What Will Congress’ Latest Move Mean For Your Financial Future?

Some of the highlights from the budget include an extension of Trump’s 2017 tax cuts through 2028, which is expected to lower income tax rates most for high-earning Americans; a temporary end to federal tax on overtime pay and tips; as well as a new “Trump Account” for children born between 2025 and 2028, which provides tax-free savings seeded with $1,000 in each account.

But cuts to Medicaid and food assistance programs threaten financial instability for millions of low-income families. The Congressional Budget Office estimates that nearly 12 million people could lose Medicaid coverage by 2034, which means people may have to go without medical coverage or take on debt.

Here’s what a few NerdWallet experts have to say about how the bill will impact home buyers and owners, taxpayers, small business owners, and anyone who takes out loans or uses credit cards.

Sara Rathner, credit cards, personal finance expert & writer:

An increased federal deficit could lead to higher interest rates long-term, making debt more expensive. This is particularly the case for credit cards, as they charge variable interest rates that would rise. Average credit card interest rates are currently near 22%, according to the Federal Reserve, and consumers who currently have debt are already feeling the squeeze as it is.

This could be a good time to look for ways to lower interest rates as you pay down debt, whether that’s through a balance transfer credit card with a 0% APR promotion, or a lower-interest personal loan.

Another issue is a reduction in funding to the Consumer Financial Protection Bureau. The watchdog agency has historically penalized financial institutions for consumer-unfriendly practices, but they won’t be as robust a resource as they have been in the past. That means it falls to individuals to keep a close eye on their accounts for any inaccuracies, or promised features that aren’t delivered.

This legislation will have a significant effect on Americans who rely on Medicaid and Affordable Care Act, or ACA, health insurance coverage. People on Medicaid will face strict new work requirements for able-bodied adults, and there will be more red tape and paperwork as eligibility checks happen every 6 months instead of every 12 months. It’s very likely that people will lose coverage even if they still qualify, just due to the administrative burden. It’s also likely that some hospitals in rural areas that rely on Medicaid funding will reduce services or close, meaning that people in those communities may have to travel far or go without care if they get sick or injured.

For Americans with ACA health insurance coverage, people will have to re-verify eligibility for tax credits each year, adding an additional hurdle to renewing. The bill also doesn’t extend ACA subsidies that help people pay for coverage, and if those expire, ACA health insurance costs will go up substantially, placing real stress on people’s budgets and potentially resulting in people dropping health insurance. Many immigrants who are legally residing in the U.S. will also lose access to ACA subsidies, forcing many of them to end coverage and raising rates for people who remain on plans.

Early in the week, mortgage rates fell to their lowest levels since April. But rates bounced higher Wednesday and Thursday as the Senate and then the House passed the bill. With a rapidly growing national debt, investors might charge higher interest rates to the government. If that happens, mortgage rates are likely to rise on the same tide.

The new law will benefit a few million homeowners who itemize deductions and also pay mortgage insurance. These homeowners will be able to deduct mortgage insurance premiums from their taxes. It will make homeownership slightly more affordable. This marks a return of the PMI tax deduction, which was available from 2007 through 2021. During that period, about 3.4 million homeowners claimed the deduction each year, for an average deduction of $1,454, according to U.S. Mortgage Insurers.

The new law raises the limit on the state and local tax deduction to $40,000 from the previous cap of $10,000. The deduction allows taxpayers to deduct state and local taxes, including property taxes, when filing their federal income tax returns. Quadrupling the deduction’s cap will mostly benefit people who earn a lot of money in places with high income taxes and property taxes.

There are a variety of things for Americans to watch for from this legislation. For families, the child tax credit will be increased to $2,200 from $2,000, and the introduction of Trump Accounts may provide an additional way for parents to save for their children’s future, although there are pros and cons to the accounts. For Americans in high cost-of-living areas, a boost in the SALT cap to $40,000 from $10,000 could allow them to deduct more from their income taxes, although there’s an income phaseout at $500,000.

Americans 65 or older will see a temporary “bonus” deduction of up to $6,000 on their income taxes, available to single filers making up to $75,000 in modified adjusted gross income or $150,000 for married filing jointly. And car buyers will be able to deduct up to $10,000 of interest per year on new auto loans, although this perk is also income limited. As promised, people making tip income may benefit from a provision allowing them to deduct up to $25,000 for qualified tips, depending on their income. And people making overtime pay may be able to deduct up to $12,500 (or $25,000 for joint returns), depending on income. Keep an eye out for these changes in any tax software you’re using, or ask your tax professional about them to make sure you’re taking full advantage.

On the more negative end, cuts and changes to the SNAP program will affect low-income households and may put a further strain on already tight budgets. And the bill ends tax credits for filers buying or leasing a new or used electric vehicle at the end of September, so act now if an electric car is on your wish list. Tax breaks are also ending for Americans who make energy efficiency changes to their homes. If you’re hoping to claim this credit, projects must be completed by the end of 2025.

Kate Wood, home and mortgage, student loans expert & writer

Many current federal student loan borrowers have felt stuck in limbo as the status of different student loan repayment plans has been uncertain. This bill may not deliver the news they were hoping to hear, but it provides some clarity. Borrowers may also feel a little relieved that they do not need to take any action immediately. These changes don’t begin to take effect for another year, and there’s always the potential for legal challenges.

Among the many changes to federal student loans included in this bill: Three income-driven repayment plans — Income-Contingent Repayment (ICR), Pay As You Earn (PAYE) and Saving on a Valuable Education (SAVE) — will be phased out beginning in July 2026. Current borrowers will have two years to switch to a modified version of the Income-Based Repayment (IBR) plan, the standard repayment plan or the new Repayment Assistance Plan (RAP). The RAP plan will be the only income-driven repayment option new borrowers will have.

Many existing borrowers will see higher monthly payments under these new plans, though the current iteration of the bill at least allows more time to change plans. As of now, student loan forgiveness still appears to be on the table, though RAP requires up to 30 years of repayment first — a longer repayment timeline than any current plan.

This bill allows ACA marketplace subsidies to expire at the end of the year, and if that happens, it will substantially raise costs for the many small business owners who rely on ACA health coverage. A lot of small businesses and their employees also rely on Medicaid for health care, so Medicaid cuts and new, stricter eligibility requirements will result in many people losing access. Small business owners are going to have to find creative ways to either cut costs to afford health care or get coverage elsewhere, and that’s going to be a real challenge. This will also be a hurdle for prospective small business owners and entrepreneurs, who may decide that health insurance costs make it prohibitively expensive to enter the field.

Taking on massive amounts of debt to cover exorbitant spending is generally not good financial advice, whether you’re managing a household or the world’s largest economy. But in the case of the U.S. economy, effective solutions when spending consistently dwarfs revenues can be painful and unpopular. This legislation may reduce spending in pockets, but does so in ways that stand to negatively impact financially fragile households while actually worsening the U.S. debt problem in the long term.

Some households may see some benefits from the legislation — primarily through taxation changes. But some could lose food assistance, have fewer student loan repayment options or find their healthcare coverage more costly or entirely eliminated.

From a big picture perspective, expected short-term growth as a result of the legislation gives way to negative long-run impacts. These long-term effects include a rising deficit leading to increasing debt which drives up interest rates and slows economic growth.