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Looming Recession, Wages, and Debt

Posted by Advocate Debt Relief Team

3 months ago / June 25, 2022

Our economy is in uncharted waters these days. Global government responses to the pandemic created massive manufacturing shutdowns, triggering our supply problem. The American Rescue Plan of 2021 injected more money into the economy, keeping demand steady. The war in Ukraine and the Federal Reserve’s interest rate hikes has investors hesitant to develop business growth. It all adds up to a recipe for a potential recession and stagnant wages, which can exponentially balloon outstanding debt.

Government Involvement

The most important tool the Federal Reserve has is increasing interest rates. This tactic increases the cost of mortgages and company borrowing from banks. Overall, it slows transactions and business growth. The reality becomes a weaker job market and stifled wage growth.

Today’s inflation results from too much money in circulation without enough goods to go around. The Fed’s primary goal in an inflationary environment is to tame spending. The hope is to make it harder to get loans for consumers and businesses, giving the supply chain a chance to catch up to the buying power. The most significant concern among financial experts is that the interest rate adjustments could spiral the economy into a nasty recession while inflation continues to rise.

Impact on Wages

Last week, Federal Reserve Chair Jerome Powell admitted that a recession is possible. They’ve already committed to hiking interest rates until inflation subsides, but at what cost? The fear is that the wages will remain stagnant as inflation continues and the Fed leads us into a recession.

Wage increases have been relatively stagnant for more than a year and have hovered around 3.4 percent, less than half of the 8.6 percent inflation of today. If the Fed over or under compensates, our economy goes into a tailspin where no one wins. Although we hope for the best, the writing is on the wall to prepare for the worst.

Debt

Outstanding debts are the most dangerous liability you can have before or during a recession. Higher costs and lower wages inevitably lead to more difficulty making high-interest payments. Get your arms around your debt before a potential slowdown. Explore these strategies to make the most significant impact possible on your financial situation:

High-Interest Credit Cards

The Federal Reserve concluded that the average credit card interest rate was 16.17 percent. If you have a low credit score, that rate gets even higher. As food, gas, rent, mortgage rates, and every other essential need goes up; minimum payments are sure to elevate too.

One solution to get ahead of the situation is to talk with your lender. If you’ve been making timely payments or your credit score has improved since you applied for the card, you may qualify for a lower interest rate.

When you enter negotiations, be courteous and clearly explain your situation. Accurate debt records will make you more credible and assure the lender you’re not exaggerating. Don’t hesitate to speak to a manager, but it’s essential to continue being polite. Turning off the wrong person by being rude will likely result in a similar result by the manager.

Personal Loans

One way to tackle personal loans is to move the debt to another financial product with a more affordable interest rate. Look into a 0 percent APR balance transfer credit card or a home equity line of credit. This typically requires a very good or excellent credit score.

If you don’t have a healthy credit score, try re-working your budget. All too often, a budget is made, we get used to spending in that fashion, and we forget about it. Dust off the budget spreadsheet and assess where you can cut. Unused online subscriptions, gym memberships, and unplanned purchases add up quickly. Another great way to trim is to be more deliberate about where to grocery shop when deals are going on. The key to success here is to find what excess expenses you’re taking on that you can live without.

Student Loan Debt

Although the Biden Administration has been dangling the promise of student loan forgiveness for millions of borrowers, only 0.6 percent of the national outstanding student loan debt balance has been approved. The laundry list of circumstances to qualify is lengthy and cumbersome. Your likelihood of being approved is relatively low, so don’t bank on it.

Many student loans can be negotiated for lower payments. Repayment options based on income or complete forbearance for a period to get back on your feet are standard options. Pending you have a fixed interest rate, one of these options could work well to reinvest that money into your high-interest debt and pay them down.

Professional Help

Maybe you’ve exhausted your budgeting skills, negotiated with every lender, and even took on a side hustle, but you still can’t make ends meet. Don’t be discouraged. Advocate Debt Relief understands that everyone deserves a win, and they want to help you get there. Contact one of their analysts today to discover an option you may not have considered.

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Filed Under: Economics Finance