Personal Finance

What Moody’s downgrade of U.S. credit rating means for your money

Published

7 hours ago

May 19, 2025

Business Finance News

A woman shops at a supermarket on April 30, 2025 in Arlington, Virginia.

Sha Hanting | China News Service | Getty Images

Moody’s decision to downgrade the U.S. credit rating may have consequences for your money, experts say.

The debt downgrade put immediate pressure on bond prices, sending yields higher on Monday morning. The 30-year U.S. bond yield traded above 5% and the 10-year yield topped 4.5%, hitting key levels at a time when the economy is already showing signs of strain from President Donald Trump’s unfolding tariff policy.

Treasury bonds influence rates for a wide range of consumer loans like 30-year fixed mortgages, and to some extent also affect products including auto loans and credit cards.

“It’s really hard to avoid the impact on consumers,” said Brian Rehling, head of global fixed income strategy at Wells Fargo Investment Institute.

Moody’s lowers U.S. credit rating

The major credit rating agency cut the United States’ sovereign credit rating on Friday by one notch to Aa1 from Aaa, the highest possible.

In doing so, it cited the increasing burden of the federal government’s budget deficit. Republicans’ attempts to make President Donald Trump’s 2017 tax cuts permanent as part of the reconciliation package threaten to increase the federal debt by trillions of dollars.

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“When our credit rating goes down, the expectation is that the cost of borrowing will increase,” said Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management in Washington, D.C.

That’s because when “a country represents a bigger credit risk, the creditors will demand to be compensated with higher interest rates,” said Johnson, a member of CNBC’s Financial Advisor council.

‘Downgrades can raise borrowing costs over time’

Americans struggling to keep up with sky-high interest charges aren’t likely to get much relief any time soon amid Moody’s downgrade.

“Economic uncertainty, especially regarding tariff policy, has the Fed — and a lot of businesses — on hold,” said Ted Rossman, a senior industry analyst at Bankrate.

Atlanta Fed President Raphael Bostic said on CNBC’s “Squawk Box” Monday that he now sees only one rate cut this year as the central bank tries to balance inflationary pressures with worries of a potential recession. Federal Reserve Chair Jerome Powell also recently noted that tariffs may slow growth and boost inflation, making it harder to lower the central bank’s benchmark as previously expected.

Moody's U.S. downgrade may be politically driven: Standard Chartered

Douglas Boneparth, another CFP and the president of Bone Fide Wealth in New York, agreed that the downgrade could translate to higher interest rates on consumer loans.

“Downgrades can raise borrowing costs over time,” said Boneparth, who is also on CNBC’s FA council.

“Think higher rates on mortgages, credit cards, and personal loans, especially if confidence in U.S. credit weakens further,” he said.

Which consumer loans could see higher rates

Some loans could see more direct impacts because their rates are tied to bond prices.

Since mortgage rates are largely tied to Treasury yields and the economy, “30-year mortgages are going to be most closely correlated, and longer-term rates are already moving higher,” Rehling said.

The average rate for a 30-year, fixed-rate mortgage was 6.92% as of May 16, while the 15-year, fixed-rate is 6.26%, according to Mortgage News Daily.

Although credit cards and auto loan rates more directly track the federal funds rate, the nation’s financial challenges also play a key role in the Federal Reserve’s stance on interest rates. “The fed funds rate is higher than it would be if the U.S. was in a better fiscal situation,” Rehling said.

Since December 2024, the overnight lending rate has been in a range between 4.25%-4.5%. As a result, the average credit card rate is currently 20.12%, down only slightly from a record 20.79% set last summer, according to Ted Rossman, a senior industry analyst at Bankrate.

Credit card rates tend to mirror Fed actions, so “higher for longer” would keep the average credit card rate around 20% through the rest of the year, Rossman said.

‘We’ve been through this before’

Before its downgrade, Moody’s was the last of the major credit rating agencies to have the U.S. at the highest possible rating.

Standard & Poor’s downgraded the nation’s credit rating in August 2011, and Fitch Ratings cut it in August 2023. “We’ve been through this before,” Rehling said.

Still, the move highlights the country’s fiscal challenges, Rehling said: “The U.S. still maintains its dominance as the safe haven economy of the world, but it puts some chinks in the armor.”

