Life has a way of throwing financial curveballs when you least expect them. A car repair or medical bill can strain your budget, but when the challenge comes from something beyond your control - like the government shutdown - it can feel even more unsettling.
Thousands of federal employees are suddenly facing furloughs or delayed paychecks while everyday expenses continue to mount. If you’re in this position, you’re not alone. Fortunately, there are steps you can take right now to protect your finances during this uncertain time - and those same strategies can help with any financial setback life brings your way.
Navigating the Unknown
When you’re unsure when your next paycheck will arrive, planning ahead can feel impossible. While a short delay might mean a few budget tweaks, if the shutdown lingers on, it can create significant financial hardships. The key is to act early and keep yourself organized.
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Step #1: Review All Your Available Funds
Start by looking at any liquid funds available. For example, review your checking and savings balances to see how long that money can cover essential expenses like your mortgage, utilities, and groceries. If you have share certificates (commonly called certificates of deposit), it might be wise to access them if needed. While you will likely incur a penalty for early withdrawals, that penalty might be much less than the interest charged on a credit card.
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Step #2: Evaluate Your Investments Carefully
It can be tempting to pull from retirement accounts or other market-based investments, but doing so might trigger taxes or penalties. Plus, if your accounts are down, withdrawing now could result in a significant investment loss.
Before touching any funds invested in the market, especially tax-advantaged retirement accounts, it’s wise to speak with your financial advisor to ensure you understand the full impact of that decision.
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Step #3: Revisit Your Budget
List every expense for the next one to two months. Include everything from loan payments and insurance to subscriptions and utilities. Any expense that you can temporarily stop or cancel will put you in a better financial position. Most non-essential costs, such as streaming services, allow you to pause your subscriptions.
While you shouldn’t pull from retirement accounts unless absolutely necessary, you might consider pausing your contributions to these accounts temporarily to free up extra funds.
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Step #4: Contact Your Lenders Early
Many people facing financial challenges are often reluctant to ask their financial institution for help. Some may feel embarrassed, while others hope things will turn around before their due date arrives.
If you think you might miss a loan payment, your best option is to reach out to the credit union or other lenders before your due date. Most financial institutions have relief programs to help members manage temporary income loss. Depending on your situation, you may qualify for:
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Short-term personal or emergency loans
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Loan modifications that temporarily reduce your payments
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Options to skip a payment without penalty
The most important thing to remember is to contact the credit union or your lender before your due date. Doing so often gives the financial institution more options and can prevent any negative marks on your credit report.
Bridging the Gap
Historically, government shutdowns in the United States rarely extend more than a few weeks. However, as politicians continue to negotiate, every day without a paycheck can feel like an eternity for workers. Instead of reaching for high-interest credit cards or costly payday loans, there are more affordable options that can provide a financial lifeline.
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Personal Loans
Personal loans offer a slew of financial perks that many overlook during times of hardship. For example, most personal loans offer lower interest rates than traditional credit cards. The repayment terms are fixed, meaning you’ll often pay off the balance quicker than with minimum payments on a credit card. Lastly, you receive a set dollar amount, which makes it much easier to budget upcoming expenses like your mortgage and utilities.
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Home Equity Lines of Credit (HELOCs)
If you’re a homeowner, a HELOC is perfect to serve as a financial lifeline. With HELOCs, you’re approved for a specific amount and can draw from the line of credit as needed. You only pay interest on what you borrow - not your approved credit limit.
Because HELOCs are secured loans that use your home as collateral, the interest rates are substantially lower than those of other borrowing options. Plus, the terms are much longer, making monthly payments more affordable.
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Additional Ways to Strengthen Your Budget
Even while navigating a short-term financial setback, this is a good time to fine-tune your financial picture. A few minor adjustments now can provide both immediate and lasting relief:
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Consolidate High-Interest Debt: Combining multiple high-interest credit cards and payday loans into one lower-rate personal loan can free up cash immediately and reduce the total amount of interest you pay.
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Transfer Balances to a Lower-Rate Card: Transferring high-interest credit card balances to a lower-rate credit union credit card is a quick and easy way to instantly put more money back in your pocket and reduce your outstanding balance faster.
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Rebuild Your Emergency Fund: Once the shutdown ends, begin rebuilding or strengthening your emergency fund. Even small deposits regularly into a separate savings or money market account will add up over time - providing an essential rainy-day fund should other financial curveballs come your way.
Finding Financial Stability Again
Recovering from any financial setback takes time and patience, but every proactive step makes a difference. Keep communicating with the credit union and other lenders, monitoring your credit report, and updating your budget as things change. By staying involved and informed, you’ll minimize long-term damage and keep your goals within reach.
If you’re a federal employee or anyone facing reduced income, know that you have options and support available. The key is to ask for help before loan payments or other financial obligations are due.
We’re Here to Help!
As your credit union, we understand how challenging it can be to navigate the government shutdown and its effects on our community. Whether your income is paused or you’re facing another financial challenge, our team is ready to help you explore relief programs. We can also help you review existing loans, consolidate higher-interest debt, or adjust payment schedules until things return to normal.
If you want to learn more about our relief programs or have questions about using a home equity line of credit as a financial lifeline, we’re happy to help. Please stop by the Credit Union or call 410-687-5240 to speak with a team member today.