Hitting Your Debt Ceiling?
I am sure by now everyone has at least heard about the crisis the Government faced in the past few months, which was often referred to as the debt ceiling. Fortunately, a deal was approved to avoid default for the time being.
In the weeks following that I have heard many people question their own debt ceiling. In many ways the two are comparable. Let’s analyze this for a moment in simple terms. Among numerous things, one of the main responsibilities the government is held liable for is the economy. Americans expect that debts are paid on time, and obligations are met.
What are you held liable for in your life? Well you may not be held liable for the economy, however you are held liable for your “household” economy. Your family is depending on you to pay your debts and meet any obligations. Taking into account your obligations do vary greatly from the government, however they are not any less important.
Let me give you an example, if you don’t pay the mortgage for a few consecutive months than your family will be facing foreclosure. To compare this, if the government doesn’t pay armed forces for a period of time than the soldier’s family will be unable to pay bills as well. When you look at that example the government and you have very common and equally important responsibilities.
The government was faced with the grim reality that they were facing default, and that steps needed to be taken immediately to attempt to balance the budget. Americans pondered the questions could this have been avoided months ago instead of waiting until the 11th hour? Why was planning not put into place before a crisis was brewing? These are all questions that we are so quick to ask the leaders of our country, yet do we have the answers for our own financial situation?
On a personal level how do you know when changes need to made in your budget to avoid default? Are there red flags you look for? Are there steps you take to avoid hitting your own “debt ceiling”? These are all questions that many people can’t answer and that are scary facts. If the Government crisis taught us anything it should be let’s have a plan so we don’t face a crisis in our own household. Below are some signs that are you are heading toward financial hardship.
- Savings account is slim to none. Everyone should have an emergency fund of a minimum of 3 months living expenses.
- Using your credit card for necessary purchases, because of lack of cash.
- Making minimum payments on debts, such as credit cards or loans.Minimum payments are the sure way to stay in debt and pay thousands in interest.
- Lying about purchases or fighting with your spouse about money. Finances are the number one cause for divorce.
- Payday Loans. Payday loans are an advance of funds from your paycheck and they are very costly. Avoid this route at any cost.
- Getting denied credit or loans.
- Robbing Peter to pay Paul. In other words using one credit card to pay off another.
- Your credit cards or loans are at the maximum credit limit or very close to it.
If those signs do not relate to your financial situation then consider yourself lucky, however a financial crisis can happen in a short period of time. Be vigilant of your “economy” at all times. Below are some suggestions you can take to avoid hitting your debt ceiling.
- Know your budget and know it well. It amazes me how many people have no idea what comes in or goes out every month. You should be aware of all income and debt obligations. According to a CNN Money Article U.S Banks will make 38.5 billion in overdraft fees this year.
- Don’t be late with any bills. It will affect your credit and cost you more money, such as a late fee.
- Pay down your debts as much as possible to free up more cash to put toward retirement or savings accounts.
- Refinance your car or house if possible. Many people are stuck in high interest loans. Shop around and see if you can qualify for a lower rate.
- Improve your credit score. This should be a task that you continue to practice all year. Credit is so important in all factors of your life. A good credit score can secure a low insurance premium, employment and loans.
- Bundle insurance. It never seems to surprise me how many people have insurance policies through various lenders. The majority of insurance companies offer a multi line discount.
- Be sure you have health insurance. An unplanned stay at the hospital or other medical emergency can put you in thousands of dollars of debt.
