Adjustable Debt Ceilings

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Are you experiencing debt ceiling debate burnout? I am. Will they, won’t they…compromise…oh my. Who’s right? Is August 2nd truly the drop dead deadline…this time? More questions than answers abound.

With all the talk about the looming crisis and speculation of events surrounding an avoidable default, I find it funny that apparently debt ceiling increases were pretty routine in years gone by. According to the Congressional Research Service, the debt ceiling has been raised 74 times since 1962. Shoot, our elected officials voted to raise it 10 times during the last administration alone.

So what is the debt ceiling? It’s basically the credit limit that congress approves for the federal “credit card”. Unlike a credit card, congress can to raise the limit whenever convenient. How often do we adjust our personal debt ceilings? Each time we accept a higher credit limit, we vote for an increase. Ever signed up for a balance transfer promotion and kept the original card? Yes, I’ll refinance my house and cash out the equity. You guessed it, more debt please. Raising our personal debt ceiling has the tendency to lead to higher debt levels.

Some say if the debt ceiling isn’t raised by August 2nd, we could experience:

  • Higher interest rates
  • Dramatic cuts in federal services
  • Higher taxes to cover the shortfall
  • Negative ripple effects in both domestic and foreign stock markets

No one knows. We’re in uncharted territory. I do know that getting out of debt, personally, is a great way to insulate your household from financial turmoil that may or may not ensue with this crisis or the next. While Republicans, Democrats, and others fight over will they or won’t they, let’s use this time of fiscal insecurity to get serious about putting our own financial houses in order and do away with our adjustable debt ceilings for good.

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