Failure to Raise Debt Ceiling May Delay Social Security, Child Tax Credits: What If You Need The Money Now

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The federal government could soon default on its financial obligations, unless lawmakers increase or suspend the debt ceiling before the start of the next fiscal year on October 1. (iStock)

The federal government will soon be unable to meet its financial obligations for the first time in history unless Congress increases or suspends the debt ceiling, according to the treasury department.

The House of Representatives passed a cross-party bill on Tuesday to suspend the borrowing limit until 2022, and it is likely to face opposition from Republicans in the Senate.

Senatorial Minority Leader Mitch McConnell (R-Ky.) previously indicated that no GOP legislator will support an increase in the debt ceiling. Democratic leaders, including Senate Majority Leader Chuck Schumer (DN.Y.), were quick to point out that Congress instituted a two-year debt ceiling suspension under the Trump administration.

Treasury Secretary Janet Yellen urged lawmakers on Capitol Hill to tackle the debt limit “through a regular ordinance, with broad bipartisan support” in a letter to the President of the Room, Nancy Pelosi (D-Calif.) earlier this month.

At a time when American families, communities and businesses are still suffering from the effects of the ongoing global pandemic, it would be particularly irresponsible to endanger the confidence and credit of the United States.

– Secretary of the Treasury Janet Yellen, September 8 letter to Congress

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It is not certain that the current legislation will get enough votes in the Senate to resolve the debt ceiling crisis. In a editorial published by the Wall Street JournalYellen warned of an “economic catastrophe” if the federal government hit the debt limit before reaching a budget resolution.

About 50 million seniors could temporarily stop receiving Social Security checks as early as October, and child tax credits could also be delayed, Yellen said. Federal employees, including military personnel, may not be paid.

If you are one of the millions of Americans who would be affected by an impending government shutdown, now is a good time to start preparing your finances. Consider a few options for obtaining additional cash, including borrowing a personal loan or refinancing your existing loans.

You can compare a wide variety of financial products on Credible’s online marketplace to make sure you get the lowest interest rate for your situation.

3 moves to consider if you need cash fast

Even if your federal paycheck is suspended or your child tax credit is delayed, you still have to meet your financial obligations such as housing payments and other bills. Missing your debt due date can hurt your credit rating and lead to costly late fees. Consider these borrowing options if you need the cash right now.

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Leverage your home equity by refinancing your mortgage

With real estate values ​​at record highs and mortgage rates stable below 3%, homeowners may be able to withdraw equity from their home at a historically low interest rate. rate with mortgage refinancing.

Mortgage cash refinancing involves taking out a larger home loan to pay off your current mortgage. You can access the cash difference to pay off debt, balance your budget, or use it as you see fit.

For example, if you owe $ 200,000 on your mortgage, but your home is worth $ 400,000, you might consider taking out a new home loan worth $ 250,000 to access $ 50,000 in cash.

Keep in mind that cash mortgage refinancing comes with closing costs, which are typically around 1.5% of the loan amount. Plus, refinancing a new, larger mortgage will cost you more in interest payments over the life of the loan. But if you qualify for a much lower mortgage rate, it can balance the overall cost of refinancing.

Use Credible’s mortgage payment calculator to estimate your new monthly housing payment and decide if this is the right choice for you. You can also pre-qualify to view mortgage refinance rates from multiple lenders without affecting your credit score.

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Borrow a lump sum personal loan

While you may be tempted to put emergency spending on a credit card, it can be easy to get trapped in a cycle of revolving high interest debt. As an alternative, consider borrowing a personal loan.

Personal loans provide quick lump sum financing that you pay off over a period of several months. Interest rates are fixed, so you know exactly how much debt you owe and your monthly payments stay the same.

Plus, personal loan rates are generally lower than credit card rates. The average interest rate on a two-year personal loan was 9.58% in the second quarter of 2021, according to the Federal Reserve, compared to 16.30% for credit card accounts rated at interest.

Personal loan interest rates vary widely from lender to lender depending on the length and amount of the loan, as well as the borrower’s credit history. For this reason, it is important to shop around with several lenders to get the lowest possible interest rate for your situation.

You can compare the rates of personal lenders in minutes on Credible.

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Lower Your Student Loan Payments With Refinancing

Federal student loan payments are currently subject to administrative forbearance, but this same protection does not extend to private student loans. If you’re having trouble making your private student loan repayments, consider refinancing when rates are near all-time lows.

Refinancing a student loan can help you save money on interest, lower your monthly payments, and even get out of debt faster. Keep in mind that refinancing your federal student loans into a private loan would make you ineligible for federal benefits like COVID-19 deferral and income-based repayment plans, for example.

Use a student loan refinance calculator to see if you can save money on your private student loan payment. If you do decide to refinance your student loans, be sure to compare several private lenders at once on Credible.

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Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.


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