How to prepare for the next economic Recession

The economy’s starting to show signs of weakness; time to Prepare for potential financial hardships
From Fred O. Williams  |   Published: August 15, 2017

Senior ReporterExpert on consumer credit laws and regulations

The economic recovery has reached old age and may be slowing
Down, making this a good time to prepare for the hardships — a few of these surprising
— that a recession brings.
There is more to worry about than a pink slip, financial specialists
“There are so many other things you may need to confront in
An economic downturn that may not be directly related to your employment
Situation,” said Bruce McClary, a former credit counselor and now vice
president of communications at the National Foundation for Credit Counseling.
Less severe problems can affect greater numbers of people
Than job loss, for example:


Now’s the time to get your financial situation in the best possible shape to face an eventual recession.Adjust your budget.   Avoid depending on extra income such as bonuses or overtime hours.
Pay card debt off.   If you can not, consider options to fund your balance while you whittle it down.
Beef up your savings.  Be sure to have sufficient funds for an emergency.
Reduce set expenses. Start looking for contract-free options on services like telephone, internet, cable.


Adjust your budget.  Avoid depending on extra income such as bonuses or overtime hours.
Pay card debt off.   If you can not, consider options to fund your balance while you whittle it down.
Beef up your savings.  Be sure to have sufficient funds for an emergency.
Reduce set expenses.  Start looking for contract-free options on services like telephone, internet, cable.

1. Loss of bonuses,
overtime hours. “Employment data can be a little misleading,”
said Kelley Motley, director of analytics at Experian. “It does not take
into account underemployment.”
Extra income that has become built into
People’s budgets can vanish quickly when companies begin to feel pinched. The
Sudden loss of income can cause missed payments that trash your credit score
And unleash debt collectors. What to do: Fix your budget today to
Avoid depending on extra income such as bonuses and overtime. Use any Excess cash to strengthen
Your financial posture instead. “My advice to people is always to plan a
Budget without regard to bonuses and pay commissions,” McClary said.
“Use that to build savings and pay down debt.”  
2. Tighter credit
availability. For example, people who rely on switching a high-interest balance to a
0-percent balance transfer card will see that option become less available as
Card issuers attempt to lower their exposure to risk of not being paid back. Bankers
have predicted higher
Defaults on credit cards in 2017, and surveys of consumers support the
idea that cardholders will have
increasing difficulty meeting minimum payments on time. What to do: If you can not pay off a
Equilibrium, check into alternative ways to fund it — for example informal loans from
family or a side gig — while you whittle down your debt. Credit
Counselors say many two-car families can get by with one car, supplemented with
Ride sharing and public transit. That can save big on insurance and payments while
Making a lump sum of money to pay down debt. 3. Credit limits may be reduced and accounts closed. Credit card issuers can dial back your credit
Limit or even close your accounts to shield themselves from risk. During 2008 to
2010, credit card limits decreased 28 percent, according to study
From the Federal Reserve Bank of New York. That is bad news for consumers, many of whom rely on credit as a
Stopgap to cover necessities when the market causes a shortfall in their incomes.  
What to do: Pay down accounts now
And beef up savings to supply emergency funds. “There is nothing worse than
Losing your job or getting hours cut back while carrying a balance you were
Barely able to maintain under the best of circumstances,” McClary said.  
4. Contract payments
built into budget.Contracts build
Expenses into the monthly budget, making them difficult to cut back, credit
counselors say.
“If you are under a two-year contract with your phone and your
Cable, it is not always simple to escape that arrangement,” said Joan
Reading, president of the Credit Counseling Center in Richboro, Pennsylvania, near
Philadelphia. “When there’s a change of circumstances, it is very hard to

What to do: Make
Note of this contract expiration date and plan ahead, she said. Can you go month to
Month at that point? Will equipment be paid off, reducing monthly costs? If
Service is really a necessity, explore options for reducing the price, such as
Buying equipment (telephone, router, etc.). Having more flexible plans will help
your budget absorb shocks. If a financial squeeze hits, it may be necessary to cover
A fee to end the contract early, Reading stated, a money-saving move that many
Folks dislike.

Video: How a side hustle can help you repay debt

Reasons to be prepared today
The market has been expanding since hitting bottom in mid-2009, based on
the National Bureau of Economic Research. That makes this recovery three years
Longer than the typical growth cycle in the U.S. since 1945. If it reaches 10
Years, it will tie the record for the maximum expansion.
Maybe the slow pace of the recovery will allow it to run
Longer than ordinary, but the chances of it end get stronger as time goes
on. The American Bankers Association
Economic Advisory Committee (EAC) is bullish about the expansion, putting the chances of
A recession at just 15 percent this year. That rises to 23 percent in 2018, and
32 percent by 2019.
Economy is back;
Buying power, not so muchWhile the expansion has brought jobless levels
Down below 5 percent, it has not done so well at boosting people’s paychecks.
Household real income — that is, after deducting for inflation — is taking its
Time catching up to pre-recession
levels, according to the U.S. Census Bureau. The median household income was
$56,516 in 2015, still 1.6 percent below the pre-recession level reached in
Consequently, many households are short on resources to
cushion against the unexpected. Forty-six percent of respondents in a Federal
Reserve study said they’d have trouble paying an unexpected expense of $400
Without borrowing some of the cash or selling off something.
“Many people are living paycheck to paycheck,” Reading
“The extent of the improvement in 2018 will depend largely on the size and composition of fiscal stimulus.”
What 2018 could bringWith the market already at or near full employment,
“The extent of the improvement in 2018 will depend largely on the size and
Article of fiscal stimulus,” ABA’s EAC chairman Christopher Probyn
said in a news release. Probyn is chief economist at State Street Global
Whether Washington can agree on stimulus measures — such as
Tax cuts and spending increases — remains to be seen, however. Meanwhile, fears of a U.S. debt default are building, with possibly dire financial consequences. A June report from the Congressional Budget Office says the Treasury will run out of money in early to mid-October, with no increase in its borrowing limit. Congress appears headed for a battle over the issue, as anti-deficit members are seeking spending limits as a condition for raising the debt ceiling.
Of course, the future defies prediction. Some analysts point
To the possibility of a prolonged period of economic stagnation rather than
Recession, with stable employment but small improvement in living and income
If a recession does come, economists say that it will likely hit some regions and industries harder than others — in the way that the 2008-2009
Downturn hit overpriced housing markets hardest, wiping out families’ wealth in
In the Detroit area, for Example, the ups and downs of fabricating have
Conditioned people not to take income and jobs for granted. “With all the
Auto sector buyouts, the notion of being elastic, going to community college
To get retrained, is something that’s fairly common in this area,” said Katie
Bossler, financial counselor at Greenpath Financial Wellness in Michigan.
See related: To keep on budget, click ‘unsubscribe’, Bad credit? It’s getting tougher to get a card

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