What Federal debt default could mean for you

CREATED Jul. 28, 2011

  • (2) | COMMENTS
  • Print
  • Borrowing money would cost more. Investing may test your nerves. Video by kgun9.com

    video

Reporter: Craig Smith

TUCSON (KGUN9-TV) - Federal finances like the debt ceiling debate and the chance of a Federal default may seem far removed from your own but they could have an impact.

With nest eggs still scrambled by the recession, it's only natural people are worried about how the debt ceiling conflict could affect what's left of their assets.
      
So many people have predicted financial disaster if the country defaults on it's debt, we asked financial adviser Dean Greenberg how individuals can defend themselves.

KGUN9 reporter Craig Smith asked Greenberg: "If I'm worried about my investments, I'm worried about my savings are there any sort of defensive moves I should be doing right now?"

Greenberg: "If you're really worried about what's going on then you probably need to just take money, keep it on the sidelines and wait to see what happens.  The problem that you're going to get is one way or the other they're gonna get this resolved, they're gonna pay the bills and that's gonna be a relief rally when the markets go up who's gonna be quick enough to get back in, especially if you're dealing with mutual funds and stuff."

Greenberg recommends diversifying your investments among a range of options well suited for conditions over a few years, not a single incident like the debt dispute.
     
Because a federal debt default could run up credit costs for many Americans, we asked mortgage broker Mark Tronziger of Fairway Mortgage how a default might affect the biggest debt most people even take on: their mortgage.

He says current fixed mortgages would not change but a default could raise rates for new mortgages from a quarter to three quarters of a percent---enough to drive some home buyers out of the market.

Tronziger says, "The home buyer pool out there could start to dry up and the amount of buyers that we currently have could potentially freeze or start to diminish.  If that was to happen it would be an unfortunate occurrence in our efforts to try to get out of this recession because as we know, housing kind of got us into this recession and most economists believe housing is gonna get us out."

Tronziger says if there's a default and if you have an adjustable rate mortgage that is about to adjust,  your rate may kick up higher than you expected. 

If there's a default, you could expect car loans to cost more.  And your credit card interest would go up.  Your best defense there is to keep you balance low, but that's always good advice.
      
But everyone we've talked to predicts there will be an agreement that heads off default and all these jitters will go away before long.