Government workers have faced administrative, and emergency furloughs before and during COVID-19, but the pandemic made it worse than ever. Find out how government employees can take advantage of the resources needed to get out of debt.
The pandemic has upended the lives of all Americans, including federal, state, and local government employees. Some government workers are so involved with the pandemic that they are working every day. In contrast, others have been furloughed or had their hours reduced as local and state governments facing economic shortfalls cut back on staff.
While overtime work and overtime hours are fantastic, many Federal Government employees are not adding to their thrift savings plan as much as they should be. If you work for the federal government, make sure you contribute at least 5 percent since that percentage will get matched by the government. This plan has produced a few millionaires from ordinary GS pay scale workers, so you should be contributing from day one of your employment. Any overtime you make should be put into savings.
On the other hand, while furloughed employees are likely to receive back pay for their weeks out of work, the waiting period can put you into debt because of the disruption in your income. Those who now have reduced hours, or are furloughed, should immediately engage in cost-cutting. However, if possible, continue to contribute to your retirement. Also, try to avoid using your retirement money until you are retired.
If you are a government worker in debt or know one, this guide can help you keep debt minimized and get out of any debt you have.
Table of Contents:
Create a budget to understand spending
Many people get into debt because they don’t realize how much they are spending. It’s too easy to get complacent and make charges without thinking about it. A budget helps you stay on track.
Make a budget by actively recording how much you spend and learning what everything is truly costing you. Then you can dedicate the amounts you want to pay for each service and product you buy.
Action item: Start that budget today. Write down how much you spend on everything. Then decide what you want to keep. You can use apps such as Mint, programs such as Quicken, or use spreadsheet budgeting through Tiller.
Allocate savings in case of furloughs
During a recent federal shutdown, nearly two-thirds of federal employees did not have enough savings to cover a single two-week pay period. Regardless of their GS Payscale, many federal employees get used to the “guaranteed” income and begin to live paycheck to paycheck. Don’t fall into that trap.
Action item: Start setting aside a portion of your income in savings to cover emergencies and long-term goals. Even if you never get furloughed, you’ll still have other emergency bills such as a car or home repair.
Focus on long-term stability with a TSP
The TSP (Thrift Savings Plan) is an investment and retirement plan expressly set up for federal employees and members of the uniformed services. It’s similar to a 401(k) plan in that it is a “defined contribution plan,” which means that the income you receive during retirement is based upon what you put into it now. For state employees, you can find information on the retirement system (plan) for your state by clicking here. For example, if you work for Florida, be sure to contribute to your FRS (Florida Retirement System).
Write down your economic goals
Are you planning to become debt-free, buy a house, take a long trip, have a dream wedding, or have some other economic goal in mind? Write down these goals, including when you want them to occur and how much they should cost. Studies show that people who write down goals are far more likely to achieve them. Then remember your goal when you are about to purchase something you may not need.
Action item: Use the worksheet below to write out three financial goals that you have with details on how much and how long you will save to achieve that goal.
Don’t feed the sharks
Avoid payday loans at all costs. Payday loans are a trap that no government worker needs to get involved with. Seek out your credit union or other organizations that can help, such as Military OneSource, which is overseen by the Department of Defense and serves members of all branches of the military. Watch out for other “easy” financing schemes such as no money down cars, easy credit cards, furniture rental, etc. Often their interest rates are much higher than you can get with traditional financing.
Don’t let debt affect your job/security clearance
A debt of any kind can have a unique effect on government workers. According to the Navy’s Judge Advocate General’s Corps (JAG), excessive debt may impact a security clearance investigation or clearance review. Fortunately, one of the conditions that could mitigate security concerns includes receiving counseling. Many Federal and Military employees have security clearances that could be placed in jeopardy because of debt. If you plan to become a police officer, be sure your credit is clean, and you don’t have debt that hasn’t been addressed.
Plan how to pay for childcare
If you are working overtime hours or are returning to your position after reduced hours/furlough, you’ll have to account for childcare costs. Childcare can be pretty expensive. Many parents, government employees or not, do not plan to pay for childcare, and 45% of them wind up using their credit cards to pay, which causes them to be in debt. The Office of Personnel Management has a child care subsidy program that you should be aware of, which applies to any child under the age of 13, and disabled children under 18. However, with an average of $750 per month for each child, the cost of childcare can be high.
