- Specific programs exist to help you if your income is cut-off by the government shutdown.
- Call your creditors if you are not able to pay them as agreed.
- Build a solid emergency fund to avoid the harm of a similar situation happening to you.
How to Protect Yourself from Harm of the Government Shutdown
The USA is in the midst of a government shutdown of unprecedented length. 800,000 workers and their families are directly affected, not receiving their paychecks. Needless to say, this causes a big financial strain on the families not getting paid. It also ripples out, as the lack of pay causes a cutback in spending that hits the businesses that would be selling goods and services to the families.
An unexpected event that causes financial harm can happen to anyone. If you are faced with this type of situation, start by looking at the resources and options available to help you weather the storm. Here are steps you can take.
Keeping Money Coming In
This type of financial crisis requires looking at your income, how to pay your bills, and cutting expenses where possible.
Starting with the income part of the equation, you want to see what you can do to keep money coming in. One source of income is unemployment compensation. In a temporary, though extended, situation like the government shutdown, workers are eligible to receive money from their state unemployment insurance agency. Because legislation exists that back-pay is going to be given to the workers who lost pay due to the shutdown, it is likely the case that the unemployment money will need to be repaid (and not repaying overcompensation from unemployment has serious, negative consequences). Still, even if it needs to be repaid, the money could be crucial to staying afloat until regular income resumes.
The Federal Office of Personnel Management (OPM) has a document entitled, “SHUT-DOWN OF FEDERAL OPERATIONS—WHAT DOES IT MEAN TO ME?" that answers basic questions for federal workers affected by the shutdown, including information about unemployment claims. It can be found at this page at the OPM website. Government contractors affected should contact their state unemployment office.
Takeaway: If you lose your job, see if you are eligible to receive unemployment compensation.
You could try looking for some side-work to earn income. Another option is to go through your garage, closets or storage and sell anything you have of value that you aren’t using, in order to bring in some extra cash.
Most lenders are not going to lend you money when you are not working. They are concerned about your ability to repay the loan, not knowing if and when your income will resume. If you have a working spouse or willing co-borrower, you may still qualify but that is not a guarantee.
You can look into borrowing from any retirement accounts you have, first checking to see if you can borrow against any funds you have in your account. Be sure to understand the tax implications and weigh the effect on your retirement income down the road. It is reasonable to be willing to take a hit down the road if it prevents major harm today.
Ask for Help
As soon as a financial crisis hits that is severe enough that you can’t afford to pay all your bills, you should contact all your creditors. You may find some willing to be flexible in the amount you pay. Ask your creditors if they offer a hardship program.
Keep good notes. As you put together a plan on who to pay and when, you will want an accurate record of what creditors offered you help and the exact kind of break they gave you. Accurate notes with the date, time, and the name of the representative you spoke with will also help in case one person makes a commitment to you that another person at the same company says is not in the system. Ask for written confirmation of any variance from your normal terms. If not available, ask that the representative leaves a written note and have the rep read it back to you.
You can also mail your creditors, if you have trouble reaching them on the phone. The Office of Personal Management has some great information, including sample letters you can use to contact your mortgage lender, credit card issue or other creditor.
The government shutdown is affecting so many people at the same time that some creditors have special information for their customers who are affected by the shutdown.
Wells Fargo has a government shutdown page at their website with important information for their customers. They are offering meaningful flexibility. For example, “Wells Fargo will not apply late charges or report negative credit implications for up to 90 days. Applicable foreclosure activities will be placed on hold (subject to court approval).” Wells Fargo is also offering flexibility to its banking, credit card, personal loan, and auto loan customers. It is crucial that you contact them to make sure you receive the breaks that they offer
Bank of America is another creditor that has a web-page specifically about the shutdown. It indicates that they will offer flexibility for their customers hit with a loss of income due to the shutdown. B of A doesn’t list out the specific remedies they offer, unlike Wells Fargo, but they do list a number and you should certainly call them and see what they offer you if you have any kind of account with them.
Even if you feel you can stay on top of your payments without the help that creditors offer, hear what they have to say. When it is unclear how long a problem like the shutdown will continue, you don’t want to assume you can make it through unharmed only to find out that some creditor action is no longer available further down the line.
Stuck With a Long-Term Debt Problem
If the Government Shutdown pushes you over the financial cliff, there are different debt relief options that may help you. Check out the free Bills.com Debt Navigator to receive recommendations based on priorities you list.
Another way to manage a financial crisis from a loss of income is to cut spending. Make a priority list of discretionary expenses, so it is easier to decide what has to go. This is especially important in a family so everyone understand shared burden.
If you are paying for monthly storage, this is an opportune time to review what you have in storage. Assess the value of what you have and compare it to the cost you’ve paid so far in storage. You could be better of getting rid of or selling what you have and replacing it when it makes financial sense.
Every little bit of savings is worth examining. Small cuts can equal the amount of a tank or two of gas or a week’s worth of groceries.
All of the steps you should take may help, but when it comes to surviving a financial hit like the government shutdown, the best defense is being prepared in advance.
There is a reason that standard financial advice is to build up an Emergency Fund that has enough money to cover your living expenses for six months. No one funds a six month Emergency Fund overnight. It requires discipline and commitment, generally taking money out of each paycheck for an extended period of time and maybe adding any windfalls like a bonus or tax refund.
The benefits are obvious; you will have neither the heavy stress that comes with the inability to pay your bills on time, nor other consequences like collection calls, penalty fees, or interest rate hikes.
When it comes to an auto loan, an emergency fund can protect you from a repossession. Auto lenders are notoriously quick to take back the car when you are not paying as agreed.
A small positive that can come out of the government shutdown is that it can serve as a wake-up call. This is a clear lesson about the value of preparing in advance for a financial crisis. None of us know when an emergency will arise and no amount of preparation guarantees that you will come out unharmed, but you put yourself if a far stronger position when you build up savings.
An Emergency Fund is an important part of overall good financial health, but it is not the only factor. The best way to build strong financial health starts with understanding your current situation, then making a realistic plan to address the areas that are weak.
The Bills.com Financial Health Survey is a free tool that will give you an overall financial health score after answering a short series of questions. You will also get guidance on what you can do to improve the areas your score is low. Don’t wait for a crisis to hit to start working on building your financial security.