Shutdown-Affected Workers Have Options to Protect Their Finances

Whether federal employees chose their profession to build an impressive resume, serve their country, or work in the seat of power, there’s one thing many of them have in common: low pay. Another striking trait you may notice if you’ve been to Washington, DC, is how young some of them are.

These are just two of many reasons that government shutdowns so quickly raise alarms within the Beltway. When a financial crisis hits, affected workers often don’t have much in the way of savings or other financial resources to see them through.

Within two weeks of the shutdown, we were already hearing stories of congressional staffers taking out loans to make ends meet—most likely because inflation and their high cost of living had already pushed their budgets to the brink.

Fortunately, the major credit unions serving federal workers, including the US Senate Federal Credit Union and the Congressional Federal Credit Union, offer zero-interest loans to help their members keep food on the table.

Unfortunately, these are short-term, small-dollar loans—typically for $5,000 to $10,000—with no payments due for 90 days. At the outset of the shutdown, 90 days probably seemed like more than enough time, but now, who can say?

When those 90 days are up, the full loan balance will be due. This could be a major issue for some borrowers, depending on how long the shutdown lasts and whether they use the full amount of their loan.

What if a federal worker can’t afford to repay the entire balance because they used all of the proceeds and are still just scraping by? What can they do?

The special zero-interest loan can be converted to a traditional personal loan, though at prevailing interest rates that would be based on the applicant’s credit standing and scores. That would be difficult for many who may have missed or skipped payments on unsecured debts during the shutdown.

However, there are other options worth exploring to protect your finances.

Contact your creditors.

If you have accounts at any of the major banks—whether a mortgage, credit card, or car loan—contact them immediately to let them know about your situation. Many have short-term payment forbearance programs (a temporary pause or reduction of loan payments) and fee waivers to help their customers survive this unique, though now frustratingly common, circumstance.

When you call, ask when payments will resume, which fees will be waived, and whether any special terms will apply. This can help you maintain your good credit in case the shutdown persists and you need to convert your 90-day federal credit union loan to a personal loan.

Look into unemployment insurance.

Many furloughed federal workers may be eligible for unemployment insurance. The program for federal civil servants is called Unemployment Compensation for Federal Employees. UCFE is administered by the states, so you’ll need to apply for relief in the state where you live. You can find your state unemployment insurance agency and application here.

If money is getting tight, work on this option immediately, as most states have a mandatory one-week waiting period before you can receive benefits. While each state’s benefit formula is different, you can expect to receive about one-third to one-half of your salary, up to whatever the maximum benefit may be. A full table of the minimum and maximum weekly benefits is available here (current as of January 2025).

If you’ll eventually receive back pay after the shutdown ends, you’ll probably have to repay any UCFE benefits received. Individual state laws vary, but if you receive back pay, you’ll likely be found to have an unemployment insurance overpayment, which the state will want to recover from you. As soon as your back pay comes in, repay your state to avoid any potential penalties.

Ask family or friends for help.

If you have family or friends who are willing and able to help you stay current on necessary expenses, now is an appropriate time to ask.

It’s better to accept a lifeline from someone you know than to remain silent, damaging your credit and falling deeper into debt. If your family or friends can safely contribute, both parties should know when and how you’ll repay them. Just remember not to put their finances in jeopardy, too.

Pause before withdrawing from a Thrift Savings Plan or 401(k).

If you’re a federal worker considering a withdrawal from your Thrift Savings Plan, consider that as a last resort. If you’re younger than 59-and-a-half years of age, you could incur a 10% penalty in addition to having to count the borrowed amount as ordinary income at tax time. The same consequence applies to 401(k)s, 401(a)s, 403(b)s, and traditional IRAs.

Beyond that, you could be creating a much bigger hole in that account than the amount you withdraw. And you would miss out on future compounding returns from the money you withdrew, which can significantly affect your total retirement savings.

Be cautious and choose lenders carefully.

Finally, keep your circle tight. Don’t reach out to lenders you’ve never heard of that offer loans at ridiculously low rates. Scammers come out in droves during desperate financial times.

Stay away from debt settlement companies that advertise the supposed “secret the banks don’t want you to know.” There’s no right to settle a debt in this country, and very few people save much money through settlements.

The same is generally true when it comes to credit repair schemes. You can easily do everything a credit repair company would do for you, for free, and you’d save a bundle by avoiding their monthly fees.

If you’re not sure who to trust or how to make ends meet, reach out to any agency that belongs to the Financial Counseling Association of America. Its nonprofit credit counseling agencies can help you understand your credit report, prioritize your bills, create a budget to meet this emergency, and establish a reasonable and effective recovery plan for whenever the shutdown ends.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Martin Lynch is president of the Financial Counseling Association of America.

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