Hitting your personal debt ceiling?

Just like the government, consumers have depended too much on borrowing and debt. Here's how to balance your personal budget.

By MSN Money Partner Aug 1, 2011 11:14AM

This post comes from Joe Montat partner site MainStreet.


While we chide government officials for how they have handled the nation's debt ceiling, many Americans are guilty of similar problems and have the opportunity to learn from Washington's mistakes.


Households and governments both, generally speaking, spend too much, rely too heavily on borrowing and need to strike a balance between incoming and outgoing money. According to Certified Financial Planner Board of Standards consumer advocate Eleanor Blayney, the issues that elected officials must tackle to get public finances into shape are "distressingly similar to those faced by indebted consumers."


"The total amount of debt outstanding for American consumers -- and that takes into account mortgages as well as revolving debt, auto loans and so forth -- is up there in the double-digit trillions as well," Blayney says. "We've got debt on all sides of us. Our government owes money, and we owe money. We are a nation of debtors."


As people look critically at Washington, "we are looking in the mirror and seeing ourselves," she adds.


All that debt leads to poor financial choices.


"When you get to the point where you are prioritizing the bills, having to make choices about what to pay, you know that you are in real trouble," Blayney says. "Even if we pay the minimum payment on time to allow us to pay our other bills, we are paying interest charges that are accruing. People are having to pay 18% or more for not being able to pay their bills on time." (What if I make extra payments?) Post continues after video.

Blayley offers five suggestions to rein in overspending and borrowing that can relate to people as well as to government:


Set a reasonable budget. "Our leaders are in a wrestling match about budgeting, but most consumers, I would say, do not have good budgets," Blayney says. "It really does take some hard looking at."


While politicians argue over discretionary and nondiscretionary spending -- and what budgets should or should not be cut -- households face the same debate. "One person's 'want' is another person's 'need,'" Blayney says. "You really have to look at your budget and be scrupulously honest in terms of what are wants and what are needs."


For a personal budget, expenses need to be in sync with earnings.


"It may mean downsizing, it may mean selling, or a number of things," Blayney says. "The point is that we all need budgets. We all need balanced budgets. The answer always lies in balance."


Pointing out that the best, most rational decisions are seldom made in times of crisis or up against a deadline, she says a budget needs to provide for building savings and an "emergency" fund for a job loss or other financial calamity.


Keep the costs and benefits of borrowing in the same period. Whether it's a night out on the town or keeping the lights on in federal offices, long-term debt should never be used to pay for things you enjoy or use today. These costs should be paid in full now, not carried forward into next month or a future election cycle.


Good credit is more than just the ability to borrow money. "Credit has become synonymous with trustworthiness," Blayney says.


Without good credit, it's difficult to get a job, rent an apartment or maintain status as a dependable trading partner or global economic power. (Estimate your credit scores for free.)


Manage the loopholes. There is a lot of fine print to take into account, whether in the tax code or your credit card agreements.


"We cannot keep our focus on just the going 'rates' when it comes to our debt. The special situations matter, too," Blayney says. "For Congress, this requires careful examination of all the special deductions and allowances that limit our tax revenues. For consumers, it requires understanding all the hidden fees involved in using credit."


Take a multitiered approach to debt control. The debate on Capitol Hill notwithstanding, there is no single solution to ongoing deficits. More revenue and less spending both need to be considered.


For consumers, reducing debt effectively may require several simultaneous strategies: managing income, investments, taxes and spending, as well as revising overall financial goals.


Blayney adds that everyone should be mindful of how a resolution to the debt ceiling debate -- and long-term policy moves -- might affect them.


"What they decide at the macro level could have a troubling impact on how we manage our own finances, especially if interest rates skyrocket for mortgages, credit cards and other forms of business and personal credit," she says. "The American government is not too big to fail, and the American consumer is not too small to listen."


More on MainStreet and MSN Money:


Aug 1, 2011 3:13PM
You can't compare the two...you are correct, consumers should keep a handle on what they spend, and not get over extended, etc. However if I choose to spend MY money & later default, it effects me, and only me. And if I do not want to default on my loans and do the right thing and pay them off, then I wll do it with my own money. The Government is not spending their money, they are spending MY/OUR money, & if they default, it doesn't effect the Government, it effects US! The President, Congressmen, & Senators, will still earn a living, & retire with full medical care and a six figure income, payed for, by you guessed it, YOU & I. Its frustrating when you really don't have any control over where the Government spends OUR money, but we end up paying the Bill!!
Aug 1, 2011 2:03PM
It's about time somebody wrote about this or even mentioned this despite the government crisis.  From watching all of the people responding in the local news papers, if people's personal finances were handed in the same fashion as our government finances, we would all be in debt up to our eye balls.  And amazingly, nobody cares or every has no problem owing somebody else.
Aug 1, 2011 3:49PM
If my personal debt was 7 times my annual income and I was borrowing 40 cents of every dollar I spend (like the Federal goverment does)  I doubt if I could last out the year.
Aug 1, 2011 3:22PM

Seems to me there ONE big difference here......the FEDS have NO money of their own, therefore easy to spend OPM, raise the debt ceiling, etc.....everyone else.....support the FEDS, support the freeloaders, support everything else they can come up to spend MY money.....yet at the end of the day.....I'm held responsible for my actions and the FEDS are not!  There are many instruments in place that lower ones debit ceiling without them even knowing, you can't buy more house than you can afford,( at least not these days ), you can't get a loan for more than the bank feels you can pay back, you can't have a unlimited credit line on your credit card, you can't go on a wild spending spree and NOT pay for the outcome.  Sorry, Joe Mont, MOST folks do know their debt ceiling has been lowered and lowered and lowered!

