Payday Loans and the Government Shutdown: What You Need to Know
Inside Subprime: Jan 17, 2018
By Aubrey Sitler
We’re four weeks into a partial federal government shutdown, and on January 11, an estimated 800,000 federal employees missed their first paycheck due to the shutdown. That’s right: 800,000 full-time federal employees — including an estimated 420,000 whose jobs are deemed essential and who are required to continue working without pay through the shutdown — went without a cumulative $2 billion in pay. On January 12, it became the longest shutdown in U.S. history, with no end currently in sight.
Many furloughed feds are facing challenging decisions about how to make ends meet without regular pay, from credit card advances to personal loans. If you’re in this situation, it’s important to keep in mind that different loan opportunities can have very different consequences. We’ve outlined a few of them for you here:
You may be tempted to take out predatory payday loans to fill what will hopefully be a short-term gap in wages. These loans are usually for small amounts, easy to acquire, and require repayment within a short period of time, but with their unreasonably high interest rates and fees, this is possibly the riskiest choice you could make. With no guarantee of whether or when you’ll receive back pay after the shutdown ends, you could easily find yourself in an inescapable debt trap for what you thought would be a quick and easy $500 stop-gap.
It’s relatively easy to borrow money through a credit card cash advance, but it also gets really expensive really fast. On average, credit cards have an annual interest rate of 17 percent right now, and cash advances can be even higher. Plus, look out for the transaction fees associated with your card for cash advances, which usually run between 3-5% of the total advance amount.
You may also consider borrowing money out of your 401(k). Federal law permits you to borrow as much as 50% of your total 401(k) balance, up to $50,000. You have five years to pay the loan back, and it’s usually relatively low-interest and is always tax-free. However, there are some drawbacks to using this method – namely, that you’re taking a portion of your retirement savings out of play, which may impact you significantly in the long run.
At the end of the day, though, your best bet may be to tap into the government shutdown assistance programs offered through various financial institutions:
- Congressional Federal Credit Union offers a relief line of credit. The interest rate is 0% for 60 days, after which it stays at 4% for the remaining balance.
- Navy Federal Credit Union is offering up to $6,000 loans at 0% APR, and they’re not charging fees or doing credit checks for federal government employees and contractors for 60 days. Pentagon Federal Credit Union is offering a similar deal to its customers.
Additionally, some financial institutions are waiving overdraft or insufficient funds fees for customers affected by the shutdown.