A Recession May Be Coming. Here’s How to Prepare

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It’s important to be recession-ready at all times. Read on to see how you can gear up for one. [[{“value”:”

When the Federal Reserve raised its benchmark interest rate numerous times in 2022 and 2023 to fight inflation, the fear was that higher loan and credit card borrowing rates would lead to a decline in consumer spending and cause a recession.

But that hasn’t happened so far. The economy has remained resilient despite the Fed’s rate hikes. Plus, the Fed has already started cutting its rate in response to a slowdown in inflation. So you’d think we’d be in the clear as far as a recession goes.

In spite of that, the Federal Reserve puts the probability of a recession in the next 12 months at 57%. And while that doesn’t guarantee that things will take a turn for the worse in the coming year, it’s still something everyone should prepare for. Here’s how you can get yourself recession-ready — and minimize your stress if economic conditions do, in fact, decline.

1. Boost your savings

Economic recessions aren’t always painful and drawn-out. But they can lead to an increase in job loss. To prepare for that, aim to boost your savings so you have enough money to cover at least three full months of essential expenses. That way, if you were to lose your job, you’d have a way to pay your bills without having to resort to expensive credit card debt.

The good news is that savings accounts are still paying pretty generously these days, so you can earn a nice return on the money you’re keeping around for emergency fund purposes. Click here for a list of the best savings account rates available today.

2. Grow your job skills

Losing your job can be a scary thing. But the more professional skills you have, the easier it becomes to find a new role.

If you’re concerned about job loss, first decide if you want to stay in your current industry. If you do, consider some of the skills you’re missing that could help you get hired elsewhere in a similar position.

If your job tends to require presentation skills but you’re not good at that, you might consider taking a course in public speaking. If you have an IT job and there’s a popular programming language you’re unfamiliar with, learn it.

At the same time, don’t underestimate the value of networking your way into a new job. Often, getting hired boils down to having the right connections. So take the time in the coming weeks to check in with former bosses and colleagues. That way, if you end up needing to call in a favor, it won’t be out of the blue.

3. Reduce expensive debt

The less debt you have, the easier a layoff situation becomes. You won’t strain your emergency fund as much if you’re able to reduce your debt payments now, so take a look at what those are and figure out how you’ll whittle them down.

Generally speaking, it’s best to focus on paying off variable-interest debt like credit card balances first. Credit cards are notorious for charging high amounts of interest, so if you can reduce your balances, you’ll gain some peace of mind while saving yourself money.

One option for paying off credit cards is to consolidate them into a personal loan. The benefit is that the interest rate you pay on a personal loan will likely be much lower than what your credit cards charge you. And your loan payments will be fixed, which may make them easier to work into your budget. Click here for a list of the best personal loan lenders.

Another option for reducing credit card debt is to do a balance transfer, where you move your existing balances onto a single card — and, ideally, one with a 0% introductory interest rate. Getting a break from accruing interest could make it easier to pay off your debt. But do know that once your introductory period comes to an end, the interest rate on your credit card might soar.

So shop around for a longer introductory period. Some credit cards give you a break on interest for more than a year. Click here for a roundup of the top balance transfer credit cards.

The idea of a coming recession may be scary, and understandably so. The good news is that there’s no guarantee the economy will decline in the coming year, despite the Fed’s projections. But it’s always best to play it safe and prepare for a recession by taking these key steps.

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