Personal Finance

3 red flags to avoid

Published

4 hours ago

May 19, 2025

Business Finance News

South_agency | E+ | Getty Images

‘People don’t know a lot about tariffs’

Tariffs are taxes on goods imported from other countries, paid by the entity importing those goods. Businesses in turn often pass the cost of tariffs along to consumers in the form of higher prices.

In April, U.S. President Donald Trump enacted sweeping tariffs of varying rates affecting more than 180 countries and territories. Last week, the U.S. and China struck a deal to temporarily suspend most tariffs on each other’s goods. The U.S. also recently unveiled a trade agreement with the United Kingdom.

Despite the recent trade agreements and deals, consumers still face an overall average effective tariff rate of 17.8%, the highest since 1934, according to a recent report by the Yale Budget Lab.

James Lee, president of the Identity Theft Resource Center, said it’s not unusual for scammers to take a government action — whether that’s a new program or policy — and use it for the basis of a scam.

Scammers “will use the fact that people don’t know a lot about tariffs,” Lee said.

AI generated deepfake scam is 'phishing with a twist', says Fortalice Solutions CEO Theresa Payton

The PreCrime Labs team at BforeAI, a cybersecurity company, discovered about 300 domain registrations from cybercriminals related to tariffs in the first few months of the year. Some spread misinformation while others are financial scams aimed at businesses and consumers.

One site the company found was a newly registered phishing domain positioned to lead consumers to believe they are required to make payments to a legitimate governmental entity.

“Such payment requests are likely to be spread using email or messaging campaigns with a theme of urgent, pending payments, directing victims to the fraudulent site where their actions will result in financial losses,” researchers noted.

Some package payment requests are real

There are some cases where consumers might legitimately pay for products purchased from another country, namely, customs duties. Sometimes the U.S. Customs and Border Protection will charge consumers a processing fee in order to release an imported good.

“That’s not common, but it’s also not unusual,” said Lee. “It really does depend on what it is, where it’s coming from.”

Some consumers have also recently reported receiving legitimate payment requests from carrier companies after a purchase in order to receive their shipments, the Washington Post reports.

Some carriers are acting as the importer of record, meaning they are responsible for any duties, taxes and fees that are applied to the delivery, said Bernie Hart, vice president of customs of Flexport, a logistics firm.

If the carrier did not collect those additional fees for the product up front, the carrier will charge the end consumer those additional costs through a follow-up bill, he said.

This tactic might not last, because it creates a lot of inconvenience for both companies and shoppers, Hart said: “It’s not good for anybody in this process to give somebody a surprise bill.”

Tariff scam red flags

It’s easy for anyone to fall victim to a fraud scheme, said Ruth Susswein, director of consumer protection at Consumer Action.

If tariff policies continue to be in flux for longer, criminals will have more time to craft sophisticated attacks on consumers, said the ITRC’s Lee.

Your top priority is to avoid sharing personal information like Social Security numbers, bank details or account login credentials, especially under the guise of “tariff processing,” said Payton.

Here are three red flags to watch out for, according to scam experts:

1. Unsolicited and urgent messages

Emails, texts, or social media ads promising “tariff relief,” “vouchers,” “exemptions,” or urgent offers like “pay now to avoid tariffs” are likely scams, Payton said.

Not only are legitimate retailers unlikely to encourage tariff evasion tactics, but also the urgency is meant to pressure consumers into accepting, she said.

Also question unsolicited phone calls, emails or text messages about a package held up in the post office because of an unpaid fee, said Lee.

If you receive a request to pay import fees or duties on a purchase, look for the form 7501, which is an official government document detailing the import, said Hart.

2. Suspicious site links, emails

Scammers will create fake websites, emails and phone numbers to mimic retailers or government agencies, Payton said. If you receive a message, check for misspellings and URLs or email addresses that don’t match that of the supposed company or entity — say, a message from a “U.S. government official” that does not come from a dot-gov email.

You can use tools like WHOIS, a database that stores information about registered domain names and IP addresses, to authenticate the website and confirm registration details, she said.

3. Lack of transparency

Reputable merchants would clearly label tariff-related fees at checkout and provide contact information for inquiries, Payton said. Otherwise, the “lack of transparency is a red flag.”

Personal Finance

Trade tensions spur consumers to spend less on discretionary purchases

Published

12 hours ago

May 19, 2025

Business Finance News

A customer shops in an American Eagle store on April 4, 2025 in Miami, Florida.

