How Will the Chicago Debt Crisis Affect Residents Struggling with Debts of Their Own?
It’s tough enough to struggle with your own debt – but what if you were also on the hook for your city’s massive financial troubles? That’s exactly the problem facing thousands of Chicago residents today.
Despite its position as an economic powerhouse in the Midwest, the Windy City is in trouble. Decades of financial mismanagement have culminated in an estimated $87 billion in debt in the form of unfunded government pensions, health insurance and numerous other debts.
Divvy that bill up among Chicago’s 2.7 million residents, and each person – from babies to retirees – is responsible for about $30,000. For many of us, this is a number on par with our own personal debts. Among the nation’s 25 biggest cities, no municipality has a larger per-person debt burden.
Meanwhile, the city has continued to pile on new debt, selling $650 million in bonds in recent weeks. And as a result of the city’s financial woes, Moody’s has downgraded Chicago’s credit status three notches so far (just four away from junk bond status), spiking interest rates - while companies have begun what could become a mass exodus as the cost of doing business skyrockets.
As of this fall, the unemployment rate in Chicago was 9.2 percent – higher even than California.
So what’s a Chicago taxpayer to do? In short: Be prepared. By taking action now, it’s possible to insulate yourself – at least somewhat – from the city’s spiraling debt crisis.
Hope for the Best, Prepare for the Worst
If you live in the Chicago area, it’s time to take matters into your own hands. You might not be able to lower the city’s debt but, to some degree, you can control the effect the growing debt load has on your family’s finances. Many of the same methods that helped families prepare for the recession can be applied to Chicago’s current debt debacle.
As jobs dry up and families flee the Chicago area, some amount of layoffs is inevitable. Those fortunate enough to keep their jobs could see reduced benefits, wage cuts (or at least stagnant incomes) and fewer hours – especially in the public sector.
If you haven’t built up an emergency savings fund yet, this is the time to start. Experts recommend having at least six months worth of living expenses in a liquid account for emergencies like job loss and other unexpected hits to income.
But if you have a long way to go to create your cash cushion, don’t be discouraged; remember that it’s better to save anything than nothing. The sooner you start socking away rainy-day funds, the sooner you’ll have enough saved to actually make a difference. If you’re lucky, you’ll never have to dip into your emergency account and can apply it all to retirement savings – another area Chicago residents should be thinking about.
With unfunded pensions making up the bulk of the problem, Chicago employees should reevaluate their retirement savings. Saving smarter today could help make up for lost benefits when you retire.
Make a budget and figure out how much you can apply toward your retirement savings each month. Consider diversifying your investments with a variety of bonds, stocks and CDs. With so much riding on your retirement investments, you definitely don’t want all your eggs in one basket.
Meanwhile, consider investing in your education. When employers get more selective, having technology training or becoming an expert in your field can help you stand out. Whether you’re going back to school or going after your first degree, community colleges and online schools offer the most affordable solutions. Many employers also offer tuition reimbursement programs.
Make sure to take indirect effects of the debt crisis into account with your spending plan: rising taxes, growing utilities bills and a possible shortage of public services, from police to schools.
If you can, you might want to hold off on large but unnecessary purchases, such as upgrading to a new car or a larger home – at least until you see how the financial fiasco plays out. Home prices in Chicago are likely to decline, so waiting may benefit you in the long run. On the other hand, this might be the right time to downsize.
Manage Personal Debt
Of course, one of the most obvious ways to protect your finances is by averting your own debt crisis.
Just like the city of Chicago, consumers carrying too much debt will suffer credit downgrades, higher interest rates, and an eventual downward spiral of financial woes. Getting rid of crushing debt through bankruptcy can allow for a fresh financial start by getting creditors off your back, allowing your credit score to improve and freeing up funds for everyday costs – not to mention protecting your home from foreclosure.
By filing for personal bankruptcy, you can ensure your family is in the best possible position to weather the storm if Chicago files for bankruptcy. And if we get lucky and the city manages to recover from this mess, you’ll still benefit from a stronger financial foundation.
For more ideas for buffering your finances from Chicago’s debt crisis, contact DebtStoppers to schedule your one-on-one personal debt analysis with an expert bankruptcy attorney in Chicago.