Aug 1, 2011 4:43PM

It is rediculous what our government has done with our money, and it is true that some people do the same thing...borrow from Peter to pay Paul, as my parents have put it. 


I knew that school was expensive, so I worked in the summers while in high school to help pay for it ahead of time.  I also got a full time job while going to school full time once I went to college.  I paid for almost all my tuition on my own, while my parents helped out for basic necessities once in awhile.  Once out at 21, I had saved enough to put a small ($1,000) down payment on a condo.  I realized that this small amount would be fine to buy a small place I could actually afford in the future, instead of spending more than was wise.  I also knew that a mortgage is cheaper than rent....so I saved for the future rather than party and waste all my money on 'now' like everyone around me.  I still live in my 500 sq. ft. condo, 7 yrs. later, with my new husband.  I love having a low cost to pay for my mortgage, which is about 1/2 what rent is around town. 


This is not to chastise everyone, but I just get tired of hearing how people are going under on their mortgages, for a giant house with more rooms than people and no planning for the future.  Our government is doing the same thing, and I'm very tired of the excuses.  I also try to save for emergencies, and it saves my butt every time.  I've been laid off multiple times in the bad economy. I was hired as the new guy, then oops, that company goes out of business and I'm at the bottom of the totem pole, so I get laid off first, and then the new guy again, and then oops, at the bottom still at the next new company so again out the door.  I plan for this, and know that eventually the economy will grow again, but it's hard to not frown at the government not taking care of its own, while dishing out billions of dollars to other countries while our own people are starving...it's called International PR and everyone can see that.


The best 'get out of debt' advise I can give is to pay off the small ones first, then use the money you were paying on those small debts to add to the next biggest bill, and when that is paid off, take all that to add to the original payment of the next biggest bill after that, and so on and so on.  Eventually, it's like a snow ball, and the debt is repaid quite quickly. 

Aug 1, 2011 5:00PM
I say to hell with balance. I'll just keep bringing in more than I spend. I like a fat bank account.
Aug 1, 2011 2:41PM

I agree there should be ceilings on spending for the government as well as everyone, the

only thing different if the government does not do a ceiling they'll just borrow some more.

Where do we go to borrow more?

Aug 1, 2011 5:07PM

Just because "many Americans" have trouble with debt doesn't mean all or even most (at least I hope not).

I have a lot of school debt from college loans (Unlike KJ01983, I was not allowed to work in high school, both for safety reasons-I couldn't drive and their were no sidewalks- and because my father was forced to work 3 jobs in high school to help support his family and his grades suffered so he had us focus on school not work) and though I tried to find summer jobs while in college I lived in a rural area that would not higher people w/o licenses. So, I had to use student loans to pay for my education.

However, I make my loan payments on time every month (and most of the time I pay over the minimum due). Also, this is my only "debt" I do not have credit cards or frivolous loans. I live within my means. I make a budget based on my income and stick to it. If I don't have the money to afford something, then I don't get that. I don't spend money wastefully or go out clubbing. Though I make less than my education would indicate, because of the economy, I'm still taking care of myself. Instead of looking for handouts, credit cards or assistance to get by I took a lower paying job, because it was the best available, and live within the means it provides. I am working on paying off my loans and building savings so I can afford to go on to graduate school and get a better job.

Personally, I don't see how the government can't do something as simple as pass a budget and stick to it based on their income, instead of overspending and raising the debt  ceiling. I can't understand how the members of congress and the other government officials, don't get this concept. Supposedly, they are educated individuals, but they can't seem to even do their jobs. Of course that doesn't stop them from raising their pay or collecting other perks of the job. Maybe we wouldn't be in so much debt if a congressman didn't get paid 164k to not do his job.

Aug 1, 2011 2:51PM
I pay off all my rotating credit within a month or two of accruing it.  OTOH, I have a mortgage and have had a student loan and a car loan.  The point should be that some types of debt are necessary and not harmful; what matters is why it is accrued and how it is managed.
Aug 1, 2011 5:31PM
Watched the documentary "Maxed Out" the other day.  The problem is debt is a huge and profitable business.  Mortgage and auto loan lenders will sometimes charge fees for early payoff.  Credit card companies would rather you not pay your bills on time, and make money turning $1000 loans into $10,000 with late fees and interest.  Through tax breaks for accrued debt and debt buyers, credit companies can still prosper when consumers don't pay them.  But, if we all paid our bills in full and on time, many jobs would not even exist. 
Aug 1, 2011 2:16PM
I see no reason to have a ceiling... just keep borrowing like the government, that way you never run out of monies!
Aug 1, 2011 5:16PM
Militarybrat21: abandon hope.  "Many" does mean most.  A lot of think of it as "leveraging."   And there are an awful lot of people who want lower taxes and increased government expenditures for THEIR PERSONAL BENEFIT.  Ever notice - a bridge collapses, a tornado strikes, a fire races through a town - who ya gonna call?  "The government."  I am always surprised to read about and hear people from these conservative states who are so dead set against paying taxes complain about the slow response from the government when a natural disaster hits them.  Kinda like people complaining about not winning the lottery, and never buying a lottery ticket.  Ah, the conservative movement in this country (aka the dumbing down of America.)
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