prioritize credit card debt repayments and savings. No matter how the economy is throwing you, a $0 credit card balance and a funded savings account can help you survive any storm.