Last week, it was announced that the UK has fallen into recession, with gross domestic products falling by 0.3% in the last quarter of 2023, with the quarter before seeing a reduction of 0.15%. A recession is defined as being two consecutive quarters of reduction or contraction, but this recession is believed to be the worst financial crisis since 2009, with the highest inflation level in 40 years currently sitting at 8.2%.

With a recession announced, it’s recommended that you keep a closer eye on your finances and spending, avoiding taking any risks which may put your financial health at risk. However, whilst recessions are challenging times and can impact the way in which we spend, they are part of the normal business cycle – there have been numerous different periods of recession over the past 100 years. If you want to better manage your finances during this recession period and remain financially stable, let’s take a look at 3 things you should avoid doing during a recession.

Avoid Not Paying Off Debts

During uncertain economic times, such as a recession, it is highly recommended that you continue to make payments on any outstanding debt obligations as much as you are able to. Late payments or non payments can massively affect your credit rating, which can make it easier to obtain loans in the future. 

You should also avoid taking on any new debts, such as car loans or a higher credit limit. When the economy changes, your level of risk increases and there comes the chance that you may be at greater risk of losing your job. This means that, if you lose your job and interest rates continue to increase, your monthly payments will increase too and you may not be in a position to keep up with these higher payments. If you find that your debts are becoming overwhelming or you are struggling to keep up with repayments, then speak with a financial debt advisor who will provide guidance and support on things such as DROs and IVAs.

Stick To The Same Credit Card

Paying down your credit card debts will mean that over time, you will end up paying less in interest charges. Over time, this could save you thousands of pounds. During a period of recession, you may be tempted to only pay the minimum amount required for repayment, but by doing this, a large majority of the payment will go towards paying off interest, rather than the principal amount. This makes it much harder for you to pay off your credit card.

If you haven’t changed your credit card provider in a few years, then take a few minutes to sit down and make note of how much is owed in credit card debt. Write down the balance for each credit card you have, as well as the interest rate and minimum monthly repayment amount. Once you have a greater sense of what is owed, then you can then put together a more effective repayment strategy together.

Making Big Purchases

During a recession, you will want to try and conserve as much money as possible. With a recession comes a decrease in job security and an increase in outgoings, so you want to try and avoid making any big ticket purchases whilst you can. Making big purchases can take a chunk out of your level of disposable income and put you at risk of having less when it comes to dealing with emergencies or tackling an increase in the cost of living.