5 Strategies To Protect Your Wallet From A Federal Debt Ceiling Disaster

Sigrid Forberg  Fri, August 27, 2021, 5:30 PM

The clock is ticking for Congress to reach a deal on the national debt ceiling — and if it can’t, the impact on Americans' pocketbooks could be disastrous.

Lawmakers have until Sept. 30 to either raise or suspend the country's debt limit. If the two political parties can't get their act together — and it's rare for them to unite on anything these days — the government won't have the legal ability to borrow more money and could default on its financial obligations.

Even just the possibility of a default can toss the country into chaos. A debt ceiling impasse in 2011 caused Standard & Poor's (S&P) to downgrade the country’s credit rating by a notch to AA+, which led to significant market volatility that year.

A debt limit debacle could rock your finances, by making the cost of a mortgage refinance and many other things more expensive. Here are five ways to protect yourself.

1. Shore up your emergency savings

If the debt ceiling isn’t raised, the U.S. could run out of cash to pay Social Security, Medicare and Medicaid, public service salaries and even tax refunds.

One big lesson we've learned from the COVID crisis is to be prepared for the unexpected.

An emergency fund will offer you peace of mind that whatever happens, you’ll have enough cash to float your family for a few months or up to a year. And if you don’t need the money, it’ll be there for the next crisis.

But don't just stash your reserve in a standard checking or savings account that might pay abysmal interest of 0.01%. Look around for a high-yield savings account that will offer better returns.

2. Refinance your mortgage now

If it merely appears that the country might default on its debt, lenders may be less keen to take on risks. That would mean higher borrowing costs for everyone, even if a free peek at your credit score shows that yours is looking pretty good.

A debt ceiling disaster could lift mortgage rates, which have been at historic lows throughout the pandemic. If you're a homeowner and haven't refinanced yet, you probably shouldn't put it off much longer.

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