Guest blog: Kristen Hagopian on Surviving the Downgrade

Did last week's downgrade of U.S. debt followed by a roller-coaster ride on the Dow unnerve you? Well, according to a local expert in living within your means, what better way to prepare for financial tumult than to start living more frugally?

Kristen Hagopian (pictured at right), Chester County-based author of "Brilliant Frugal Living," provided me with her latest blog post on the topic:

Surviving the Downgrade

Okay, so unless you’ve been under a rock for the last week or so, you’re aware that U.S. debt has been downgraded. Yes, it’s unprecedented, it’s unnerving, it is also eventually reversible down the road if we truly get our act together, and in the meantime, it’s survivable. The key to minimal financial headaches in the meantime is to familiarize yourself on the ripple effects of the downgrade, and how you can protect yourself and your household.

As a result of the downgrade, American debt will be more risky for our creditors, and as a result, it will cost more for the United States Government to borrow money. As a result, it will cost you more to borrow money as well. Ripple effect: higher interest rates on credit cards, car loans, possibly home loans, etc. Prepare yourself now, and you can respond with a focused financial strategy.

Credit Cards: When it comes to your personal plastic, start paying the balances down NOW. Do whatever it takes, shop at the discount groceries regularly from now on, you’ll save thousands that you can then put onto your credit card balances. Looking for clothes, gifts, housewares? Shop at the thrift stores and save another bundle. If it’s feasible, go out one less day every week to save on gas. It all adds up huge, and those savings need to be used to pay down any outstanding credit. You will soon be paying more for your borrowing (sound familiar?), so reduce your debt spending, show Washington an outstanding example, and prevent your own debt from being “downgraded” by your lenders.

Stock Market Holdings: Worldwide stock markets have been all over the map with uncertainty in this past week. On one channel you hear an expert saying the uncertainty has panned out and you should buy-buy-buy the bargains, switch to another channel and another so-called expert is shrieking to sell-sell-sell and save yourselves. If you have sizable holdings in the stock market, for the sake of clarity and sanity, have a talk with a reputable financial advisor for straight talk on where they think the market (and your particular portfolio) could be better protected so as to ride out the bumps with a minimum of Tylenol.

Higher taxes – Independent of the downgrade, we’ve known for some time that tax loopholes are going to close and cap tax expenditures. Have a talk with your accountant, see how these changes might affect your household, and see how you can invest your money in ways that will minimize your (possibly) increasing tax burden.

Car loans – If you’re in the market for a car, do yourself a favor. Save your money and buy a used car with cash, rather than going for a car loan with (higher than expected) interest rates.

Home loans – If interest rates go down, fantastic, I’ll be one of the first to try to refinance. If interest rates go up, you’re looking at higher costs on home loans. If there is any “silver lining” in this, it’s that home prices may come down a bit more in response to the higher interest rates. Rotten news if you’re looking to sell, but somewhat helpful if you’re looking to buy. There has never been a better time to invest in real estate. The bigger the down payment, the better.

Bottom line: The best thing you can do for your financial sanity? Take a deep breath. This latest lunacy too shall pass. In the meantime, protect yourself, your household, your portfolio, and your bank account by thinking frugally on all of your purchases, living within your means, and generating a sizable nest egg for emergencies. Then, run for office (you’ll get my vote!), and show the folks in Washington how it CAN be done.

Kristen Hagopian is a motivational speaker, columnist & author of "Brilliant Frugal Living." Catch more money-saving tips via radio (or livestream) when she hosts “The Brilliant Frugal Living Show” every Tuesday at 11 a.m. on Philadelphia’s WFYL 1180am (www.1180wfyl.com) Her book is available at www.BrilliantFrugalLiving.com.