Current:Home > reviews3 ways to protect your money if the U.S. defaults on its debt -InvestTomorrow
3 ways to protect your money if the U.S. defaults on its debt
View
Date:2025-04-14 13:49:01
If the U.S. defaults on its debt, the fallout could be huge for Americans.
And not just for retirees who may not get Social Security payments on time, or military veterans who may have trouble accessing benefits, or federal employees and contractors who may see a lag in payments owed to them. The cost of borrowing money would soar, making it harder for everyone to buy homes, cars, or pay off credit card debts.
It could make things worse for families at a time when many are already under financial strain. Inflation remains high, and Americans have racked up almost $1 trillion in credit card debt. That's up 17% from a year ago, according to the Federal Reserve Bank of New York.
The Treasury Department says Congress has until June 1 to raise the federal debt limit. With negotiations still going and time running out, here are some ways to prepare your finances for a worst-case debt default scenario.
Tried and true basics
"We're advising people to prepare for a potential default as you would for an impending recession," says Anna Helhoski of NerdWallet.
That means tamping down on excess spending, making a budget, and shoring up emergency savings to cover at least three months of living expenses.
Since a debt default would likely send interest rates soaring, any credit card debt you're saddled with may soon cost you more. Personal finance experts advise paying off those debts with the highest interest rates as quickly as possible.
While tightening finances, you may find that keeping up with car payments or a home mortgage will become a struggle. Helhoski recommends reaching out to lenders early to discuss any options for lowering payments, adding that the U.S. Department of Housing and Urban Development has "housing counselors who can also help homeowners explore any alternatives to delinquency and anything that would have long lasting impacts on their credit."
Don't panic
The stock market will certainly take a hit if the U.S. defaults on its debt. At moments, the losses could seem significant to anyone with investments or retirement accounts.
But for those with diversified portfolios who aren't nearing retirement, investment experts advise that you stay the course.
"Fight your worst instinct to act on the news," says Teresa Ghilarducci, labor economist and retirement security expert at The New School. "All the academic research shows that if you buy and hold, you will do so much better than if you try to follow market trends, whether that be responding to an economic crisis or a recession."
Historically, markets have roared back after major declines. Stocks rebounded following the Arab oil embargo in the 1970s, Black Monday in the '80s, the dot-com bubble of the early aughts, and certainly the 2008 financial crisis, according to an analysis by MFS Investment Management of market recoveries dating back to the Great Depression.
Act fast, or postpone big purchases
If you're in the market for a new car or home, what you can afford today may be well beyond reach in a matter of 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 are working towards closing on a home.
Real estate website Zillow estimates mortgage rates could reach 8.4% in the event of a default, which would send a chill through a housing market already on ice thanks to the interest rate hikes of the last year.
"You'll see a dramatic drop in buyers and when that happens, then you're going to see property prices fall, a halt on different construction and home improvement projects," says Artin Babayan, a home loan officer based in Los Angeles.
By some estimates, housing activity accounts for nearly a fifth of the U.S. economy. A stall in the real-estate market would reverberate, Babayan notes.
"I think it'll really screw up the economy," he adds.
veryGood! (18)
Related
- San Francisco names street for Associated Press photographer who captured the iconic Iwo Jima photo
- An election to replace the longest-serving leader of the Netherlands gives voters a clean slate
- Albania’s prime minister calls for more NATO troops in neighboring Kosovo following ethnic violence
- Timekeepers no more, rank-and-file Jehovah’s Witnesses say goodbye to tracking proselytizing hours
- As Trump Enters Office, a Ripe Oil and Gas Target Appears: An Alabama National Forest
- 2 killed, 5 injured in Philadelphia shooting, I-95 reopened after being closed
- Nearly half of Americans think the US is spending too much on Ukraine aid, an AP-NORC poll says
- Finland erects barriers at border with Russia to control influx of migrants. The Kremlin objects
- Highlights from Trump’s interview with Time magazine
- Bradley Cooper Reacts to Controversy Over Wearing Prosthetic Nose in Maestro
Ranking
- Paula Abdul settles lawsuit with former 'So You Think You Can Dance' co
- Fantasy football rankings for Week 12: Be thankful for Chargers stars
- Timekeepers no more, rank-and-file Jehovah’s Witnesses say goodbye to tracking proselytizing hours
- At Black Lives Matter house, families are welcomed into space of freedom and healing
- Tree trimmer dead after getting caught in wood chipper at Florida town hall
- 'Please God, let them live': Colts' Ryan Kelly, wife and twin boys who fought to survive
- Yes, France is part of the European Union’s heart and soul. Just don’t touch its Camembert cheese
- Albuquerque police cadet and husband are dead in suspected domestic violence incident, police say
Recommendation
EU countries double down on a halt to Syrian asylum claims but will not yet send people back
Bob Vander Plaats, influential Iowa evangelical leader, endorses DeSantis
Democrats who swept Moms For Liberty off school board fight superintendent’s $700,000 exit deal
OpenAI reinstates Sam Altman as its chief executive
'As foretold in the prophecy': Elon Musk and internet react as Tesla stock hits $420 all
Mississippi drops charges in killing of former state lawmaker but says new charges are possible
JFK assassination remembered 60 years later by surviving witnesses to history, including AP reporter
Patrick Mahomes can't throw the ball and catch the ball. Chiefs QB needs teammates to step up.