President Joe Biden has just one week to prevent the country from defaulting on its debts for the first time in history, causing financial chaos for American households.
Negotiations between the White House and congressional Republicans will continue today as they discuss raising the government’s debt ceiling to $31.4 trillion.
Time is running out, with Treasury Secretary Janet Yellen repeatedly warning that the United States may not be able to pay its bills as early as June 1.
Analysts had previously warned that a default could lead to higher mortgage payments, the loss of seven million jobs and a slump in investment.
Separately, ratings agency Fitch said a default could put the country’s “AAA” credit rating on negative watch.
Now, experts are urging households to prepare for the worst-case scenario.
Dailymail.com has rounded up the top five tips for households to prepare for a default
“The closer we get, the more realistic the possibility becomes that we have a full-blown disaster,” David Wilcox, director of Bloomberg Economics, told CNN.
Here, Dailymail.com has rounded up the top five tips households should consider to prepare for the worst.
Budget for Social Security late payments
Social Security payments could be stopped overnight if the country defaults on its debt.
About 66 million retirees, disabled workers and others receive monthly benefits that total $1,827 per month on average. About two-thirds of recipients depend on social security for at least half of their income.
About $25 billion is sent every week, according to the Congressional Budget Office.
President Joe Biden has just one week to prevent the country from defaulting on its debts for the first time in history
Other government payments could also be affected, including food stamp and municipal funding for Medicaid.
Additionally, about two million federal civilian workers and 1.4 million active-duty military personnel could see their paychecks delayed.
Households that depend on these checks should therefore start preparing an emergency fund and budget in case of default.
‘Now is the time to house your resources. Hold back your discretionary spending,’ Wilcox told CNN.
“Avoid this extra meal at the restaurant until this situation is resolved.”
Do not overinvest
A default could cause a “relief rally” in the market, which could prompt investors to dip their money into stocks when they are weak.
Moody’s Analytics previously said the shares could lose up to a third of their value even if a deal is reached. The result would be that $12 trillion would be erased from household debt.
But additional pressures on the economy mean investing while stocks are weak could be extremely risky – and it’s rarely a good idea for amateur investors to try to time the market.
Vanguard spokeswoman Jessica Schifalacqua told CNN, “Our general guidance is that investors maintain a balanced portfolio consistent with their goals and remain disciplined.”
“A long-term view is especially important during times of uncertainty.”
Meanwhile, Teresa Ghilarducci, labor economist and retirement security expert at The New School, told NPR: “Fight your worst instinct to act on the news.”
“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.”
The key is also not to panic as stocks rally historically after steep declines.
Experts say now is the time to stick to ‘high quality’ investments as stocks become more volatile ahead of a possible default
Think about adjusting your 401K
Stock market volatility could impact your 401K depending on your stock/bond allocation.
Workers may therefore want to review the investments tied to their retirement fund and make adjustments as needed.
Stocks are traditionally riskier than bond investments and are more likely to fluctuate as they approach maturity, which means they will be under the greatest pressure.
Therefore, experts suggest you might consider increasing your bond allocation and sticking to high-quality investments.
Put your home buying dreams on hold
The average 30-year fixed home loan climbed to 7.03%, Bankrate data showed for Tuesday
Homeowners could see mortgage rates jump to 8.4% by September, according to real estate platform Zillow.
In real terms, this would increase the average mortgage repayment by 22%.
This week, average mortgage rates have already climbed above 7% for the first time since March.
As a result, experts recommend homebuyers wait for rates to stabilize before making an expensive deal.
Personal finance expert Jully-Alma Taveras of InvestingLatina.com said that means households may have to continue renting for the foreseeable future.
Artin Babayan, a Los Angeles-based mortgage loan officer, told NPR: ‘You’ll see a dramatic drop in the number of buyers and when that happens then you’ll see house prices drop, a stop to different construction and home improvement projects. .’
Pay off your credit cards
A default could drive interest rates up – meaning households should try to pay off their debt now while they can
A default could trigger a rise in US Treasury yields to account for the increased risk.
Treasury yields generally set the benchmark for interest rates, loans, credit cards and mortgages.
This means that the repayment rates of all these loans could increase further.
If households are in a position to do so, it is recommended that they repay their debts to anticipate rising borrowing costs.
In addition, it is better to avoid taking out new loans, for example on a car, and to wait for interest rates to stabilize.