U.S. savings bonds

As debt ceiling talks continue, here’s how to manage your fear, money

I’m mad as hell about the political posturing around the debt ceiling crisis.

The day — the so-called “X-date” — the U.S. government could fail to meet its financial obligations is fast approaching, possibly as soon as June 1.

“That’s a hard deadline,” Treasury Secretary Janet L. Yellen said during an interview on NBC News’s “Meet the Press.” “There will be hard choices to make if the debt ceiling isn’t raised.”

Hard choices? Try catastrophic.

7 doomsday scenarios if the U.S. crashes through the debt ceiling

Still, I highly doubt the government will default.

As Yellen noted, the United States has been paying its bills on time since 1789. “That’s what the world wants to see, a continued commitment to do that,” she said. “It’s what underlies U.S. Treasury securities as the safest investment on the planet.”

The drama will have “no material bearing on the typical American’s finances” if there’s a resolution before the X-date, said Mark Zandi, chief economist at Moody’s Analytics. And even if payments are paused, they will resume quickly. Seniors will eventually see their Social Security deposits in their bank accounts. Military personnel and Medicaid providers will get paid.

But the fear the debt ceiling standoff is generating won’t be easily fixed. Financial anxiety doesn’t disappear when a crisis is averted. It lingers and stains.

If you also factor in high inflation, a possible recession and an economy still trying to recoup from the pandemic, this showdown is incredibly foolish and financially irresponsible.

As funds run short, Treasury asks agencies if payments can be made later

Should even one check be delayed when so many live on the financial edge, it could have a long-term impact on a person’s mental and physical well-being. A 2022 paper published in the Journal of Family and Economic Issues concluded there is a connection between financial worries and psychological distress.

As the debt ceiling standoff drags on, people have been asking me whether they should move money out of their FDIC-insured bank accounts. One reader asked: Should I cash in my U.S. Savings Bonds?

Others have expressed doubts about investing for retirement, wondering whether they should just wait until things get better. That’s timing the market, and that’s not a good investment strategy.

“Investors can’t help but feel nervous,” wrote Danni Hewson, head of financial analysis for AJ Bell. “The last time these talks got down to the wire, markets plummeted, and the country’s borrowing costs shot up. Even if the deadlock is broken in time to prevent the U.S. defaulting on its debt, the uncertainty is destabilizing, particularly when the economy is already looking a little vulnerable.”

Taking the United States to the brink of default will lead to persistent economic unease. I feel it. My gut is constantly gurgling as my retirement portfolio rises and falls on news of debt ceiling negotiations stalling.

It doesn’t matter how we got here or who will be at fault if the government defaults. The folks who will suffer the most will be the ones least able to recover quickly.

“A breach will also quickly cause interest rates to rise as investors will rightly wonder how long they will get paid before Social Security recipients, already fragile confidence would be upended, and the economy would descend into recession, which means lots of lost jobs and rising unemployment,” Zandi said. “Everyone would suffer financially, but the most financially vulnerable lower-income households would suffer the most.”

What to do with your money as Congress debates lifting debt ceiling

Consumer confidence is so important right now. People need to believe and trust that the government is going to pay its obligations.

“Would you do business with a very wealthy company or a person who required that you accept that they might later decide not to pay you because they would rather do something else with their money?” wrote Gary Sylvern of Oakland, Calif.

With this Congress and the high political discord, nothing is impossible. So what can you do if the debt ceiling isn’t raised?

Curb unnecessary spending

It’s always a good time to watch your spending, but now more than ever. “A protracted default would likely lead to severe damage to the economy, with job growth swinging from its current pace of robust gains to losses numbering in the millions,” according to a White House blog post.

If the crisis is averted, you can resume your planned spending. But if things get bad, you’ll have some cushion to pay for necessities.

If the U.S. defaults, will it miss Medicare payments? What about Social Security? See what’s at risk.

Check in with your parents

Last year, 55 percent of retirees said they rely on Social Security as a “major” source of income, according to a Gallup poll.

If your parents or other retired loved ones are heavily reliant on Social Security to make ends meet, ask whether they can handle a missed payment. Find out how they might pay their bills. If you’re in a position to help, reassure them you will.

Senior care is crushingly expensive. Boomers aren’t ready.

As soon as you know you may miss a mortgage, car or credit card payment, get on the phone with lenders. Look, a government default will have an impact on so many people that lenders will be more inclined to help consumers.

Continue saving and investing

A breach of the U.S. debt ceiling would probably roil financial markets almost immediately, according to Moody’s Analytics May report. “Even without the specter of a debt limit breach, many CEOs and economists believe a recession is dead ahead.”

Your brain will want you to flee a downward stock market. Don’t. Whatever happens, this crisis will probably be temporary.

Don’t withdraw cash to stockpile it. Your money is not safer in your house.

If you want more personal finance advice that’s timeless, order your copy of Michelle Singletary’s Money Milestones.

Your U.S. Savings Bonds will still be the safest investment.

Although you may have lingering fears once this debt ceiling dilemma passes, the alternative is to shut down financially, and that won’t serve you well.

“I would recommend people continue to save and invest like they typically do,” Zandi said. “Look through the near-term drama and focus on the long term. Despite all the Sturm und Drang, it is never wise to bet against the American economy in the long run.”

B.O.M. — The best of Michelle Singletary on personal finance

If you have a personal finance question for Washington Post columnist Michelle Singletary, please call 1-855-ASK-POST (1-855-275-7678).

Recession-proof your life: The tsunami of economic news is leading consumers, investors and would-be homeowners alike to ask whether a recession is inevitable. Regardless of the answer, there are practical steps you can take to help shield yourself from a worst-case scenario.

Credit card debt: Carrying credit card debt is never good and you should ditch the habit. Here are seven ways to lower your credit card debt in light of the Fed continuing to raise interest rates.

Money moves for life: For a more sweeping overview of Michelle’s timeless money advice, see Michelle Singletary’s Money Milestones. The interactive package offers guidance for every life stage, whether you’re just starting out in your career to living an abundant life in retirement.

Test Yourself: Do you know where you stand financially? Take our quiz and read advice from Michelle.

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