Avoiding a Personal Debt Ceiling

Consumer Advocate Offers Steps for Smart Debt Management

Washington, DC, July 14, 2011 – With the government on track to hit its $14.3 trillion borrowing limit on August 2nd, the average consumer may feel far removed from the debt ceiling discussions currently taking place on Capitol Hill. But the federal red ink is not confined to Washington, D.C. – it spills over to Main Street as well. According to Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP®, the issues elected officials must tackle to get the public finances into shape are distressingly similar to those faced by indebted consumers.

“Our national problem with debt belongs to us all,” Blayney said. “It is a startling fact that the aggregate amount owed by U.S. consumers to their creditors is approximately equal to, if not slightly greater than, our government-held debt.”

While Congress and the Obama Administration work toward a solution for our national debt issues, we could all take action to manage our debt better. Here are four key steps for responsible credit management at any size:

1. Keeping the costs and benefits of borrowing in the same time period. Whether it’s a night out on the town or keeping the lights on in federal offices, long-term debt should never be used to pay for things we enjoy or use today. These costs should be paid in full now, not carried forward into next month or into a future election cycle.
2. Understanding that good credit is more than just the ability to borrow money. In today’s world, credit has become synonymous with trustworthiness. Without good credit it’s difficult to get a job, rent an apartment or maintain status as a dependable trading partner or global economic power.
3. Managing the loopholes is necessary, too. There’s a lot of fine print to take into account, whether in our tax code or in our credit card agreements. We cannot keep our focus on just the going “rates” when it comes to our debt: the special situations matter, too. For Congress, this requires careful examination of all the special deductions and allowances that limit our tax revenues. For consumers, this requires understanding all the hidden fees involved in using credit.
4. Taking a multi-prong approach to debt control. The debate on Capitol Hill notwithstanding, there is no single solution to ongoing deficits: both more revenue and less spending need to be considered. Translated for the consumer, reducing debt effectively may require several simultaneous strategies: managing income, investments, taxes, and spending as well as revising overall financial goals. CFP® professionals specialize in providing this multi-faceted approach to consumer debt management, as well as to other financial issues.

Blayney also encourages everyone to keep a close eye on how Washington chooses to deal with this approaching national crisis as the outcome affects us all.

“What they decide at the macro level could have a troubling impact on how we manage our own finances, especially if interest rates skyrocket for mortgages, credit cards and other forms of business and personal credit,” Blayney said.

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