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What federal workers can do to generate some cash amid the government shutdown

Key Points
  • Furloughed federal employees may be able to tap loans from federal credit unions with zero interest for up to 60 days.
  • Your emergency fund is the best source of back-up cash to help pay your bills in the meantime.
  • Be wary of tapping retirement funds, margin loans and credit cards to get by.
President Donald Trump participates in the signing ceremony for the First Step Act and the Juvenile Justice Reform Act in the Oval Office of the White House December 21, 2018 in Washington, DC.
Win McNamee | Getty Images

As the partial shutdown of the federal government continues, workers are grappling with a looming worry: How will they pay their bills?

While members of Congress and President Donald Trump remain at an impasse over funding for a border wall, about 800,000 federal employees are expected to be furloughed or working without pay.

The U.S. Office of Personnel Management's verified Twitter account posted sample letters for affected federal workers to use with landlords and creditors as they request relief from any monthly payments during the stoppage.

"This isn't the first time there's been a shutdown, and it won't be the last," said Marguerita M. Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.

She is keenly aware of this as her husband is a federal employee, but his agency — the Pension Benefit Guaranty Corp. — is remaining open.

Click here for a list of federal agencies and their contingency plans amid the shutdown.

Here's how federal workers can shore up their finances and get through the lean times ahead.

Hit the phones

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Get in touch with the federal agency you work for to determine whether you are being furloughed and find out what resources are available.

In some cases, federal credit unions are offering furlough relief loans to help affected workers remain afloat in the short-term.

For instance, the Congressional Federal Credit Union has a relief line of credit with an initial rate of 0 percent for 60 days. After that, the rate on the remaining balance is 4 percent.

Take stock of spending

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If you're about to be less flush heading into January, draw up your monthly budget and see what you can slash during the shutdown, said Cheng.

If you have outstanding loans, including mortgages and student debt, be sure to contact your creditors to make them aware of your situation.

"Most agencies also have a process in place for employees that they can use to reach out to creditors and landlords to ask for some relief," said Patrick Amey, a CFP at Aspyre Wealth Partners in Overland Park, Kansas.

Your cash sources

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If you're unsure about your next paycheck, this is the time to turn to your emergency fund as a backstop.

The standard rule of thumb is to maintain enough cash to cover three months to six months of expenses, said Bryan Beatty, a CFP and partner at Egan Berger & Weiner in Vienna, Virginia.

Chart asset: Bankrate emergency savings 2018

The next best alternative could be a zero-interest furlough loan or line of credit from a federal credit union, Beatty said. Remember, the zero-interest period runs for a limited amount of time — typically up to 60 days.

If you already have a home equity line of credit open and available for draw-down, this might be a potential source of emergency funding.

Consider that the average rate on a so-called HELOC is 5.64 percent, compared to the average credit card rate of 17.56 percent, according to Bankrate.com.

The downside of taking out a HELOC is that the interest rates tend to be variable. Further, if you're using the line of credit for purposes other than renovating your home, you won't be able to deduct the interest on your taxes.

Risky business

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Be wary of taking money from these sources:

Your retirement plan: Government workers who participate in the Thrift Savings Plan and are furloughed may take loans from their retirement savings if the furlough is expected to last 30 days or less.

You may not take the loan if your leave goes beyond that period.

Just because you can borrow from your savings, doesn't mean you should. Once you pull money from your retirement plan, those dollars are no longer at work in the market.

Also, you'll need to repay the money. Failure to make the appropriate repayments could result in your loan being declared a taxable distribution.

Credit cards and cash advances: Credit cards could save you in a pinch, but interest rates now exceed 17 percent. Cash advances on a credit card often come with extra charges, typically between 1 percent and 5 percent, according to MagnifyMoney.

Margin loans: If you own a brokerage account, you may be able to borrow from it. But that could be a bad idea, especially amid the recent market volatility.

The problem is that your brokerage firm will require you to keep a minimum balance in your account when you borrow against your investments. If the market declines sharply, your account balance could fall below the required minimum.

In that case, your brokerage firm will make a margin call and you could have less than 24 hours to deposit cash into your account or else your firm will sell your assets.

"This would exacerbate your problem because you'd have to come up with the capital for the margin call," said Beatty.

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