How to Protect Your Finances During the Shutdown and Debt Ceiling Crisis
By now, the federal government shutdown is far more than just a Washington issue. The economic ramifications of furloughs, funding limitations and debt ceiling concerns stand to hurt Americans nationwide. And, in an ironic twist, it seems that red states will be hit the hardest if the problem persists.
WalletHub released a report this week analyzing which states will be most and least financially affected by the ongoing Congressional chicanery, and 15 of the 25 most at-risk states went to the Republican Party in the 2012 presidential election. Whether or not angry constituents spur a commonsense resolution remains to be seen, but the report offers a number of other interesting insights into what we can expect should the stalemate continue much longer.
The report - which evaluated the shutdown's direct and indirect impact on federal employees, contractors and key demographics in the 50 states and District of Columbia - indicates that D.C., Maryland and Virginia are joined by the likes of Alaska, Alabama and Maine in shouldering the biggest burdens as a result of the shutdown. Each of those states relies heavily on federal contracting dollars and federally-subsidized small business loans, and all have relatively large veteran populations. Citizens of both Maine and Alabama are also particularly dependent on Social Security benefits.
Delving deeper into the data, the WalletHub report also came to the following conclusions:
--Small business owners in the Dakotas, Colorado and Michigan have displayed particularly high U.S. Small Business Administration borrowing rates in recent years and therefore may be affected most by the agency's inability to process new applications.
--Hawaii, Florida and Arizona are dependent on the health of their real estate markets, which means delays in mortgage closings borne from the inability of lenders to garner necessary paperwork from the internal revenue service will have a disproportionate effect on the recovery of their local economies.
--Students in Georgia, Mississippi, South Carolina and Louisiana have some of the highest student aid application rates and are therefore vulnerable to Department of Education funding shortages.
--Montana and Wyoming have some of the largest veteran populations and should be concerned about veteran funding issues.
Ultimately, no one is immune to the shutdown's far-reaching effects. Not only does that mean we should all call our respective representatives and demand a resolution to this political circus, but we should also take certain measures to protect our hard-earned money in the event Congress doesn't come to its collective senses and raise the debt ceiling. Depending on your situation, that might entail:
1. Applying for additional credit: Securing a new line of credit is a great way to combat temporary cash flow issues, as you only have to pay for what you use and make minimum monthly payments in order to stay current on the bill. Just make sure to apply well in advance of actually needing the additional spending power because it will take a week or two for the issuer to process your application and get you a card.
2. Consolidating fixed-rate loans: With economists predicting that a U.S. default would result in increased interest rates for all types of consumer loans - from credit cards to mortgages - you may want to pay off variable-rate balances with a fixed-rate loan in order to prevent drastic cost-of-debt increases.
3. Offsetting investment risk: President Barack Obama said on Tuesday that if the debt ceiling is not increased, "every American could see their 401(k)s and home values fall." In order to protect your wealth, consider further diversifying your assets, building up your cash positions and garnering exposure to commodities and other sectors that perform well during periods of economic turmoil. Having significant cash reserves may also enable you to buy stock on weakness and reap significant returns when and if the market dips and ultimately bounces back.
4. Talking to your bank: Finally, if you anticipate problems paying monthly bills as a result of the shutdown, call your bank and ask for help. Much like financial institutions in New York adjusted policies to help people affected by Superstorm Sandy, banks have expressed a willingness to aid furloughed government workers and other affected consumer segments by lowering interest rates, adjusting due dates and waiving early withdrawal penalties for certificates of deposit.
Odysseas Papadimitriou, a former senior director in Capital One's credit card division, is CEO of the personal finance websites CardHub and WalletHub.