Joe Raedle | Getty Images

After a bout of panic buying, more consumers are prepared to rein in their spending and live with less, recent studies show. Even President Donald Trump suggested that Americans should be comfortable with fewer things.

“[Americans] don’t need to have 250 pencils,” Trump said on NBC News’ “Meet the Press.” “They can have five.”

According to a study by Intuit Credit Karma, 83% of consumers said that if their financial situation worsens in the coming months, they will strongly consider cutting back on their non-essential purchases.

Over half of adults, or 54%, said they’ll spend less on travel, dining or live entertainment this year, compared to last year, a new report by Bankrate also found. The site polled nearly 2,500 people in April.

“Moving forward, people may not be able to absorb these higher prices,” said Ted Rossman, Bankrate’s senior industry analyst. “It sort of feels like something has to give.”

Economy is ‘at a pivot point’

While many Americans are concerned about the effect of on-again, off-again tariff policies, few have changed their spending habits yet. Up until now, that is what has helped the U.S. avoid a recession.

Because it represents a significant portion of Gross Domestic Product and fuels economic growth, consumer spending is considered the backbone of the economy.

“Consumers are still spending despite widespread pessimism fueled by rising tariffs,” said Jack Kleinhenz, chief economist of the National Retail Federation. “While tariffs may have weighed on spending decisions, growth is coming at a moderate pace and consumer spending remains steady, reflecting a resilient economy.”

However, now the economy is “at a pivot point,” according to Kleinhenz.

“Hiring, unemployment, spending and inflation data continue in the right direction, but at a slower pace,” Kleinhenz said in a recent statement. “Everyone is worried, and a lot of people have recession on their minds.”

Most recent Fed Survey shows surging probability of recession

Trump’s tariffs jump started a wave of declining sentiment, which plays a big part in determining how much consumers are willing to spend.

“Any time there is this much uncertainty, people tend to get a little more cautious,” said Matt Schulz, chief credit analyst at LendingTree.

The Conference Boards’ expectations index, which measures consumers’ short-term outlook, plunged to its lowest level since 2011. The University of Michigan’s consumer survey also showed sentiment sank to the lowest reading since June 2022 and the second lowest in the survey’s history going back to 1952.

“The cumulative effects of inflation and high interest rates have been straining households, contributing to record levels of credit card debt and causing consumer sentiment to plummet,” Rossman said.

Tack on the Trump administration’s resumption of collection efforts on defaulted federal student loans and many Americans, who are already under pressure, will suddenly have less money in their pockets.

As it stands, roughly half — 47% — of U.S. adults would not consider themselves financially prepared for a sudden job loss or lack of income, according to recent data from TD Bank’s financial preparedness report, which polled more than 5,000 people earlier this year.

Another 44% of Americans said they think about their financial preparedness every single day.

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Personal Finance

Student loan borrowers brace for wage garnishment

Published

2 days ago

May 18, 2025

Business Finance News

US Secretary of Education Linda McMahon attends the International Women of Courage Awards Ceremony at the State Department in Washington, DC, on April 1, 2025.

Brendan Smialowski | Afp | Getty Images

Jason Collier, a special education teacher in Virginia, often needs to wait until payday to fill up the gas tank of his car — and in the meantime hopes he doesn’t run out.

“Money is tight when you’re a teacher,” Collier, 46, said.

Now he’s afraid that the U.S. Department of Education will soon garnish up to 15% of his wages because he’s behind on his student debt payments. Collier said he hasn’t been able to meet his monthly bill for years, while juggling the expenses of raising two children and medical expenses from a cancer diagnosis.

If his paycheck is garnished, “it would just be more of a pinch,” Collier said. “If I need a car repair, or something comes up, I might not be able to do those things.”

The consequences are punitive and sometimes tragic.

James Kvaal

former Education Dept. undersecretary

After a half-decade pause of collection activity on federal student loans, the Trump administration announced on April 21 that it would once again seize defaulted borrowers’ federal tax refunds, paychecks and Social Security benefits.

More than 5 million student loan borrowers are currently in default, and that total could swell to roughly 10 million borrowers within a few months, according to the Education Department.

