When the Government Shuts Down: What It Means for Your Wallet (and Credit)

Jasmine Trespecio
Oct 14
4 min read

Governments shutting down may feel like distant politics to many, but for countless people it morphs quickly into a personal financial crisis. Whether you’re a federal employee, contractor, or someone whose life indirectly depends on government‐run programs, the ripple effects can hit your bank account and credit score hard. Here’s how—and more importantly—what you can do about it.

1. The Trouble Starts with Interrupted Income

What can happen:

If you're a federal employee designated “non-essential,” you're likely furloughed—sent home without pay.
Contractors working for government agencies may see contracts suspended or delayed.
Essential workers might still have to show up, but without immediate pay.
Spouses, dependents, or small businesses that rely on government contracts or payments may also feel the pinch.

That loss or delay of income is the first domino. Without incoming cash, covering monthly bills becomes harder—and missed payments can cascade.

2. Essential Expenses Become Hard to Manage

When money dries up, choices shrink. You may have to juggle or delay:

Mortgage or rent payments
Utility bills (electricity, water, gas)
Auto loans or lease payments
Credit card bills
Medical costs, prescriptions
Insurance premiums
Groceries and other basic necessities

Missing payments or making only partial payments can lead to late fees, higher interest, and even service disconnections. Over time this strains your budget even more.

3. Credit Score & Credit Report Risks

Your credit score doesn’t immediately reflect one or two missed payments, but sustained disruptions can damage your creditworthiness:

Late payments get reported (typically 30 days overdue).
Credit utilization might spike if you rely more heavily on credit cards or lines of credit.
Some lenders may misinterpret payment delays or allowances from creditors as default.
If accounts go into collections or are charged off, that’s a big hit.

That said, in times of widespread crisis, credit bureaus and lenders may offer flexibility (more on that below) to avoid punishing consumers unduly.

4. Disruptions to Government-Backed Programs & Services

Even if your personal finances are stable, you can run into roadblocks in areas tied to federal systems:

Mortgages / Loans backed by FHA, USDA, VA, or HUD — new approvals, insurance certifications, or guarantees might be delayed or suspended.
Flood insurance (via the National Flood Insurance Program) — new policies or renewals may be paused, which can block closings in flood zones.
Student aid & financial assistance (FAFSA, student loans, grant awards, income-driven repayment adjustments, Public Service Loan Forgiveness processing) — some operations may slow or be delayed.
Tax refunds, IRS services, audits — with IRS staff furloughed, complex tax filings, audits, appeals, and customer service may slow.

Even if you’re unaffected now, delays can ripple later.

5. Psychological & Behavioral Side Effects

Don’t discount the mental and behavioral toll:

Elevated stress leads to poor decisions—borrowing at higher interest, using payday loans, skipping insurance, etc.
Reduced consumer confidence may pull back on spending, delaying purchases or necessary maintenance (which can increase costs later).
A long shutdown can unnerve markets and the economy overall, which can create a negative feedback loop.

How to Mitigate the Damage (Your Game Plan)

The situation sucks. But you can take concrete steps to soften the blow and protect your credit and finances.

A. Immediately Reduce & Reprioritize Spending

Cut discretionary expenses (streaming services, eating out, entertainment subscriptions).
Reassess “nonessential” monthly commitments—gym membership, extra subscriptions, etc.
Shift as much as possible to cash or essentials only.
Build (or lean on) an emergency buffer if you still have income.

B. Communicate Early with Creditors & Lenders

Contact credit card companies, mortgage lenders, car/auto lenders, utility providers—even before you miss a payment.
Many lenders have hardship or forbearance programs in crisis periods.
Ask for payment deferrals, skip-a-payment, reduced interest, or modified terms rather than letting accounts go delinquent.
Document your communications, keep records of who you talked to and promised accommodations.

C. Prioritize Strategic Payments

If you can’t pay everything:

Housing (mortgage/rent)
Utilities / essential services
Insurances (so you don’t lose coverage)
Auto loans (to avoid repossession)
Minimums on credit cards
Medical / necessary prescriptions

Even if you partially pay, showing effort is often better than no payment at all (and may help in creditor negotiations).

D. Use Low-Cost Credit Wisely

If you have a credit card with a low rate or a line of credit, use it—not a payday loan or high‐interest loan—only if you have a clear plan to repay.
Consider borrowing from a trusted friend or family member under clear terms.
Avoid making only minimum payments indefinitely on high-interest debt without plan to reduce principal.

E. Monitor Your Credit Reports & Disputes

Get free credit reports (AnnualCreditReport.com) and watch for errors.
If lenders agree to hardship or forbearance, ask them to note “COVID-like/special code” or “hardship,” or a special reporting code so you’re not penalized in credit scoring.
Dispute any wrongful negative entries once the crisis eases.

F. Seek Supplemental Support & Resources

Unemployment benefits or emergency government relief if eligible.
Charitable organizations, local food banks, assistance programs.
State/local rent assistance, energy assistance programs.
Tap existing emergency funds or savings carefully.

G. Prepare for Long-Term Bounce Back

Once the shutdown ends, catch up: prioritize paying the oldest delinquencies first.
Create or beef up an emergency fund (3–6 months of expenses).
Talk to a credit counselor if you have multiple debts spiraling.
Consider consolidating or refinancing debt to lower interest.
Push to reestablish positive credit behavior (on-time payments, low utilization).