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What NOT to Do During a Recession
April 20, 2023
In an uncertain economy or an actual recession, you may be facing important decisions such as whether to purchase a car, invest in a risky stock, or become a cosigner for a family member. There are financial risks that everyone should seriously reconsider during risky economic times, including:
- Becoming a Cosigner: Even in the best of times, cosigning on a loan is very risky. If the person taking out the loan forgets to make a payment or is consistently late with their payments, it is your credit history that will be impacted and you could also be asked to make those payments. In an economic downturn, the risks are much greater since the person taking out the loan can lose their job. If you feel you have no choice and must cosign for a loan, it is important to set aside some money in case the worst happens.
- Taking out an Adjustable-Rate Mortgage: When buying a new home, you may choose to take out an adjustable-rate mortgage (ARM). In many cases, this may be a good move, especially if interest rates remain low. If the economy begins to falter, and you lose your job and interest rates increase, your monthly payments will increase. Late payments or non-payments will have an adverse impact on your credit rating, making it difficult to obtain a loan in the future.
- Taking on Debt: Taking out a loan for a car or home may not be a problem when the economy is doing well as long as you make enough money to cover your monthly payments and contribute to your retirement savings. However, if the economy takes a turn for the worse, your risk goes up, especially if employment is not stable. If you are considering adding additional debt to your financial portfolio, this could complicate your financial situation if you become unemployed or your income is reduced. In a worst-case scenario, you could even be on your way to declaring bankruptcy.
- Taking Your Job for Granted: In an economic slowdown, even large corporations can come under financial pressure. While this may simply mean cutting out the open bar at the holiday party, it could also mean cutting the shareholders’ dividends or laying people off. Most jobs become vulnerable during a recession so employees should do everything they can to make sure their employer maintains a positive opinion of their work product.
- Taking Risks with Investments: It is important to always be thinking about the future by investing money. However, a shaky or uncertain economy may not be the best time for an increased level of risk. For example, taking on a new loan to purchase a second home or to add another floor to your home may not be the best idea if the economy is uncertain. If business slows, which can happen during a recession, you may not have enough money at the end of the month to pay your installments on time.
Contact the Mortgage Company with All the Answers
Superior Mortgage Co., Inc. knows everything about residential and commercial loans and offers a wide range of products and services to give you the best options for your mortgage loan. Call Superior Mortgage Co., Inc. at 845-883-8200 or email [email protected] for additional information.