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There’s nothing like stubbornly high prices, troubling economic data, unruly markets and an escalating trade war to fuel uncertainty. And with that uncertainty comes fear of a recession ahead.
About two-thirds of Americans (65%) believe the U.S. economy will enter a recession in the next 12 months, according to a March NerdWallet survey conducted online by The Harris Poll.
That’s up from 59% of Americans who believed this when asked the same question in February 2026.
Anticipation of an economic downturn can be especially stressful for the financially vulnerable.
Solid financial habits, like revisiting your budget and emergency savings, and paying down debt can help you prepare for a recession.
Understanding recessions
A recession occurs when economic growth stops and the economy starts to shrink. Recessions are inevitable, but they aren’t necessarily predictable. It’s impossible to know in advance exactly when they’ll hit or how bad they’ll get.
Some recessions are mild, such as the short-lived 2020 recession due to the pandemic. Economic activity declines and unemployment rises, but the economy quickly bounces back
Other recessions, such as the 18-month 2007-2009 downturn often referred to as the Great Recession, wreak widespread havoc on people’s financial lives before economic growth resumes.
We’re not in a recession yet and there are no guarantees that we will see one in 2026. But the Iran war may be creating an economic wild card for your finances.
“Unsurprisingly, war does little to calm consumer concerns about the economy,” said Elizabeth Renter, NerdWallet's senior economist.
“People are expecting higher prices, greater job instability and worsening household financial conditions compared to when asked just before the war in Iran began. The economic uncertainty of the past year may be giving way to a bit more certainty that things won’t be improving soon.”
Start with a spending plan
If you’ve never had a budget — or have one you never use — it's time to get serious. Knowing where your money is going helps you prepare for and adjust to tough times.
This is particularly true if you’re expecting a decline in income, whether from a job loss or another factor.
If a recession interferes with your ability to cover your expenses, your first step may be to pay bills strategically and know where to find assistance.
If you can pay your bills, but still want to improve your financial footing, a budget template, app or spreadsheet can help you see where your money is going, and where you might be able to save money.
Once you know where your dollars are going, look for ways to save money. Finding ways to save money can help you bulk up that emergency fund (more on that below) or proactively lower your debt load.
Also, consider ways to make extra money. A side hustle can feed your emergency fund and give you a Plan B if your hours or wages are cut.
Start with the savings you have now and try to build them as much as possible. That can be difficult in the face of a drop in income, but if you’re able to save even a little each month, that cushion will likely come in handy down the road.
If you do have some savings, one step you can take today is to switch to a high-yield savings account. Recent Federal Reserve rate increases have led to banks bumping up their yields.
Some accounts, particularly at online banks, earn rates north of 4% average percentage yield. Compare that with the average savings rate of 0.39% APY.
From there you can build your account balance over the next few months by setting up or increasing an automatic transfer from checking to savings on a regular basis, such as on each payday. Saving your tax refund and any other windfalls also could go a long way toward preparing an emergency fund.
In addition, make sure you’re not paying monthly fees. Some banks will waive surcharges if you keep a minimum balance amount. But if you’re concerned about paying monthly fees in the future, consider putting your money in a “free” account that does not charge them at all.
» Looking for online savings options with good rates and low fees? Check out NerdWallet’s best high-yield online savings accounts.
Curate your credit
High-interest debt — like credit card debt — can be especially difficult to shed when money is tight. Interest charges pile up quickly, especially when interest rates are rising.
You could consider moving your high-interest debt to a card with an introductory 0% APR offer on balance transfers.
You’ll generally need good or excellent credit (credit scores of 690 and higher) to qualify for such an offer.
In most cases, you’ll have to pay a balance-transfer fee of 3% to 5% of the amount transferred. Such a move could save you a bundle in interest charges, especially if you pay off the debt during the promotional period.
If you can’t qualify for one of these offers, making extra payments on high-interest debt instead is also a good money-saving option. The faster you can pay off those balances, the more you’ll save in interest charges.
Also, take care of your credit. In unpredictable times, you may need to lean on credit — for example, to cover expenses when your hours are cut or to pay unexpected bills.
Having good credit can not only give you the option to borrow money but it also can get you the best terms, such as low interest rates on loans or 0% APR offers on credit cards.
Double down on good credit habits, if you have the resources to do so while meeting all your other financial obligations. Pay bills on time. Stay well below the limits on your credit cards if you can. Make a debt payoff plan. Be selective about applying for new lines of credit.
All the while, keep tabs on your credit score. You can do this for free on NerdWallet, with credit card issuers and banks or through other third-party websites.