The Biden administration focused on extending relief measures to struggling borrowers in the wake of the Covid pandemic and helping them to get current. The Trump administration’s aggressive collection activity is a sharp turn away from that strategy.

“Borrowers should pay back the debts they take on,” said U.S. Secretary of Education Linda McMahon in a video posted on X on April 22.

Student loan default collection restarting

More than 42 million Americans hold student loans, and collectively, outstanding federal education debt exceeds $1.6 trillion. The Education Department can garnish up to 15% of defaulted borrowers’ disposable income and federal benefits, as well as their entire federal tax refunds.

“In an environment where the cost of living remains stubbornly high, this kind of withholding from your income can pose real problems when trying to make ends meet, and force people into choosing between vital expenses,” said Nancy Nierman, assistant director of the Education Debt Consumer Assistance Program in New York.

Most people who default on their student loans “truly cannot afford to pay them,” James Kvaal, who served as U.S. undersecretary of education for former President Joe Biden, said in an April interview with CNBC.

“The consequences are punitive and sometimes tragic,” Kvaal said.

A retiree who can’t go home now

Marceline Paul and her grandson

Courtesy: Marceline Paul

Marceline Paul is homesick.

But if the Trump administration begins garnishing her Social Security benefit next month, there’s no way she’ll be able to afford a trip back to Trinidad. She moved from there to the United States in the ’70s.

“I need to go home,” said Paul, 68, who worked for decades in the health care industry and retired during the Covid-19 pandemic to take care of her sick mother.

The student debt she had taken on for her daughter was the last thing on her mind during that time, she said: “I couldn’t focus on anything else.”

She felt terrified when she received a recent notice from the Education Dept. that her retirement check could be offset. Nearly all of her income comes from her monthly Social Security benefit of around $2,600. Social Security benefits can generally be reduced by up to 15% to repay student debt in default, so long as beneficiaries are left with at least $750 per month.

“When I saw that email, it made me sick to my stomach,” Paul said.

Already on a tight budget in retirement, the garnishment will force her to cut back on her everyday expenses, skip necessary repairs on her house in Maryland and forgo traveling to her home country.

“I don’t know the last time I had a vacation,” she said. “I’ve paid into the system and I should be able to retire.”

More than 450,000 borrowers ages 62 and older in default on their federal student loans and likely to be receiving Social Security benefits, the Consumer Financial Protection Bureau found earlier this year.

Collection activity begins despite chaotic time

Over the roughly five-year period during which the Education Dept. suspended its collection of federal student loans, there have been sweeping changes and disruptions to the lending system.

Millions of borrowers who signed up for the Biden administration’s new repayment plan, known as SAVE, or the Saving on a Valuable Education program, were caught in limbo after GOP-led lawsuits managed to get the plan blocked in the summer of last year. Many of those borrowers will now have to switch out of a Biden-era payment pause and into another repayment plan that will spike their monthly bill.

But in recent months, the Trump administration has terminated around half of the Education Department’s staff, including many of the people who helped assist borrowers.

Now some student loan borrowers report waiting hours on the phone before being able to reach someone about their debt, despite the Trump administration telling borrowers to contact it to get current.

The Education Department did not respond to a request for comment.

Borrowers try and fail to get current on their loans

Kia Brown, who works as a management analyst at the Department of Veterans Affairs, wants to start repaying her student loans again — but she said she’s run into numerous challenges trying to do so.

“The biggest issue I have is the lack of information,” said Brown, 44.

When she signed up for Biden’s SAVE plan, she could afford her monthly student loan bill of $150. But now that plan is blocked and she’s worried she won’t be able to afford her new payment.

She received conflicting information over whether her student loan servicer was Mohela or Navient (millions of people have had their accounts transferred between companies in recent years.) When she tried to reach someone at Navient about her student debt, she was on hold for more than two hours.

Meanwhile, a representative at Mohela couldn’t tell her what her new student loan payment would be, though she was quoted $319 by the company’s automated phone system.

Mohela and Navient did not respond to a request for comment.

Brown is still not sure which company is managing her account.

“The narrative is that people are dodging their payments,” Brown said, but added that she doesn’t think that’s true for many borrowers. “I truly believe many people will be blindsided due to lack of guidance on how to repay.”

If she’s not able to reach someone at the Education Dept. to get current on her payments and her wages are garnished, it’ll be a significant hardship for her family, she said.