Debt ceiling crisis: what does it really mean for consumers?

By Josh Smith

If you’ve been paying attention to the news recently, or looked at your retirement account you’ve probably noticed that the government has been fighting to get the debt ceiling raised in order to keep borrowing. You’ve also probably witnessed a major dive in the stock market as the U.S. lost its AAA credit rating.

These two connected events can be difficult to put into perspective with our daily lives, but they can actually play a big role in several major areas. The good news is that you don’t need to panic, and it might even be a good time to buy stocks, if you can afford them.

What the Debt Ceiling Crisis Means for Consumers

  

Home loans – Initially, we assumed that mortgage rates were going to jump on the news of the lower U.S. credit rating, but the Fed has gone on record saying it wants to keep interest rates low through 2013. This means that if you’ve been exploring a home purchase or a refinance, it’s still a good time to do so.

Banks are still wary, so you may need to shop around, even with stellar credit. If you are thinking of a refinance or taking out a home loan, we suggest you lock in your rate as soon as you know you want it, as rates are more likely to rise than fall.

Bailouts – Because the government has a reduced credit rating, and still has a limited debt ceiling, don’t expect another round of bailout money for the average consumer. Now is as good a time as any to make sure you have some type of emergency savings at hand in case you hit a rough patch.

Employment – The bad news is that unemployed may have a tougher time finding a job thanks to cuts in spending at various stages of the government. We are already seeing states cut back on unemployment benefits, but the threats aren’t just confined to the already unemployed.

The slow economy isn’t going to grow any faster according to Mohamed El-Erian, chief executive of Pimco, which could translate into higher unemployment in the next 6 months, and unemployment times will last longer.

Social Security and Retirement – Social Security is going to get even tighter, so make sure you take advantage of any employer matching available for your retirement account. This would be a good time to sit down with a financial planner to make sure you are investing enough. Your employer may offer free counseling throughout the year, check with HR.

Medicare – If you count on Medicare or Medicaid, be wary of future cuts. If you can afford it, now would be a good time to investigate health insurance options

What should you do based on the current economic environment? Based on what we know, here are 5 action steps to take.

1. Refinance or Lock In Low Rates
2. Evaluate Your Retirement Options With a Professional, Even if Already Retired
3. Beef Up Your Emergency Fund
4. Look for Affordable Health Insurance That Meets Your Needs
5. Remain Calm and Rational. Be Wary of Scams That Play on Fear of Uncertainty to Take Your Money. 

With a cool head, and some help, you should weather the credit downgrade and debt ceiling fallout.