3 money tips in case debt-ceiling talks fail From social security payments to interest rates, a lot hinges on a debt-ceiling deal. Personal finance experts say you should prepare for a possible debt default as you would a recession.

3 ways to protect your money if the U.S. defaults on its debt

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The Treasury Department says Congress has until next week to raise the federal debt limit or put the United States at risk of defaulting on its existing debts. If Congress fails, the fallout could be huge for many Americans. So what do we do? NPR's Arezou Rezvani has been looking into the preparations. Hi there.


INSKEEP: How widespread would the impact be of a default?

REZVANI: A very broad swath of Americans would feel the effects. If you're already retired, a debt default would take a big bite out of your Social Security checks. Borrowing money to buy a car or a home will suddenly cost you a lot more. I was at an open house recently, and real estate agents there were pretty nervous about how a debt default could send interest rates soaring at a time when the housing market is already struggling.

INSKEEP: Wait, wait, wait a minute. I understand the Social Security part because the government is paying these checks, and one of the first things that might happen if they run out of money is they might fail to pay the checks or delay paying the checks. But why the borrowing? If the federal government fails to pay its debts, why would that affect my home mortgage or somebody else's home mortgage?

REZVANI: Well, I mean, everything is connected. If the government defaults, it will grow harder to borrow money. The U.S. will have to pay higher interest rates on bonds, and then that tends to push up interest rates on all other kinds of borrowing, including yours and mine, for things like home mortgages.

INSKEEP: Which would explain why experts are warning of a widespread economic disaster if this came to pass. So how should people prepare?

REZVANI: The personal finance experts and economists I've talked to all echoed one another on this topic. Anna Helhoski at NerdWallet sums it up best.

ANNA HELHOSKI: We're advising people to prepare for a potential default as you would for an impending recession.

REZVANI: So Helhoski says this because a default could really tip the U.S. into a recession. If the U.S. defaults, it would set off a domino effect. Millions of Americans would suddenly lose their benefits, interest rates would shoot up. These are all circumstances that make people way more cautious. They pull back on spending, so do businesses. People are laid off. These are all typically hallmarks of a recession.

INSKEEP: So what do you do?

REZVANI: Well, you want to return to the tried and true basics. Make sure you have at least three months' worth of your living expenses saved up and easily accessible - not tied up in some investment. Then you want to take a look at your debts. With high inflation, a lot of Americans have been leaning on their credit cards lately, so prioritize paying off those with the highest interest. And generally, remember that interest rates will be going up on everything.

INSKEEP: The last time the U.S. came close to a default, the stock market went all over the place and mostly down. What should people do if they have investments?

REZVANI: So there's a great deal of consensus among financial experts and economists on this one. I put this to Teresa Ghilarducci, labor economist and expert in retirement security. Here's her advice.

TERESA GHILARDUCCI: Really fight your worst instinct to act on the news. All the academic research shows that if you buy and hold, you will do so much better than if you try to follow market trends, whether that be responding to an economic crisis or a recession.

REZVANI: So the thing to remember here is that these investments, whether they're stocks or 401(k) accounts, they're all about the long game, even in this moment of economic uncertainty.

INSKEEP: Arezou, thanks so much.

REZVANI: You're welcome.

INSKEEP: NPR's Arezou Rezvani.

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