WASHINGTON Many thousands of U.S. federal government workers could face painful choices in the coming weeks: will they cut the cable or the dog walker or the therapist? Skip the car payment or student loan? Cash in their savings or borrow from their retirement plans?
The automatic budget cuts - termed "sequestration" in Washington parlance - are slated to trim $85 billion from the federal budget between March 1 and September 31, 2013, the end of the federal fiscal year.
Federal employees have not been affected yet - furloughs typically won't start for 30 days or more and an alternative budget agreement may be reached before then. But some federal workers and the financial organizations that support them - mostly federal credit unions - are laying the groundwork for desperate measures down the road.
At USAA, Pentagon Federal Credit Union, Navy Federal Credit Union and others, special arrangements are being announced for furloughed workers. Members will be allowed to cash in certificates of deposit without paying penalties, take short-term loans and make overdrafts in checking accounts at little or no interest. Some might even be able to skip loan payments.
That may help people like Maria Njoku, 27, a civilian employee at the Department of Defense who makes $46,000 a year as an information assistant. "I live paycheck to paycheck and it's going to hit me hard," said Njoku, who recently moved out of her parents' home and is still paying off student loans.
She will keep up the loan payments, but Njoku says she has already called her telephone and cable service providers to inquire about forbearance on her monthly bills if her paycheck is cut by an expected 20 percent. However, those service companies were unwilling to talk deals until the cut happens, she said.
ARRANGING LOAN PAYMENTS
Keeping the money flowing to creditors is a big issue for many workers who expect lighter paychecks. Robert Chapman, a certified public accountant and financial adviser in Pittsford, New York, said one of his clients - a senior Pentagon official - recently refinanced three cars and an almost-paid-off mortgage into a new home loan, in part because the client was expecting to be furloughed.
Another federal worker based in Maryland - who did not want to be named but is also expecting a one-day-a-week furlough - said she was preparing to take money out of her savings to pay off her car loan, so she wouldn't have to contend with car payments.
With workers at some agencies bracing for involuntary unpaid furloughs of as much as 20 percent of work hours, "it's all they want to talk about now," said Karen Schaeffer, a Rockville, Maryland, financial planner who does money management seminars for government workers. "Especially the younger workers who are in a panic."
Not all federal workers are quite as concerned. At some agencies, the furloughs will be smaller. Older workers closer to retirement "are annoyed, but not panicked," said Karen Schaeffer, a Rockville, Maryland financial planner who does money management seminars for government workers.
Some government workers who have better financial cushions are looking forward to extra time off. According to Schaeffer, they are also are holding out hope that a budget fix down the road could net them a lump sum repayment of hours lost during a furlough.
"We aren't seeing any calls outside of the usual from folks who are concerned or worried about sequestration," said James Schenck, executive vice president of the Pentagon Federal Credit Union.
Financial advisers are offering tips to workers who may have to contend with less pay, and the unpredictability of not knowing how long furloughs, canceled overtime and other pay-trimming measures may last.
Eleanor Blayney, consumer advocate for the Certified Financial Planner Board of Standards, has advice for workers who could be affected: try to cut 2 percent of annual expenses for every week you expect to be furloughed. Other suggestions for workers include boosting insurance deductibles to lower premiums and cutting back on entertainment budgets and grocery bills.
Blayney also advises workers to keep making automatic loan payments out of their paychecks - for example, to repay loans from their federal retirement accounts. It is important to make sure those payments continue even if the paychecks get cut, she said.
A retirement account loan that doesn't get repaid in a timely manner could end up being classified as an early withdrawal, and that could cost more - in penalties, income taxes and lost retirement benefits - than a few weeks of furlough.
(With additional reporting by Jim Wolf. Editing by Lauren Young and Leslie Gevirtz)