Study your student loan strategy
If you haven’t done so already, make a budget that includes your student loan payment. But if you run into financial difficulties, there are options to ease the burden:
- Those with federal student loans can talk to their student loan servicer about enrolling in an income-driven repayment plan, which sets the amount you pay at a percentage of your income and extends your repayment period. You may also be eligible for forbearance or deferment, depending on your situation.
- If you have private loans, contact your lender about options for relief. Most private lenders offer forbearance or deferment up to 12 months or longer. Interest will continue to accrue.
On the other hand, if you don’t anticipate taking a hit financially during a recession, then you can take advantage of low interest rates by refinancing your loans. That means trading out your current student loans for a new one with a lower interest rate. This is best for private loans.
You can consolidate federal student loans, but you lose out on income-driven repayment and opportunities for forgiveness like Public Service Loan Forgiveness.
Keep calm and invest on
This isn’t the easiest advice when the news is dominated by falling stock prices. But there is a silver lining to market downturns: Your regular investing contributions now purchase more stocks and fund shares than when the market was at record highs.
It’s natural to want to sell during market drops. Behavioral economists call it “loss aversion.”
Studies suggest people feel the loss of $1 twice as much as a $1 gain. This instinct means they have a tendency to sell stocks when a buy-and-hold strategy would be smarter.
When you sell shares as prices are falling, you lock in losses. Studies show that even professional investors usually fail when trying to time the market (predicting when to buy low and sell high).
As our market crash calculator shows, even after the 2007-2009 Great Recession — the biggest downturn since the Great Depression — the S&P 500 regained its previous high five years and five months after hitting bottom. And then continued to rise for nearly seven more years.
A time-tested tactic: If you’re investing for the long term with a diversified portfolio, don’t torment yourself by checking your portfolio every day.
Instead, remember your long-term goals and the market’s historical ability to rise from the ashes (and beyond) over time. And if you've not been saving for retirement before now? It might be a good idea to start. If you're already investing for retirement, don't let recession worries derail your plans.
Reconsider your real estate
If you’re a homeowner, your game plan varies based on whether you want to sell or stay put. If you’re a renter, you'll have to focus on expenses.
Advice for home sellers
If you plan to sell your home, gather information about your local housing market from news sources, real estate agents and neighbors. Pay special attention to inventory — how many homes are for sale in your community.
An increase in inventory means buyers have more homes to choose from, giving them more leverage when negotiating with sellers.
The timing of your home sale depends on personal factors as well as market conditions.
Advice for homeowners staying put
If you’re planning to stay in your current home, build up your savings to protect yourself in case you're laid off or your hours are reduced. NerdWallet's guideline is to eventually build up to three to six months' worth of expenses.
It's OK to start with smaller goals and build over time; research shows even $500 can be enough to insulate you from the most common financial shocks.
A home equity line of credit, or HELOC, can be used as a last-resort emergency fund. Apply for a HELOC while you still have steady income; otherwise, you won't qualify.
Take care not to overextend yourself when borrowing from a HELOC: The interest rate is often variable and will go up every time the Federal Reserve raises the federal funds rate.
» Home equity borrowing: HELOC vs. home equity loan
Advice for home buyers
If you plan to buy a home, have realistic expectations about what you can afford and make sure you have a financial cushion to protect you in the months after you buy.
That means knowing what you can afford and bulking up your reserve savings. To avoid buying too much home, use NerdWallet's home affordability calculator and choose a price in the "affordable" range, not in the "stretch" or "aggressive" ranges.
When you buy a home, the lender will scrutinize your finances to make sure you'll have some money in savings after closing.
If you're buying a single-family home as your primary residence, the lender might require you to have up to six months' worth of house payments in savings. Save up more than the minimum required reserves, so you'll be able to afford an emergency repair or an interruption in income.
Advice for renters
Times are tough for renters because rents have risen in much of the country over the last few years. It's enough to persuade some to look for homes to buy, just to stop being vulnerable to rent increases.
High rent prices make it harder to save money for a down payment on a home purchase. It's tough at a time of high inflation, but start reducing expenses so you'll have money saved to pay the rent if your income is interrupted. Consider adding a roommate or moving in with family, and looking for other ways to save money.
Staff writers Margarette Burnette, Anna Helhoski, Holden Lewis, Bev O'Shea, Claire Tsosie, Kevin Voigt and Liz Weston contributed to this report.
Have more recession questions?
Find out how recessions can impact your money and how to manage your risk.
