On Surviving A Personal Financial Crisis - And Other Personal Finance Subjects Like Loans, Credit, Debt, Debt Management, And Saving Money

Many times when preparing for a recession people do not think of reducing debt as a strategy. But, if you have sufficient income and are able to save money to be used for surviving a recession and you have a good chunk left over you should really consider paying down your debt as a means of further protecting yourself from a recession.

Every bit of debt that you pay off increases your monthly cash flow. The better your monthly cash flow the better your chances are of surviving a recessions. Over the last thirty or forty years many people have used credit cards, home equity lines of credit, and other debt instruments as a means to live beyond their income capabilities. For some this strategy works but for most these debt instruments only delay the inevitable. When your financial life depends heavily on using credit cards you are building a financial house of cards. And, a recession is the wind that will blow down that house of cards. To avoid this scenario it used to be that people would declare bankruptcy to protect themselves. Bankruptcy laws have changed. It is now harder to declare bankruptcy. You also get less protection now from bankruptcy than in the past.

When a recession hits and you are the victim of a layoff or you no longer have access to credit your house of cards could very easily come crashing down around you. Paying off debt is one of the best presents you could give yourself. Leveraging this gift as a strategy for surviving a recession is a fantastic idea.

The next question is then which debt should I pay off first to maximize the affects for surviving a recession. Logically speaking, you would think that the best debt to pay off first would be the debt with the highest interest rate. That is true in good times. But, when you are looking at this from the perspective of surviving a recession the logic gets a bit off kilter. For surviving a recession paying down debt should be viewed as a defensive measure. You want to protect the most important things first. You want to protect your house and cars first. If you do not pay your mortgage your house can be foreclosed on. If you do not pay for your car it can be repossessed. But, if you do not pay for your credit cards they can only send the bill collector after you.

By, the same token, paying down high interest credit cards first could open up more monthly cash flow. So, if you already have a years worth of mortgage payments saved in the bank it may be better for you to pay down the credit cards first instead. What you decide to pay down first really depends on your unique financial situation. The point is to pay down the debt and pay it down smartly. Look at your finances, see what debt is costing you the most. Then look at how paying off specific debt will affect you financially. Will paying down that debt help you prepare for a recession? Will it help you survive a recession? And can you realistically pay it off without putting yourself into a financial pinch?

Pay off the home equity lines of credit first. Doing so removes one more possible point of failure that could cause you to loose your home. Then pay off the cars. Frankly, if I was worried about surviving a recession I would sell the cars I have and buy used cars for cash. But that is me. Some people just can not seem to take these types of steps. Paying off these two types of debt mean that your most important assets, your home and your cars, are safe. These are the two most important assets you have. If you have enough income left over then you can start paying off the credit cards and other debt, starting with the highest interest rate items first.

The point is that as a strategy for surviving a recession paying down debt can be the best thing to do for now and the future. But, you have to implement the strategy correctly to get the best results. Surviving a recession should not be hard. It does require a few hard decisions and a bit of good planning but anyone can build a strategy for surviving a recession if they put their mind to it.