Saturday, August 06, 2011

What is Your Debt Ceiling

The US debt ceiling is a limit that is set by Congress on the amount of debt the federal government can borrow. The debt ceiling cap applies to debt owed. The debt ceiling is similar to the total debt a person owes to their creditors.
Every day the federal government spends more money than it takes in and makes up the difference by borrowing money. As a result, every day, the government’s debt increases. Every day Americans spend more money than they earn and make up the difference by using credit cards, lines of credit, and home equity loans (HELOC) or other loans. As a result, their total debt owed increases. The government needs to balance the budget which will require reductions in spending. Americans need to create their own personal budget or spending plan and make reductions in their daily spending. An individual balanced budget consists of: 35% for housing (rent/mortgage and housing related costs), 15% transportation (car payment, maintenance/repairs, insurance), 15% debt (excluding mortgage), 10% savings, and 25% remaining expenses (entertainment, food, cable tv, internet, etc.)

A budget doesn’t have to be restrictive. Stars and athletes have budgets; they hire accountants to keep track of their money so why shouldn't you keep track of yours? Seventy percent of Americans live paycheck to paycheck and forty percent live above their means. When your budget is out of balance you go into debt which can lead to serious financial problems such as foreclosure, bankruptcy, etc.

Creating a budget shows accountability for your spending and identifies your SEO – what you spend, what you earn, and what you owe and reduces credit card usage. Make your budget flexible so you have additional money to pay for unexpected expenses. You budget should include savings. Here are 7 tips to creating a budget.
1. Subtract monthly expenses from your monthly income after taxes. If the total is negative or less than 5% of your total monthly income this is a red flag that you need to make some major adjustments to your budget.

2. Track daily, weekly or monthly.

3. Keep all your receipts and reconcile your bank accounts.

4. Use automated software tool, pen and paper or the envelope method.

5. Create short and long term financial goals.

6. Use money left over in budget to create a savings account and pay down debt.

7. Use automatic paycheck deduction or online bill payment.

8. Verify your bank statements with your monthly receipts.

Here are 12 tips to get out of debt:

1. Stop using your credit cards. Pay cash for all purchases until you pay off all of your debt.

2. Downgrade or downsize. Move into a smaller and less expensive home or apartment. Trade in your luxury car for a car with no note or a cheaper car payment.

3. Compare. Comparison shop before making a purchase to get the best deal. Use sites like,, to find bargains.

4. Insurance. Buy insurance for health, life, disability insurance. Buy bundled services to save money with the same company and ask about discounts.

5. Setup a debt payment plan with your creditors. Setup a debt payoff plan to prioritize your bills. By using the debt snowball method you will be able to quickly pay off some of your debts. Start by paying off the smallest bills first, then use the money paid towards a previous bill and apply it to the next bill and continue this process until all your debts are paid.

6. Sell Items. Sell items not used within the past 3 months or more on eBay or Craigslist.

7. Get current on late payments. Pay off collection accounts, tax liens and judgments as soon as possible.

8. Pay on time. Pay balance in full each month prior to the due date or as soon as you receive the bill which helps to avoid paying finance charges.

9. Negotiate. Contact the companies to negotiate a lower interest rate, get fees waived or change terms if your account is in good standing.

10. Pay more than minimum. If pay the minimum monthly payment your payment may not cover the cost of interest and finance charges that accrue on the balance. Send more than the minimum monthly payment each month to help your balance will go down faster.

11. Clothing. Shop at discount stores, buy clothes in off-season, check out discount racks at stores and ask if stores if they honor competitor coupons. Buy a few jackets and mix and match pieces to stretch your wardrobe.

12. Helping Others. Don't open joint accounts or co-sign for loans. If they don’t pay you are responsible for the debt.

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