5 strategies to protect your portfolio from a federal debt ceiling disaster

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5 strategies to protect your portfolio from a federal debt ceiling disaster

Time is running out for Congress to reach a deal on the national debt ceiling – and if it can’t, the impact on Americans’ portfolios could be disastrous.

Lawmakers have until September 30 to raise or suspend the country’s debt limit. If the two political parties cannot come to an agreement – and it is rare for them to unite on anything these days – the government will not have the legal capacity to borrow more money and could default on financial obligations.

Even the mere possibility of a default can plunge the country into chaos. A deadlock on the debt ceiling in 2011 prompted Standard & Poor’s (S&P) to downgrade the country’s credit rating one notch to AA +, resulting in significant market volatility that year.

A debt limit debacle could wreak havoc on your finances, causing the cost of mortgage refinancing and many other more expensive things. Here are five ways to protect yourself.

1. Consolidate your emergency savings

Emergency fund in the glass jar with money.

Vitalii Vodolazskyi / Shutterstock

If the debt ceiling is not raised, the United States could run out of money to pay Social Security, Medicare and Medicare, civil service salaries and even tax refunds.

A big lesson we learned from the COVID crisis is to prepare for the unexpected.

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

But don’t just store your stash in a standard checking or savings account that could pay a staggering 0.01% interest. Search around a high yield savings account which will provide better returns.

2. Refinance Your Mortgage Now

If it is simply appears as the country could default on its debt, lenders may be less willing to take risks. This would mean higher borrowing costs for everyone, even if a free overview of your credit score shows that yours is pretty good.

A debt ceiling disaster could push mortgage rates up, which have been at historically low levels throughout the pandemic. If you’re a homeowner and haven’t refinanced yet, you probably shouldn’t delay refinancing much longer.

Millions of American homeowners have already traded home loans for better rates.

Nearly half of U.S. mortgage holders who refinanced between April 2020 and April 2021 are now saving $ 300 or more each month, according to a recent survey from Zillow.

3. Get that new credit card ASAP

Woman at checkout in supermarket, she pays using credit card, shopping and retail concept

Stokkete / Shutterstock

Interest on your credit cards will rise if a congressional dispute over the country’s borrowing limit causes interest rates to skyrocket.

Finding a new card with a lower rate will become more and more difficult.

Like mortgage lenders, credit card issuers will want to protect themselves against risk as much as possible, which means they will charge higher interest rates for everyone.

Now’s the time to move if you’ve been considering getting a new credit card, whatever you want start earning rewards or stop paying high annual fees.

4. Don’t wait to buy that new car

Sorry to say, but as you might have guessed, all types of borrowing are susceptible to debt ceiling disaster.

If you think you need to replace your vehicle soon, it can be costly to wait, even if you shop around for the best rate on an auto loan.

Alternately, buy a used car could help you cut costs and get the make and model you really want.

You’ll miss the smell of new cars, but is it really worth paying thousands of dollars more?

5. Move money from stocks to safer investments

Plants growing on piles of coins sitting on the ground.

Romolo Tavani / Shutterstock

Driven by records on Wall Street and the emergence of memes stocks, the ranks of average investors have grown at an impressive rate.

But if the market begins to struggle amid doubts about whether the United States can pay its bills, many of these investors could be the losers.

For now, it might make sense to move money into more secure assets, including one of the world’s oldest industries, agriculture. Studies have shown that investments in agricultural land consistently offer better returns than stocks or real estate.

Which means you will be less likely to lose the farm during times of high market volatility.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.


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