Action item: Be sure to account for the increased cost of childcare if your child is part-time at a center or if that child will need full-time care once you return to work. Do not go into debt to pay for childcare.
Opt-in to your healthcare plan and add family
Federal employees have one of the nation’s best health plans, and every family member should be covered.
Adult children up to age 26 can be covered even if…
- they are married
- don’t live at home
- are in college
- are not financially dependent
- or have a healthcare option through their employer
This plan also extends to stepchildren, adopted children, and born out of wedlock children. Be sure to have your family members opt into this coverage. Coverage is available to temporary, seasonal, and intermittent employees as well. Medical bills can add up very quickly without insurance. And we all know of people who are in medical debt.
Action item: Sign up for the health insurance plan(s) offered as soon as you can, and have family members opt-in as well. If you are not full-time, ask to see if you qualify.
Enroll in a Flexible Spending Account (FSA)
A Flexible Spending Account, (FSA) is a program where government workers (civilian workers also have the same program) can allocate a small portion of their salary (before taxes) to be put into accounts that are dedicated for medical, dental, or dependent care.
For the most part, FSA’s are “use it or lose it,” so try to pick the amount you intend to allocate after reviewing your health care needs or dependent care needs from the previous year. This is a fantastic way to save on out-of-pocket expenses and avoid debt.
Action item: If the option is available to you, enroll in an FSA as soon as you can.
Add a second income
Seeking a second income is a great way to pay down debts and earn additional income to start savings or investments. However, government workers can’t work in jobs or have businesses that conflict with their official duties and responsibilities. So, be careful in the types of jobs or companies you begin to work with. Remember that you may not use your public office for private gain as a government employee, and you can’t give preferential treatment to any organization or individual.
Action item: You can get a second income going, but be careful not to have that job interfere or conflict with your present job. When in doubt, talk with your supervisor to ensure you will not violate any rules before you start applying for side jobs.
Debt relief options for government workers
Debt Consolidation Loans
One of the benefits of working for the government, whether federal, state, or local, is that payroll is regular and verifiable. Because of that steady income, getting a loan to pay off debt, often called a debt consolidation loan can be easier to obtain.
With this type of loan, you combine all of your unsecured debt into one easy monthly payment. The payments and interest rates are fixed, so borrowers do not have to worry about changing interest rates or payments. Choose this type of loan if you have good credit but struggle to meet your monthly minimums on your credit cards.
TIP: If you’ve been furloughed and your income has been reduced, then you can adjust the term of the loan to reduce the monthly payment amount. Use a loan calculator to determine the maximum monthly payment you can afford at your current income.
Debt Management Program
An alternative option is a DMP or Debt Management Program. If your credit has been damaged from cutbacks or furloughs, this might be a good solution. This option works for those who can make the designated and agreed-upon monthly payments. The total monthly payments on a DMP are reduced by 30-50%, on average, so this can work even if your income has been reduced by a furlough. The overall interest rate on your debts will drop, allowing you to save time and money as you get out of debt.
A debt management program will not result in any negative credit report notations. Most creditors will agree to bring past-due accounts current after three payments. What’s more, since you repay your debt in full with the help of a credit counseling organization, this should not affect your security clearance. However, always ask your supervisor to ensure you take the right course of action.
Debt settlement can be a third option for getting out of debt, but it not recommended for anyone who is concerned about risking their security clearance. The program works by negotiating with your creditors so you only pay back part of what you owe. This allows you to get out of debt faster, however, it will result in some damage to your credit. Your credit report will note settled debts for seven years from the date each account became delinquent.
Government workers who are far behind on their payments and considering bankruptcy may want to look at this option. If you have security clearance, make sure to talk with a supervisor or financial counsel to ensure settling debt will not affect your status.
You have many options to deal with your debt before it gets out of control. Remember that having debt can affect your stress level and possibly your job.
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Article last modified on April 26, 2023. Published by Debt.com, LLC