Buzz
The U.S. economy has largely been growing since the 2009 Great Recession, but growth cycles are never permanent. While it's impossible to pinpoint exactly when the next downturn will strike, it is inevitable that one will eventually occur. Being financially prepared is crucial when that time comes.
With this in mind, here are a few steps you can take to ensure your financial stability.
Determine your financial priorities
If you're dealing with student loans but lack a solid emergency fund, Liz Weston, a personal finance expert, suggests allocating any extra money toward building your savings instead of focusing on paying down low-interest debt.
“Don’t hurry to pay off student loans or mortgages, particularly if you have high-interest debt or a small emergency fund,” she advises. “Extra payments toward the principal won’t typically reduce your monthly payment, and once that money is spent, it’s not available for emergencies.”
Your main focus should be on increasing your savings. If you’ve been heavily involved in investing, it may be time to scale back and move some of that money into your savings account. Remember, you can’t easily access your retirement funds without facing penalties and taxes. (This is another reason to prioritize a Roth IRA over a traditional one, as you can withdraw your contributions without penalties.)
“You should leave your stock market investments untouched for at least five years, ideally ten, so your portfolio has the chance to recover from market downturns,” writes Weston.
Focus on improving your credit score
“Lenders become more selective during recessions,” writes Weston. “They may freeze credit lines, close credit card accounts, and make new loans more difficult to secure.”
That’s why it’s crucial to focus on improving your credit now if it’s not where you’d like it to be. Keep your balance low, make timely payments, and work on clearing any high-interest debts you may have accumulated.
Here are a few resources to help improve your score:
First, understand how your score is calculated. The most significant factor is paying your bills on time each month, followed by the amount of your credit line you’re using.
Next, you can follow these steps to improve your score or even build it from scratch.
Don’t forget to review your credit report for any suspicious activity that could damage your score.
Finally, be careful with these “hacks” for boosting your score.
She also suggests keeping a backup credit card available in case you need an additional credit line. Only use the extra card for a few small purchases each month to keep it active, and be sure to pay off the balance fully each month.
