Failure to raise debt ceiling may delay Social Security, child tax credits: What to do if you need money now

The federal government may soon default on its financial obligations unless lawmakers raise or suspend the debt ceiling before the start of the next fiscal year on Oct. 1. (iStock)

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

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

Senate Minority Leader Mitch McConnell (R-Ky.) previously stated that no GOP lawmakers will support a debt ceiling increase. Democratic leaders, including Senate Majority Leader Chuck Schumer (D-N.Y.), were quick to point out that Congress instated a two-year suspension of the debt limit under the Trump administration. 

Treasury Secretary Janet Yellen urged Capitol Hill lawmakers to address the debt limit "through regular order, with broad bipartisan support" in a letter addressed to House Speaker 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 put the full faith and credit of the United States at risk.

- Treasury Secretary Janet Yellen, Sept. 8 letter to Congress


It's uncertain whether current legislation will get enough Senate votes to address the debt ceiling crisis. In an op-ed published by the Wall Street Journal, Yellen warned of an "economic catastrophe" if the federal government hits the debt limit before reaching a budget resolution.

About 50 million seniors may temporarily stop receiving Social Security checks as soon as October, and child tax credits may also be delayed, Yellen said. Federal employees, including military personnel, may go unpaid. 

If you're one of the millions of Americans who would be impacted by a looming government shutdown, now is a good time to start preparing your finances. Consider a few options for extra 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, so you can be sure you're getting 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 need to meet your financial obligations like housing payments and other bills. Missing the payment due date on your debts can hurt your credit score and result in costly late fees. Consider these borrowing options if you need money now.


Tap into home equity by refinancing your mortgage

With home values at record highs and mortgage rates holding steady below 3%, homeowners may be able to cash out on their home equity at a historically low interest rate with mortgage refinancing.

Cash-out mortgage refinancing is when you take out a larger home loan to repay your current mortgage. You can access the difference in cash 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-out mortgage refinancing comes with closing costs, which are typically around 1.5% of the loan amount. Plus, refinancing to 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 may balance out the overall cost of refinancing.

Use Credible's mortgage payment calculator to estimate your new monthly housing payment and decide if this is a smart move for you. You can also get pre-qualified to see mortgage refinancing rates from multiple lenders without impacting your credit score.


Borrow a lump-sum personal loan

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

Personal loans offer fast, lump-sum funding that you repay over a set period of 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 typically lower than credit card rates. The average interest rate on a two-year personal loan was 9.58% in Q2 2021, according to the Federal Reserve, compared to 16.30% for credit card accounts assessed 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. Because of this, it's important to shop around with multiple lenders to get the lowest possible interest rate for your situation.

You can compare rates across personal loan lenders in just minutes on Credible.


Lower your student loan payments with refinancing

Federal student loan payments are currently in administrative forbearance, but that same protection doesn't extend to private student loans. If you're having trouble making your private student loan payments, consider refinancing while rates are near historic lows.

Student loan refinancing 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 deferment and income-driven repayment plans, for example.

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


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