Debt Limit

As our Federal government debates debt...

As our Federal Government debates the various options of the debt limit, let's put this in a personal context.

The debt limit is like a consumer credit card with an available credit figure. We consumers all know if we have a $5000 limit and owe $4800 that when we are approaching the credit limit. We are also well aware of the consequence of going over the credit limit. Certainly we would lose the credit line temporarily (until we get back under the limit) and our card will be refused at retailers. Next we are hit with an "overline fee" by the credit card company. Most are around $39 whether the line is exceeded by $1 or $1000. A costly mistake for certain.

I am not going to get into a debate on the government in this blog. Just know that if the balances owed on credit cards are continuing to go up year after year, month after month....there is a spending problem. Without question an increased balance owed on a credit card means that for that particular year the consumer spent (bought) more than they brought in. That's a deficit and hurts finances long term. If this pattern continues for multiple years...the problems are severe.

There is a reason that a credit score is lowered by up to 255.0 credit scoring points based on the size of debt compared to the available credit. This ratio indicates whether a consumer is spending more than is made. Not a good thing for sure.

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