How a Downgrade of the U.S.’s Credit Rating May Affect You
Countries can have bad credit just like people can. Credit rating agencies are saying that the U.S., which currently has the highest credit rating, may still be downgraded even though the debt ceiling was raised. In fact, one agency recently did so. So, how may this affect you?
Higher Interest Rates
Just like you may be charged a higher interest rate if you have a low credit score, the U.S. may need to pay higher rates when borrowing due to having a lower score. And those higher rates may be passed on to you when you borrow. Experts predict that the interest rates on mortgage loans are most likely to be affected, but it is possible that you may have to pay more for other types of credit as well.
You can mitigate the higher cost of borrowing. Don’t borrow if it is not necessary. If you can save for a couple of months and purchase the item with cash, start saving now instead of applying for a loan. If you do need to borrow, make sure that your credit history is as strong as possible so that you can qualify for the best rate. Pay all of your bills on time. Keep your balances low. Don’t apply for new credit too frequently. Also, don’t be afraid to shop around and look for the best interest rate – just make sure to go with a reputable lender.
If a lower credit rating weakens the U.S. dollar, then imported items, ranging from gas to clothing to food, may cost more. If you cannot afford to spend more, look for ways to lower your costs. Can you save money by buying generic or in bulk? What expenses are necessary and what can be cut or reduced? For example, perhaps you can carpool to work or forgo buying that $20 jar of saffron.
A lower credit rating may lead to higher inflation, which is the general rise in the cost of goods and services over time. To combat inflation, it is important to invest a significant portion of your savings for long-term goals, like retirement, in options that provide a high return, such as stocks. If you only invest in safe options that provide a return lower than inflation, such as savings accounts, then you will be losing money over time. Because options that provide the highest return also tend to have the highest risk, it is important to have a well-balanced, diversified portfolio. As the old saying goes, you don’t want to put all of your eggs in one basket.
You may not have control over how the government handles its finances, but by taking the time to save, manage your credit responsibly, budget, and invest appropriately, you can limit the impact of a downgrade in the U.S.’s credit rating.