Top 5 Secret Ways To Manage Debt During Recession In 2023

Under the current economic conditions, you may wonder how you can pay down your debt while keeping financially afloat (if you have a debt to repay). Variable and high-interest debt should be paid off before a recession. However, it is also important to save money during a recession, especially if you don’t have much of a safety net.

That’s why we have curated a list of the 5 most useful debt management rules, which will hopefully help you to combat the recession. 

What is the best way to manage debt?

If you’re looking for a better way to manage your debt, with the goal of reducing it or eliminating it altogether, you’ve already taken the right steps. Some debt isn’t terrible – a mortgage can help you own a home, and can also build wealth. Whereas high-interest credit card debt can make your financial goals difficult. These are some tips on debt management you can follow.

  • Create a budget: 

Knowing how much money you have coming in and going out can help you better manage your debt and expenses. Create a budget to help you understand your financial situation and identify areas where you can cut back.

  • Prioritize your debts: 

If you have multiple debts, prioritize which ones to pay off first. For example, you may want to focus on paying off high-interest debts first or debts that are in danger of being sent to collections.

  • Consider consolidating your debts: 

If you have multiple debts with high-interest rates, consolidating them into a single loan with a lower interest rate can help you save money on interest and make it easier to manage your debts. The two most easy ways to consolidate your loans are discussed below.

  • Take a personal loan:

The easiest way to consolidate your loans is to get a personal loan. It is likely that if you have a good credit score, you will get one with a lower interest rate than the one you currently have. You can also find personal loans with flexible repayment terms, which will make things easier for you.

  • Perform balance transfer:

A balance transfer credit card would be extremely useful if you have a lot of credit card bills to pay. But just like a personal loan you need to have a solid credit score to get a good balance transfer card.

  • Negotiate with your creditors: 

If you are having trouble making your monthly debt payments, reach out to your creditors and explain your situation. They may be willing to work with you to find a solution, such as temporarily reducing or suspending your payments or modifying the terms of your loan.

  • Look for additional work:

It is common for companies to make cuts during a recession. Therefore, it is always a good idea to have a backup plan. The side hustle can be a small business, or it can be part-time recession proof jobs

You can use these small side incomes to stretch your emergency fund for at least a few months if anything happens to your job.

  • Seek professional help: 

If you need some help with debt management and are trying to figure out where to turn, consider seeking the help of a financial advisor or a debt management service. They can provide you with guidance and support as you work to get your debts under control.

How to prepare for a recession?

While recessions can hit anytime, quickly and unexpectedly, it is always a good idea to stay prepared so that you are prepared when the next economic crunch occurs.

  • Build an emergency fund:

Every time you have some extra cash in your hand put it in a separate savings account. Experts suggest that you should have at least five to six months’ worth of living expenses in your emergency fund.

  • Make a budget:

It is always a smart idea to stick to a budget, you don’t need to wait for an economic downturn to start budgeting. You can put the excess money in your emergency/retirement fund.

  • Improve your skills:

You should always work on your skills, and learn new skills. Professional development can make you a more valuable and competitive employee to the employer.

  • Make repayments on time: 

Make sure to pay off your debts on time, so that they won’t pile up and cause you trouble when a recession hits. 

What to do if you can’t pay off your debt?

However, even if you follow all the above-mentioned advice, sometimes it becomes extremely difficult to clear off the dues. Here are the steps you can take if it becomes impossible for you to clear your outstanding.

  • Shape your budget:

The first thing you should do is cut off your budget. Cutting off your non-essential expenses would give you the ability to pay down your debts.

  • Talk to your lender:

If you have a good repayment history, your lender may allow you some leverage, such as some extra time to pay off your dues, or a more affordable payment option with a lower interest rate or with a lower monthly payment option. 

  • Seek credit counseling:

If you think you are going deeper and deeper into debt, then it would be a great idea to go for credit counseling with an accredited non-profit agency.

  • Go for a debit settlement:

If you don’t have any other way to repay your debts fully, then debt settlement would be your last option. It is the process of negotiating with your debtors, you can do it yourself or contact a debt management company to do it for you. 

It’s important to remember that managing debt during a recession can be challenging, but it is not impossible. By taking a proactive approach and seeking help when needed, you can work to get your debts under control and improve your financial situation.

FAQs:

  • What is a debt management plan?

A debt management plan allows you to pay your dues at an affordable rate. It is an agreement between a debtor and a creditor that addresses the terms of an outstanding debt. Proper debt management planning offers debtors some relief by reducing the interest rates or monthly repayment amount.

  • What is dwp debt management?

DWP stands for Department for work and pensions, and debt management is a part of their work. The dwp debt management service collects outstanding social fund loans, NHS costs related to injury cases, tax credit overpayments, etc.

  • Is debt management a good option?

Debt management plans can simplify your payment terms. Also, if your debt management program includes interest rate reduction and fee waiver options, then things will be much easier for you.

  • What is a recession?

A recession is a significant, widespread, and prolonged decline in economic activity. One of the major recession indicators is two consecutive quarters of negative gross domestic product (GDP).

  • What causes a recession?

A recession usually occurs when there is a widespread decrease in spending. Events such as a financial crisis, an external trade shock, an adverse supply shock, the burst of an economic bubble, or a large-scale natural disaster (e.g. a pandemic) can trigger this process.

  • How long does a recession last?

Since 1854, the average recession has lasted 17 months, according to the NBER (National Bureau of Economic Research)

  • What is the difference between recession and depression?

The major difference between recession and depression is, recessions usually last between two and 18 months and are characterized by widespread economic decline. Whereas Depressions are longer downturns that last for years. The Great Depression is the most famous depression in U.S. history. It lasted for a decade.

  • What jobs are recession-proof?

Jobs like education services, medical services, law enforcement, and financial services are some of the jobs that are considered recession-proof.

  • What happens if I stop paying my debt management plan?

As soon as you stop making your debt management payments, the debt management agency will inform your creditors about it, and they will start charging you high interest and late payment fees again.

  • Does a depression always follow a recession?

In every depression, there will also be a recession, as the severity of the economic decline distinguishes a depression from a recession.

Disclaimer: I am not a certified financial adviser and this is not financial advice. The purpose of this article is to inform you about financial products and strategies. Consult your financial advisor before making any financial decisions.

 

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