Recession advice

Recession is looming and we're about to feel it. GMTV's Money Saving Expert Martin Lewis takes us through recession-proofing your finances

What is recession?

At its worst it means job losses, uncertainty, home repossessions, pay cuts or freezes and some firms going bankrupt.  Yet even if unemployment reaches 2.5million, most people will still be in their jobs.

Even so, plan for the worst and hope for the best.

Pay back what you've borrowed

If you have savings or ANY spare cash, throw it at clearing your debts: in nearly all cases, the interest cost is much higher than interest earned on your savings.

Overpay your mortgage

With mortgage rates so high, paying more off your mortgage is actually a bit like saving at the mortgage rate, but tax-free; for most people that's unbeatable and totally safe.  Better still, by reducing its size it'll improve your chances of qualifying for a better deal when it's time to remortgage.

Beware 'income eaters'

Avoid signing up to 'income eaters'. These are products (such as gym memberships, digital TV subscriptions, car loans and hire purchases e.g. for TVs) that take a huge chunk out of monthly earnings AND lock you into paying for a set period. Instead, if you have to sign up, go for versions that have shorter lock ins.

Brush up on your benefits

If your family has children under 18, it's possible you qualify for benefits and tax credits even if your household income is less than £66,350.

Protect loan/mortgage repayments

PPI is a simple idea: fall ill, suffer an accident or be sick and off work, and specific policies will pay your loan or credit card or mortgage payments for 12 months.

The usual problem is that, when bought from a lender along side the debt, it's hugely expensive.  Yet similar products available from standalone providers can be around 90% less thus if you wouldn't be able to meet repayments, it's a much better proposition.

Self-employed? Dock your pay

If you're self employed, always think for every £100 you earn, only roughly £65 is yours and £35 belongs to the taxman (it's more for higher rate payers).  So as soon as you get this surplus cash, stash it where you won't touch it so you won't be faced with the panic of having to find it at a later date.

Build up a cash fund

If you've cleared your credit cards, aim for a six-month savings stash for emergencies, but anything is better than nothing. Then if the worst happens, at least you'll have some cash.

Plan your life for recession now

To be truly prepared, if losing your job's likely, start living NOW as if you'd already lost it.  Cut back on everything and put spare cash away to help you live then. This way, while you're living tighter for longer, the depths aren't as deep.

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