Given the dire situation, here are three strategic steps individuals can take to protect their finances in the worst-case scenario of a US debt default (Portal)
As a deadline for the June 1st In a bid to raise the US federal debt limit, concerns are growing about the impact of a potential default by the country. Economists and financial experts are warning of the possible consequences that could affect everyone from the retiree to the homeowner, the federal employee and the credit card holder.
Given the dire situation, here are three strategic steps individuals can take to protect their finances in the worst-case scenario of a debt default.
United States public service broadcaster, National Public Radio (NPR) presented three methods for securing money in the event of a US debt default. This extremely important issue was highlighted in a lengthy article that featured prominently on the front page of their website.
Anna Helhoskiof NerdWallet, advises: “Prepare for a potential default just as you would for an impending recession.” As simple as it may sound, this requires a renewed focus on the financial fundamentals: cutting unnecessary spending, complying a well-designed budget and emergency savings to cover at least three months of living expenses.
In the event of a default on debt, the cost of borrowing can be expected to increase
In the event of a default on debt, the cost of borrowing can be expected to increase. This could make paying off credit card debt more expensive. Financial experts recommend speeding up payments on debts with higher interest rates.
Looming financial stress could make keeping up with regular car loan or mortgage payments a daunting task. Helhoski suggests the key is to contact lenders quickly to explore possible avenues for payment cuts. The U.S. Department of Housing and Urban Development offers housing counseling services to help homeowners understand alternatives to crime and maintain their creditworthiness.
Resist the temptation to make hasty decisions: Patience is a virtue in times of economic uncertainty (Bloomberg)
Should the US default on its debt, stock markets would inevitably be rocked, potentially causing waves of concern among investors and retirement account holders. Despite the potential downturn, investment advisers are urging individuals, particularly those with diversified portfolios and long investment horizons, to resist panic selling.
Interview with NPR, Teresa Gilarducci, labor economist and pension security expert at The New School, advises investors to “fight their worst instinct to react to the news.” It highlights academic research showing that a buy-and-hold strategy consistently outperforms attempts to anticipate market trends, even during times of economic crisis or recession.
Fight your worst instinct to react to the news (Ghilarducci)
In the past, markets have shown resilience, recovering from sharp falls. Market rallies after the oil embargo of the 1970s, Black Monday in the 1980s, the bursting of the dot-com bubble in the 2000s, and the financial crisis of 2008 are testament to the long-term strength of the stock market.
On the road to personal financial resilience: Learning to weather the economic storm of a debt default (Portal)
As interest rates rise, the affordability of larger purchases like cars or homes could change dramatically. It might be wise to speed up any planned purchases to secure current interest rates, especially for mortgages.
Zillow (US real estate online platform) predicts a possible increase in mortgage rates of up to 8.4% in the event of a default. Artin Babayan, a Los Angeles-based mortgage servicer, warns that this could have a chilling effect on a housing market already struggling with recent Federal Reserve rate hikes. As a result, there could be a noticeable drop in buyer interest, which could lead to lower home prices and a slowdown in home improvement and construction projects.
It could have a chilling effect on a property market already struggling with recent rate hikes (Babayan)
Given the sizeable contribution of the real estate sector to the US economy – estimated at almost one-fifth – a slump in real estate activity would have far-reaching implications. “I think it would ruin the economy,” Babayan warns the NPR journalist.
Carry on or postpone: The crossroads of big purchases amid US debt crisis (Portal)
In the shadow of the US debt default, individual financial strength appears as the ultimate bulwark. Our tour of the different strategies underscores the importance of strengthening financial fundamentals, resisting impulsive decisions and making informed decisions when making major purchases, the economists stress.
Although the prospects may seem daunting, Prudence and diligence can be our most valuable allies in these uncertain times economically.
We must remember that ultimately our ability to navigate the choppy waters of the global economy will not be measured by our ability to anticipate every setback, but by our resilience and adaptability in the face of the challenges that will inevitably present themselves.
According to experts, it is generally prudent to speed up payments on higher-yielding debt, especially in the face of a possible US debt default, as this scenario could lead to a rise in interest rates. This increase can make it even more expensive to carry outstanding loans or credit cards with variable interest rates that often adjust to reflect general interest rates in the economy.
Paying off the debt with the highest interest rate first (also called the debt avalanche method) can save you money in interest over the long run. However, it is always wise to review your personal financial situation and consider speaking to a financial advisor before making any major debt decisions.
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The White House and Republicans said there had been progress in negotiations on the debt ceiling in the United States. Days before a possible default, amid tense negotiations, Biden proposed a freeze on public spending in the United States