3 financial tips if debt ceiling talks fail: NPR

Preschool teacher Jaqueline Benitez depends on California’s Supplemental Nutrition Assistance Program (SNAP) to help pay for food. If the debt ceiling is not raised, SNAP and other federal payments would be delayed. (AP Photo/Allison Dinner)

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Preschool teacher Jaqueline Benitez depends on California’s Supplemental Nutrition Assistance Program (SNAP) to help pay for food. If the debt ceiling is not raised, SNAP and other federal payments would be delayed. (AP Photo/Allison Dinner)

Allison Dinner/AP

If the United States fails to repay its debt, the fallout could be enormous for Americans.

And not just for retirees who may not receive their Social Security payments on time, or military veterans who may have difficulty accessing benefits, or federal employees and contractors who may see a delay in payments. which are due to them. The cost of borrowing money would skyrocket, making it harder for everyone to buy homes, cars, or pay off credit card debt.

It could make matters worse for families at a time when many are already under financial pressure. Inflation remains high and Americans have racked up nearly $1 trillion in credit card debt. That’s a 17% increase from a year ago, according to the Federal Reserve Bank of New York.

The Treasury Department said Congress has until June 1 to raise the federal debt ceiling. As negotiations continue and time is running out, here are some ways to prepare your finances for the worst-case scenario of default.

Proven Basics

“We advise people to prepare for a potential default as you would for an impending recession,” says Anna Helhoski of NerdWallet.

This means cutting excess expenses, setting a budget, and building up emergency savings to cover at least three months of living expenses.

Since a default in payment would likely cause interest rates to spike, any credit card debt you’re struggling with could soon cost you more. Personal finance experts advise paying off debts at the highest interest rates as quickly as possible.

While tightening finances, you may find that keeping track of car payments or a home loan becomes difficult. Helhoski recommends contacting lenders early to discuss options for reducing payments, adding that the U.S. Department of Housing and Urban Development has “housing counselors who can also help homeowners explore all of the alternatives to delinquency and all that.” which would have lasting impacts on their credit.”

Retirees should strive to have at their disposal a year’s worth of essential expenses, unrelated to any longer-term investment, since they “may not have [Social Security] check more,” says Rob Williams, Managing Director of Financial Planning and Wealth Management at Charles Schwab.

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Retirees should strive to have at their disposal a year’s worth of essential expenses, unrelated to any longer-term investment, since they “may not have [Social Security] check more,” says Rob Williams, Managing Director of Financial Planning and Wealth Management at Charles Schwab.

Al Bello/Getty Images

don’t panic

The stock market will certainly take a hit if the United States does not repay its debt. At times, the losses can seem significant to anyone with investments or retirement accounts.

But for those with diversified portfolios and not nearing retirement, investment experts advise to stay the course.

“Fight your worst instinct for reacting to news,” says Teresa Ghilarducci, labor economist and retirement security expert at The New School. “All academic research shows that if you buy and hold, you will do much better than if you try to follow market trends, whether in response to an economic crisis or a recession.”

Historically, markets have rebounded from significant declines. Stocks rebounded from the Arab oil embargo in the 1970s, Black Monday in the 1980s, the dotcom bubble of the early 2000s and certainly the financial crisis of 2008, according to MFS Investment Management analysis of the market rallies dating back to the Great Depression.

Act fast or postpone big purchases

If you’re looking for a new car or a new house, what you can afford today may well be out of reach in a few weeks. It may be wise to close that deal on a new car now. And make sure your interest rate is locked in if you’re considering closing on a home.

Real estate website Zillow estimates that mortgage rates could hit 8.4% in the event of default, putting a chill on a housing market already frozen thanks to last year’s interest rate hikes.

“You will see a dramatic drop in the number of buyers and when that happens then you will see real estate prices drop, a halt to different construction and home improvement projects,” says Artin Babayan, a real estate loan officer based in Los Angeles.

By some estimates, real estate activity accounts for nearly one-fifth of the US economy. A stall in the real estate market would reverberate, Babayan notes.

“I think it’s going to really screw up the economy,” he adds.