The U.S. economy has been expanding for the last 10 years, but according to experts this likely means that we’re due for a recession.
It may occur as early as the start of 2020, and it’s sure to affect young, middle class people who have debt the most. On average, working class individuals and family are in much further debt than those in the 90th percentile of wealth distribution. From 1989 to 2019, working-class families owed an average of $6,114 more than families between the median and the 90th percentile of the wealth distribution.
While recessions aren’t good news to anyone, this one will likely hit millennials ages 22-38 the most, who are still suffering the effects of the previous recession. Millennials might even be the first generation in modern economic history to be worse off financially than their parents.
After suffering from an increase in college tuition rates, millennials entered into the worst job market in 80 years, and they are earning 10 percent less than Baby Boomers were at the same age, despite the economy booming. And just as millennials are entering their prime earning years, the recession might cause them to have lower wages, lower hours, or even be let go from their jobs completely.
So, what does all of this mean for people who are already struggling with debt, even while the economy is currently expanding? PCS Debt Relief offers the following information and pieces of advice for preparing for the upcoming recession:
The Recession Affects Those in Debt the Most, and Those in Debt Affect the Recession
A recession is often caused in part by high public debt, too-low interest rates, and a lessening of public spending in contrast to the economy’s level of production.
This means that when the economy is booming, interest rates are low enough for people to spend more money and even acquire more debt without having the same fears about being able to pay it off. People consume more, demand rises, and so does production in turn.
But when the recession hits and interest rates rise, wages decrease, and employment can be taken away, people stop spending, while over production continues. Consequently, producers make cuts to their workforce in order to compensate for lower profits and their stocks fall, which can also affect employees 401K contributions.
The people who are in debt going into a recession are always the worst off. Debt free people may continue to spend like normal. In fact, people in the upper class with high wages may be completely unaffected by the recession.
Alternatively, People who carry a lot of debt are disproportionately lower class and minority individuals. In this way, the U.S. is prone to cycles of extreme recessions due to its level of inequality. Having debt and living paycheck to paycheck is what makes you vulnerable to a recession—and it’s what makes you spend less and influence the economy in turn.
Prepare Yourself for the Worst and Plan Ahead
While you can’t do anything to prevent the recession, you can take steps to protect yourself. While the economy is still in an upturn it is the perfect time to prepare.
While you may even be comfortably managing your payments now, the inevitable economic downturn will have huge implications that may entirely change your circumstances.
Even if you are faring ok now, you should mentally prepare yourself for the worst-case scenario. For example, if you got laid off, would you have enough in your emergency fund to support yourself for 3-6 months?
If your health benefits are taken away, will you be able to afford your prescriptions? While you have benefits and an income, take advantage. Complete all of your annual appointments and put away as much money as possible.
If you think you may need a loan in the near future, consider getting it now. During a recession, lenders are likely to be more careful about who they approve for a loan—so if you have strong credit now, it might be the time to act.
If you feel secure with your current employment, do everything you can to stand out and be a valuable asset. This can protect you from potential lay-off, pay cuts, and hour decreases.
Even if you do feel secure, consider a side gig as a back-up source of income just in case. If nothing else, this will help you put aside more money for an emergency fund or to pay off debts.
Prioritize Your Finances
Of course, the best thing you can do to protect yourself during a recession is pay off your debts completely—but contributing as much as you can now will still help you down the road. If you have any extra money, use it to pare down your debt.
While the economy is booming now and you may be tempted to splurge on a shopping spree, expensive trip, or new car, resist the urge! It may be hard to live frugally when you have been working hard and feel a bit ahead in your payments, but anything can happen in the next few years to change that.
You may even consider removing yourself from social media in order to avoid feeling the need to impress and compete with others’ lavish lifestyles.
Consider if there are any extra expenses that you can do without, such as cable and streaming subscriptions.
Alternatively, you may be so entrenched in debt that this doesn’t apply to you because you have no extra money. If you’re in this situation, consider this news the sign you need to seek out help from a credit counselor.
We can offer you a variety of debt relief options, and we won’t charge you a thing for your consultations until we get your results. But whether or not you chose to work with a professional, it is crucial to establish a plan for bringing down your debt.
If you need help putting together a budget and making a long-term financial plan, PCS Debt Relief can help with our debt relief services that are tailored to your needs. We understand the burdens and stress that debt creates, and we’re here to help you every step of the way. Call (636) 209-4481 for a free consultation to achieve financial stability.