America is threatened with default: how it will affect your life

The US is days away from being unable to pay its bills. Ever since the U.S. hit the national debt limit (that is, the total amount of federal debt that could be outstanding) in January, the Treasury Department has been using what it calls "emergency measures" to avoid a default. How could the life of Americans change if an agreement on raising the debt limit is not reached and the country defaults, the publication explained Lifehacker.

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Earlier this month, Treasury Secretary Janet Yellen said in a letter to Congress that the US may not be able to pay its bills by June 1st. A little later, this date was moved to June 5.

So while Congress negotiates to raise the debt limit, the default date is getting closer and closer too.

The US has never defaulted on its debt before, and economists are warning of dire consequences if Congress fails to reach an agreement.

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How going over your debt limit will affect you

Yellen said a US debt default could cause "irreparable damage" to the US economy. Because the US has never defaulted on its debt before, there is no historical precedent for exactly what will happen. What is clear is that even approaching the US debt ceiling could have some potential consequences.

Social Security, Medicare and other government benefits

One of the first areas to be affected could be government programs. In this case, the Department of Finance may decide to delay or temporarily stop payments such as Social Security checks, Medicare payments, and even payments to state and local governments. If you are a government employee, you may not receive your salary on time.

Higher interest rates

If you're planning to apply for a credit card, mortgage, or car loan anytime soon, brace yourself. Another consequence of the uncertainty and risk associated with exceeding the debt limit is the rise in interest rates. It affects everything from mortgages to student loans to credit cards.

Beyond your personal finances, higher interest rates are taking taxpayer money away from other much-needed federal investments such as infrastructure and education.

The recession and all its consequences

A default can trigger a recession. In particular, economists at Goldman Sachs have calculated that breaching the debt limit would immediately bring about one-tenth of US economic activity to a halt. This means a sharp drop in stock prices, a surge in consumer prices and job losses.

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Even aside from default, there is huge uncertainty about how the debt limit fiasco will hurt you as a person. For now, all you can do is focus on what you can and cannot control.

During a recession, your means of increasing income will be limited, so it's wise to focus on cutting costs. Keep building your emergency fund and be prepared for ripple effects such as job losses, higher inflation and higher borrowing costs.

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