Money Monday: Federal Shutdown and Your Economy

It’s often been said, you are either coming out of a storm, in a storm or about to go through a storm.The current federal government shut down seems applicable to where you may find yourself today. If you are a federal employee, you may have been either furloughed or fired. If furloughed, there is uncertainty about being compensated. If you are not a federal employee, you are not out of the woods since your private employment may have been funded through a government contract. And if you are not directly impacted by either of those scenarios, somebody you know, may have been affected. Wherever you find yourself in the storm, I hope to provide some factors to consider as you navigate the way forward.

Payday Loans

When you are strapped for cash and need to make ends meet, payday loans may seem like a quick and viable option. For starters payday loans are short term borrowing with interest rates between 300 and 700 percent. While you believe you can repay this loan when due and these rates will never  be applied to you, the data shows that many payday loan borrowers take new loans because they cannot pay off the old loans and this is how lenders earn the most in fees. My point is, if you have to borrow from a payday lender, pay attention to the fees in the fine print. You should also note that you can negotiate your payday loan rates.

Further, some states require payday loan lenders to provide what is known as extended payment plans to struggling borrowers. This turns out to be an additional four payment periods at no fee to the borrower.

Finally while payday loans are illegal in several states, some states offer what may be considered a work-around concerning these types of loans. For example in the state of Maryland where payday loans are illegal, you may be able to borrow $1,000 with a monthly interest charge of 2.75% or an annual interest rate of 33%. While this rate is considerably less than the payday loan rates of 300%, it is much greater than borrowing from your credit card or a personal loan. Be sure to know your rights, if you are considering accessing a payday loan during this shutdown period.

401 (k) or IRA Penalty Exceptions

Generally, if you have a  401(k) or an Individual Retirement Account (IRA) you must be 591/2 years of age before you can withdraw without incurring a 10% penalty on your withdrawal. However, if you are younger and need income, there are a few exceptions available.

Each person is allowed an emergency personal expense withdrawal per calendar year, in the lesser of $1,000 or the vested account balance over $1,000 contributed after December 31, 2023 from their retirement account. This is one way to access money without incurring the 10% penalty and retain payment of your expenses during the shutdown.

Another exception to the 10% penalty is withdrawing money for your health insurance premium payments.  You are allowed an exception to the 10% withdrawal penalty if the money is for  health insurance premium payments.

Another option to accessing funds during this government shutdown would be through borrowing from  your retirement account  To be clear, you are not allowed to borrow or take a loan from your Individual Retirement Account (IRA). However, it would be possible to lake a loan  from your qualified plan which satisfies the Internal Revenue Service (IRS) 401(a), annuity plan requirements of 403(a) or 403(b). In English all it means is that you can borrow from your 401(k) or 403(b) retirement plan. Perhaps in some circumstances, it may be more effective borrowing from yourself than facing a bank or credit union to get you through this period. Discuss with your financial advisor, accountant or tax preparer for more information.

Engaging Creditors :

During this period, you are still left with the burden of paying your mortgage, car note or credit card. Here are four actions you should take at this moment:

1. Call your mortgage company, car note holder or credit card company and ask for a forbearance.
2. Call your mortgage company, car note holder or credit card company and ask for a lower interest rate during this period.
3. Call your mortgage company, car note holder or credit card company and ask for a lower monthly payment.
4. Call your mortgage company, car note holder or credit card company and ask for them to waive any late payment fees.

WHAT’S UP! Today’s What’s Up is about price matching. Some of your favorite stores are no longer price matching. The latest store to implement the policy is Target stores. They now join the growing list of vendors such as Walmart who only price match against its online version of the item and not against its competitors. For a Target price match you had to have purchased the item from a Target store and compare its price to Target online price to receive the price match lower cost. But there is still some good news as retailers such as Best Buy, Kohl and Staples still price match against their competitors.  And that’s what’s up!

Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC. Give2Get Rich, LLC 2025. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.