The stand-off between President Obama and Republican Congressional leadersÂ over whether or not to raise our federal governmentâ€™s debt ceiling continues to be a center of focus for Washington and the rest of the country.
A debt ceiling, simply put, is a cap on how much money the federal government can owe. It is currently set at $14.294 trillion, and the debate is over whether that number should be raised before the government defaults. Much like our government, consumers should be aware of their own personal debt ceiling, as consumer debt totaled $11.5 trillion at the end of the first quarter.
An article by CNBC provides five tips for maintaining your own debt ceiling:
- Keep a lid on total debt. The NFCC suggests that housing, including mortgage, should account for no more than 30 percent of your take-home pay. All other debt obligations (like credit cards and car payments) should total no more than 20 percent.
- Understand how your credit report can affect your life. CNBC says that about six in 10 employers conduct credit checks, as well as landlords. Having debt will have a significant impact on your credit score.
- Remember that â€œgood debtâ€ isnâ€™t as good as it used to be. â€œGood debtâ€ are debts such as student loans and mortgages, which are generally supposed to make you money in the long-run. But now, todayâ€™s graduates might end up with low-paying jobs or none at all, which can make student loans hard to pay back. And similarly, home equity is shrinking along with housing prices.
- Donâ€™t take on credit card debt that will linger. The average interest rate on credit cards with variable rates is 14.42 percent. Jeff Kostis, president of JK Financial Planning inÂ Vernon Hills, Ill. told CNBC, â€œThe target should be to have no more consumer debt than you can pay off in 12 to 18 months.â€
- Pay attention to fees and fine print. Always be cautious of hidden fees and other costs when using credit. There can be fees for phone support, foreign transaction fees, over-the-limit fees and even inactivity fees. So when using credit, make sure you understand all the fees and penalties you might be subject to.