The federal government shutdown is nearing the one-month mark, and some 800,000 federal employees have now gone without their first paycheck. They’re becoming seriously worried about how they’re going to continue to make ends meet and support their families. The shutdown has also caused ripple effects across communities — impacting many private business owners and service providers.
Well-known personal finance expert Suze Orman is offering some advice for people whose savings accounts are quickly depleting that she admits is unexpected. She says, “This will be the first time in the history of my entire career that I am telling anybody to even consider this. But if you don’t have the money to pay your bills, if you don’t have any way to feed your children, then you might want to consider taking a loan from your retirement account.”
Taking a loan out on your 401(k) can help you through a rough patch. However, it can also be costly. If you don’t repay the loan plus interest within five years, you can face significant taxes and other penalties. Further, you miss out on any market gains that occured in the interim. Therefore, financial experts consider this a last resort.
However, many federal workers furloughed during the shutdown or required to work without pay are facing an emergency. Orman also suggests that federal workers ask their creditors for extensions on their due dates. She notes that they should work to avoid late fees, which will just add to their debt and damage their credit scores.
Two things that anyone should avoid doing, she says, are getting payday loans and credit card cash advances. Both of those can carry extremely high interest rates.
Anyone can face a financial emergency if they lose their job unexpectedly and can’t find another one right away. That’s why it’s always wise to have some savings on hand. Experts recommend having at least enough to live on for three to six months. Orman recommends eight months. However, for people living paycheck to paycheck, that can seem like an impossible goal.
If you’ve experienced a financial setback like a job loss that’s left you deeply in debt and you don’t see any way to recover, it may be worthwhile to consider bankruptcy. While it’s no one’s first choice, in the end, it may be the best way to recover and get back on track financially.