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Even though the U.S. has just increased its cap on borrowing and thus avoided default, a credit downgrade — from the coveted AAA status down to AA – is still possible. Not only would Uncle Sam have to pay higher borrowing rates, but you would, too, because many interest rates are pegged to U.S. Treasuries.

Among the consequences:

Higher mortgage rates
Estimated increase: up .25%-1% (hsh.com)
As if lending standards weren’t tight enough, some borrowers may find it even more difficult to get approved for a mortgage (thus, further depressing an already weak housing market). Already own? Looking to refinance? Consider locking in rates sooner rather than later.

Spike in credit card rates
Estimated increase: up 1% (smartcredit.com)
First, the good news: The CARD Act prevents interest rate hikes retroactively – on existing balances.  This protection does not extend to new charges, however.  That’s where you’d get hit. All the issuer is required to do is give you 45 days notice prior to raising rates, which currently average 14.08%.

Private student loans will cost more
Estimated increase: up .25%-1% (finaid.org)
Just to put this into perspective: if you are paying off an existing student loan – say, $25,000 at 10% interest over 10 years – you could see payments rise from about $330 a month to $344, with an extra $1,680 in interest costs over the life of the loan. New private student loans would be even costlier.

Car loans will be more expensive
Estimated increase: up .25%-.50 (hsh.com)
Considering the five-year note for a new car loan is around 4% and the average amount financed on a new car is $27,173, even a 1% rise in rates would only mean a difference of about $12/ month. Even so, that’s $144 a year that we’d rather have in our pockets.

Jobs will be even harder to come by
Companies are sitting on record stockpiles of cash — some $1.9 trillion – -and yet they have been reluctant to hire for any number of reasons, from not being convinced that the consumer is ready to spend freely again to their desire to work their existing staff to the bone (Why not squeeze three jobs out of one worker? What’s an employee going to do in this market – quit???). Now, they’ll have another excuse: higher borrowing costs.

Vera Gibbons is a financial journalist based in New York City and is a contributor to Zillow Blog. Connect with her at http://veragibbons.com/.

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