What Does it Mean for You if the United States Defaults on Its Debt

Veronica Charnell Media

Photo courtesy of Goldman SachsPhoto byGoldman Sachs

White House and House GOP negotiators are racing to finalize a deal to raise the nation’s debt limit with time running perilously short and the risk of a first-ever US default growing.

There have been some signs that talks have progressed in recent days, and negotiators are hoping to announce an agreement as soon as this weekend.

House Speaker Kevin McCarthy arrived at the US Capitol on Saturday morning after his top Republican negotiators, Reps. Garret Graves of Louisiana and Patrick McHenry of North Carolina had worked late into the night drafting the final details of a deal from the speaker’s office.

Will my personal finances be at risk?

One major question that looms in the back of everyone’s mind is, “What is going to happen to my personal finances if the US defaults on its debt? If there is no deal reached for the US Debt crisis, it will eventually send the United States crashing into a major recession. America's economy would hardly sink alone. For typical Americans, there are a number of serious potential effects. First of all, Wall Street and global markets could drop or plunge. That could ultimately affect retirement savings, 401K plans, college savings, and anything you have invested.

Certain federal programs – Social Security, Medicare, Medicaid, veteran benefits, and SNAP benefits, among others – could be among the first affected by a default, according to an analysis from the Bipartisan Policy Center.

To give you a better visual of how serious the situation is, below are a few areas that will be impacted if the US defaults on its debt.

$12 billion in military and civilian retirement benefits were paid on June 1.

$1 billion in tax refunds scheduled to go out June 7.

$4 billion in federal salaries, payable on June 9.

The dollar is a global reserve currency and U.S. bonds are seen as one of the most stable investments on the planet. So if the U.S. cannot pay its creditors, interest rates on U.S. debt would go up, creating a cascade of higher interest rates. So mortgage rates, credit card rates, and car loan rates. All would become more expensive.

Finally, there is a real concern about the overall economy. A default could spark a major recession. That could then mean fewer jobs and harder times for businesses, especially small businesses.

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