Experts share how to prepare for possible US debt default
(CNN) - As the possibility of a U.S. debt default grows, what can you do to limit its potential impact on your finances?
“The closer we get, the more realistic the possibility becomes that we have a full-blown disaster,” said David Wilcox, director of U.S. Economic Research of Bloomberg Economics.
Economists said breaching the debt ceiling could be catastrophic, impacting millions of Americans from investors to food stamp recipients.
Here are five tips to avoid taking a major hit:
1. Build an emergency fund.
Because there’s a chance a debt default could delay government payments for millions, experts generally recommend setting aside at least three months worth of living expenses.
“Now is the time to harbor your resources. Hold back on your discretionary spending. Avoid that extra restaurant meal until this situation is resolved,” Wilcox said.
2. Reduce debt.
Pay down high-interest credit cards and personal loans.
A default could impact interest rates, raising borrowing costs.
3. Wait to buy a home.
Real estate website Zillow estimates a prolonged default could raise 30-year mortgage rates to a high of 8.4%.
“So that might mean that you’re going continue renting and just invest a big portion of your money into the stock market,” said. Jully-Alma Taveras, a personal finance expert at InvestingLatina.com.
4. Diversify your investments but don’t overdo it.
Experts recommend sticking with high-quality investments instead of high-risk volatile ones.
5. Review and adjust financial plans.
Use this time to re-assess your goals and your budget.
“It’s just an economic cycle. And that doesn’t mean even though it might be a little bit challenging in some ways, it doesn’t mean that it will last forever,” Taveras said.
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