In a slow economy or let us just say, recession, it is smart to be mindful of your spending and refrain from taking risks that may hamper your financial goals. In this article, we will be talking about the financial risks that everyone has to be mindful about throughout recession.
Be a Cosigner
It can be quite a risk to cosign a loan even in flush economic periods. If the person who is taking a loan doesn’t make repayments as per schedule, then it is the responsibility of the cosigner to take over it. In an economic downfall, the associated risks with cosigning a note is even bigger because the person who takes out the loan has a greater chance of potentially losing their job. Well, not to mention, the elevated risks of the cosigner end up in loss of employment.
Having said that, you might find it essential to cosign for close friends or family members no matter what’s happening in the economy. In these types of cases, it is best to have money ready just as a buffer.
Using Adjustable-Rate Mortgage
Whenever you are buying a house, you might want to go for adjustable-rate mortgage or simply known as ARM. There are instances to which this move makes total sense, so long as the rate of interest is low because it makes the monthly payment low too.
On the other hand, you might want to take into consideration the worst-case scenario at all times. This is the probability of losing your job and that the interest rate may rise as the recession starts to aggregate or it could be the fact that you may be facing a lawsuit. This could abruptly increase your monthly payments and make it hard to keep up with payments made.
Both non-payment and late payments could result to adverse effect onto your credit score, which may make it harder for you to acquire a loan sometime in the future.
Taking Debt as Resolution
Taking new debt of any kind such as student debt, home loan, car loan and whatnot shouldn’t be a problem during good times when you are making enough money in covering the monthly payments and still have enough for your retirement.
Thing is, if the economy takes a turn for worse, this increases risks which include the risk that you may be laid off of your job. If such thing happens, you might have to apply for a new job or take another job on top of your existing career that pays less compared to your previous salary.
Meaning to say, this can complicate your current financial situation. Taking on new debt during recession can be quite risky and must be done with caution.