Untitled2It began with 800,000 furloughed workers, but the longer the federal government shutdown lasts, the more widespread the impact will become. In fact, no one is immune to hardship stemming from this political fiasco, given the potential for rising interest rates, suppressed economic activity nationwide, and significant market volatility.

But in light of the fact that different areas of the country depend on the federal government for employment and taxpayer dollars to differing extents, it’s fair to wonder who stands to take the biggest hit as a result of continued Congressional rancor. And in an interesting — if not ironic — turn of events, it seems that Republican-leaning states are at the greatest overall risk.

WalletHub on Tuesday released a report gauging the shutdown’s relative impact on each of the 50 states as well as Washington, D.C., taking into account each jurisdiction’s reliance on Social Security funding, veterans’ benefits, student aid, Small Business Administration loans, healthy real estate markets, federal employment, and government contracts — all of which have been affected by the shutdown or will encounter significant difficulties without an immediate debt limit resolution.

The report found that 15 of the 25 most at-risk states went Red during the 2012 presidential election, adding perspective to notion that heel-dragging politicians are acting in the best interests of their constituents. That list includes a number of the most populous states in the country, such as Georgia, South Carolina, Tennessee, Arizona, and Missouri.

Screen shot 2013-10-11 at 9.38.53 AMNevertheless, the shutdown and debt limit debates are neither local nor partisan issues. All of our bank accounts are at risk as a result of overall economic disruptions. And while so much is currently out of our hands as citizen bystanders, there are indeed a few steps that we can take as managers of our own personal finances to mitigate potential damage as we proceed into the unknown.

Shutdown-Proofing Your Finances

The biggest consumer concerns stemming from the shutdown and debt ceiling have to be short-term cash flow issues, potential increases in the cost of borrowing, and investment volatility. While there’s no way to completely eliminate such problems, we can certainly reduce their long-term effects on our net wealth and credit standing by:

1. Building Up Cash Reserves: Not only is it wise to build up cash positions in order to limit stock market exposure, but adjusting your budget to divert certain discretionary expenses toward emergency fund contributions (if possible) will also put you in a better position to ride out future economic turbulence without becoming delinquent on bills or incurring a lot of expensive debt.

2. Diversifying Assets: Certain commodities (like gold) and market sectors (like utilities and food services) tend to outperform other areas of the stock market (including tech, healthcare, financial services, industrials, etc.) during times of economic distress. As a result, expanding your exposure to more resilient investments will help counteract potential losses in other segments of your portfolio.

3. Obtaining New Lines of Credit: Credit cards provide a great solution to temporary cash-flow concerns, given their minimal fixed costs and the fact that you don’t have to pay your full balance every month in order to stay current on your bill.  So, if you anticipate needing some additional spending power as the shutdown ages, apply for additional credit as soon as possible. It takes a couple of weeks to process a credit card application and mail out plastic under normal circumstances, and issuers are likely being inundated with new applications as people attempt to adjust to this limited-government environment.

4. Consolidating Variable Rate Debt:  If the government defaults on its loans, interest rates for credit cards, auto loans, mortgages, etc., will go up in accordance with investors requesting higher rates of return on Treasury bonds. That means anyone with variable-rate debt would face potentially significant cost increases. You can overcome such debt instability by using a fixed-rate loan to pay off your current lenders and consolidate amounts owed.

5. Seeking Flexibility from Financial Institutions: Believe it or not, financial institutions aren’t inherently evil. They are, however, image conscious. The combination provides opportunities for consumers affected by the shutdown to ask for due date flexibility, low-cost loans, and other accommodations given the unique political and economic circumstances currently complicating our finances.

6. Continue to monitor your bills and balances: Keeping a watchful eye on your finances, including tracking your spending and paying your bills on time, is always a good idea, especially when it comes to shutdown-proofing your money. Try a bill and account management service, such as Manilla.com, which lets you view all of your bills in one place and sends you text and email reminders when your bills are due.

The aforementioned adjustments might ultimately prove unnecessary, and hopefully so, but you certainly don’t want to bank on that.  After all, ignoring the old Boy Scout mantra to “always be prepared” could leave your bank account barren if politicians don’t wake up and free us from this unnecessary bad dream soon.

Odysseas Papadimitriou is CEO of the personal finance websites CardHub and WalletHub.

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