“US Debt Ceiling” is the most common topic of discussion these days. Did you watch the President’s response over the debt-ceiling crisis? If you are not aware of the concept of debt ceiling, here is a quick definition for you.
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Debt Ceiling is the maximum amount of credit that the government can borrow with the sale of Treasury Bonds. The current debt ceiling of US stands at $16.6999 Trillion and according to the Treasury Department, this limit will be exhausted on 17 October 2013. Without a raise in the debt limit, there are chances that the government may default on their obligation such as social security money or interest paid on treasury bonds.
How does the debt ceiling affect you?
The important question is the effect of debt ceiling raise or default over the American citizens. The effect of debt-ceiling crisis may vary from one individual to another. Here are some important facts stating the affect of debt ceiling on your financial status.
- Stock market might fall: Are you investing for your retirement? In case of a default, stock market will take a huge hit effecting millions of businesses and individual investors. Any of your investments or retirement plans would take a severe hit during the crisis.
- No more loans: In the event of failure of increasing the debt ceiling, the lenders will have limited money to offer. If you are looking for a mortgage or applying for a car/house loan, you might have to rely on your savings only. It will affect student loans, home loans, auto loans, and any type of mortgages.
- Value of Dollar could fall: There is a possibility that the cost of living could go up and the Dollar might lose its value against foreign currencies. It will have a direct impact on your monthly expenses.
- Increase in unemployment: Most of the leading businesses rely on credit for payroll responsibilities and day-to-day expenses. Without the availability of credit, there might be job cuts in the next few months.
- Skyrocketing Interest Rates: Do you often charge for products and services you cannot afford? A default would increase consumer credit excessively and add to the overall national debt. The banks and financial institutions would be forced to increase the interest rates. In the process, American bonds will lose their value and it will directly affect the retirement fund of the US.
Best practices during Debt Ceiling Crisis
It might sound a bit strange that how the debt ceiling can affect your complete lifestyle. The best option is to be prepared for such a crisis. Some important tips to survive the crisis are:
- Save extra cash in savings account: The best option is to save some extra money in your savings account. Keep a separate fund for emergencies. It will help you in surviving the debt-ceiling problem and repair your credit score effectively.
- Pay your debt quickly: The worst effect of a default situation would be an increase in the interest rates and it will affect every individual. It is best to work hard for your debt reduction and cut any unnecessary expenses whatsoever.
- Improve your credit decisions: It is high time to stop spending money over the products and services that you cannot afford. Consider any high charging payment and make sure that you will be able to pay it back in a timely manner.
Debt Ceiling will certainly affect consumers at every level. It is time to take precautions to weather the storm ahead. Let us hope that the debt ceiling would be raised shortly!