Talk of the U.S. debt ceiling is all the rage these days, as Congress and the Obama administration continue to wrangle over the budget and whether the Congress should raise the statutory limit once again. While the executive branch does have some options and loopholes to navigate around the limit in the short run, the reality is that the debt ceiling imposes very real restrictions on the operation of Congress and some fiscal restraints on the U.S. government. (Follow these five steps to manage debt without cutting up your credit cards. See How Much Debt Can You Handle?)
If the U.S. debt ceiling serves a useful role in limiting how far the country's government can extend itself before answering to the people's representatives, it is worth wondering whether there is a role for something similar in personal finances. In other words, do you need your own debt ceiling?
Advantages of a Ceiling
If nothing else, a personal debt ceiling can help a person stay out of trouble and keep debt at a level that can be managed within a person's current income. To some extent almost every individual does operate with a debt ceiling - there is a limit to how much lenders will loan out. Unfortunately, the point where creditors like credit card companies will cut off a borrower is often well past that borrower's actual economic capacity to manage that debt. By imposing a stricter personal ceiling, it is possible to lower the risk of serious problems like bankruptcy tied to profligate spending.
To read the full column, follow the link:
http://financialedge.investopedia.com/financial-edge/0611/Do-You-Need-A-Debt-Ceiling.aspx
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