Prepping yourself for recessions and a devalued dollar isn’t just about stocking up on precious metals like gold and silver. Nor is it about storing physical goods to barter or bitcoins to conduct transactions.
These are all important aspects of preparing for the next recession, but we can’t neglect the present for the future. It’s a fine balance, but never forget the now.
One of the easiest ways to make yourself recession-proof is to get your current finances in order including eliminating as much debt as possible.
Eliminate Debt to Protect Your Financial Position
Some might argue that maxing out your credit cards in hopes of a completely devalued dollar is a better way to go, but that’s foolhardy finance.
Reducing your debt to just having a mortgage is the best compromise between your current finances and your future beliefs. If no devaluation comes in the short-term your credit card bills will eat you alive.
Why Eliminate Debt?
You can’t prepare for the future if you don’t have any extra income sitting around to pay for it. If all of your monthly income is sucked up into bills and debt you not only will never get ahead financially, but you won’t have the money to hedge your bets with gold, silver, and other commodities.
Debt keeps us trapped in our current jobs and in the status quo. We can’t make any bold moves when the burden of making minimum payments hangs over our heads.
The only debt it is okay to have hang around is mortgage debt assuming you have a fixed rate mortgage. This debt is long-term, stable, and tied to a significant asset. (Plus, it can take a decade or two to pay it off.)
Hanging on to mortgage debt also works as a hedge against inflation. Your monthly payment is $750 today, and $750 twenty years from now. If inflation makes the value of each dollar drop that effectively means your payment gets less expensive in the future.
Related Topic: Learn how to hedge against inflation by buying gold
Best Debt Elimination Method
What is the best method to paying off your debt? There are two main schools of thought.
Highest Interest Rate First
From a mathematical point of view the only option is to pay off your highest interest rate debt first. Any other method means you end up paying more in interest charges than you should.
By tackling the highest interest debts first you stop the bleeding faster. Each dollar you throw at a 20% debt has a bigger impact in reducing your minimum payments (and total interest) than a dollar you throw at a 10% debt.
Lowest Balance First
Some pundits argue you should pay off the lowest balance debt first in order to build up small psychological wins. This method is mathematically unwise as you might have a small debt at a small interest rate compared to your other debt.
But if paying off a small debt makes you feel good and provides the motivation to continue on your debt-payoff plan, then by all means go for it.
Use Common Sense
The best option is really a mix of the two: just use your common sense.
If you have a small balance at a low interest rate ($300 at 5%) and a large balance at a high interest rate ($10,000 at 20%) then mathematically it makes sense to pay off the highest interest rate first.
Yet letting that $300 hang around is annoying. And taking a brief pause to put $300 toward knocking out that debt before moving on to the big balance won’t have a significant impact on the total interest you pay.
Don’t let debt keep you locked into a poor financial position. Pay off your debts so you can begin to hedge against the next recession. If you wish to action now, learn how a gold IRA will help you hedge against inflation or the next recession.