How You Should Be Feeling About the Low Debt Ceiling

You may have heard the phrase “debt ceiling” being bandied about in the media recently. But few people outside of Washington D.C.’s Beltway, and in the current Congressional fight over raising it, truly understand what the term has to do with the proverbial “price of beans.” But financial experts warn that this unending political battle over how the country handles our national debt limit, could have lasting effects on average American pocketbooks.

First and foremost, the debt ceiling itself relates to the limit to how much money our federal government can borrow to pay for services. If  (and when) America needs to borrow more than the set limit, Congress must approve the hike. In the past, the legislative branch has rather simply increased the nation's credit limit and, in the process, raised the debt ceiling.

But fast forward to today, just a few years following the worst economic downturn since the Great Depression, and the United States faces an unprecedented challenge: a divided and partisan Congress stuck on how and what to do about our current national debt. As AOL’s DailyFinance found, “Our problem right now is that the United States is only a few billion dollars from reaching its $14.294 trillion debt limit, and our elected officials aren't ready pick the simplest choice, the one that past Congresses have made. This time: There's debate. Should they raise the debt ceiling in order to borrow more money? Or do they hold the line and start either defaulting on our debts or stop paying for other government outlays -- military and civil service salaries, for example? Do they cut federal spending, and if so, to which programs? Or do they raise taxes?  Yes, our taxes are tied to the debt ceiling. As long as our country is under its debt limit, it can easily borrow money by selling Treasury bonds. As Stan Collender, a partner at Qorvis Communications, explains, "given that the government currently only raises taxes to cover 60% of what it spends, being able to borrow means that the services people depend on from the government continue." If America hits its debt ceiling, that option would be off the table. In such a scenario, the government would have to raise taxes to fund the shortfall, cut services, reduce its payroll, or do all three.”

So, what does this mean for individual Americans like you and me?  Well, as America pushes its debt ceiling, bond rates from the U.S. Treasury (often owned by other countries like China) start going up. As a result, the interest rates on our car loans, mortgage loans, student loans, and credit cards, which are tied to bond rates, will also go up. Higher interest rates means more personal debt for average Americans already struggling to get by.

What’s worse is that higher interest U.S. bonds are often paid back from higher taxes. This means Americans aren’t only facing more debt, but less total income to use to pay it down.

This threat of higher taxation coupled with higher interest consumer debts is causing many to worry about the country’s overall financial future. As Daily Finance put it, “None of this is very encouraging, which is all the more reason we need to stay alert to how our Congressional representatives handle the debt ceiling issue.”

As many wait for the Congress to figure it all out, many others are taking the prospect of less income and higher debt into their own hands. Millions are considering bankruptcy.  While bankruptcy can’t keep taxes low, it can be used to dispense with high-interest consumer debt, freeing up average American households to hunker down for tough economic times and even save for what is becoming a “rainy decade.”

If you’re feeling threatened by a low personal debt ceiling, contact the bankruptcy lawyers at the Law Offices of John T. Orcutt. They offer a totally FREE debt consultation. Just call toll free to +1-833-627-0115, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.