In the coming days politicians will be squabbling over raising our national debt ceiling – the amount we allow ourselves, as a country, to borrow for continuing operations. Or put another way, the legal limit on the amount of bonds the government can issue.
*According the photographer, this picture was taken on January 1, 2009. Since then, we’ve added nearly $2.5 trillion to this figure.
What used to be practically an automatic stamp of Congressional approval (the debt ceiling has been raised 74 times since 1962, 10 of those times since 2001) has now become a line in the sand some conservative politicians have refused to cross.
Experts disagree on the outcome of a failure to increase the debt ceiling, but it seems the worst case could be a default on the debt already owed, resulting in an increase in the cost to borrow future dollars. Repayment of existing debt would be difficult without raising the ceiling because much of the new debt is created to pay interest on debt we already owe.
Imagine asking for limit increases on your credit cards so you can borrow money to pay your other credit cards. Well, multiply that example by a trillion and you can understand the magnitude of the problem.
My Personal Debt Ceiling
Rather than worry too much over things I have little control, I have instead decided to focus my energy on my own personal debt ceiling. My personal “line in the sand,” an amount beyond which I refuse to borrow.
My own debt ceiling has shifted a bit as I’ve matured, financially. I suspect that’s the case for most of us. Some may raise their debt ceiling as they grow older, believing in the idea that having debt is normal – you can’t buy a house or a car without debt.
Others have recognized early on that being in debt stinks, and vow to never go back. We found ourselves in the latter category, and spent a couple years clawing our way out of debt. Our new family motto when it comes to debt – “Never again.”
When I was young I used to read stories about people being $10,000 in debt. I couldn’t imagine how much that must have weighed down borrowers. These days, it’s nothing to hear of people owing over $100,000 in student loans and credit cards, or $400,000 on a mortgage, or $50,000 for a new car, or $30,000 on credit cards.
The numbers that are tossed around are as mind-boggling as the discussion on the aforementioned national debt – now some 14.2 trillion dollars and counting. Just how much is a trillion dollars anyway? One trillion is the equivalent of one thousand billions, or one million millions. And we owe 14 trillion! See what I mean by mind-boggling?
Much like dieters hitting a 200lb. (or 300lb.) reading on the scale, I assume most of us have a number in mind that we aren’t willing to cross when it comes to borrowing. A debt threshold. A number, that when approached, finally causes us to change our behaviors and consume less.
For many of us recovering spendthrifts that acceptable debt threshold is zero. For others, a couple thousand on a credit card doesn’t seem too bad as long as they are making substantial payments.
Unfortunately, for a large percentage of our population, that number has increased significantly over the years. Consider the following statistics shared in a recent post at Man vs Debt, Upside-Down Nation: How Debt Fueled Our Madness:
Average 1970s One-Income Family:
$32,000 inflation-adjusted income
Saved 11% of their take home pay on average
Paid 1.4% to revolving credit, such as credit cards or lines of credit.
Average 2005 Dual Income Family:
$73,000 average income
Saved nothing (0%). (Actually, U.S. had a negative savings rate overall at this time.)
Paid 15% to revolving credit, such as credit cards or lines of credit.
Sad. So in three or four decades, as a society, we have doubled our average income, saved nothing, and now spend ten times as much on consumer debt as we did 40 years ago. And notice this study initially only included “one-income” families. Many more households today are two-income households. Some by choice, but many out of necessity – to support an inflated lifestyle. For most families, living on one income has become nearly impossible without making very difficult choices.
We live in bigger homes, drive more expensive cars, and pay more for education. We abandoned the idea of a “starter” home when starting out, as recent generations have felt an obligation to keep up with their parents, or the Jones’, or some independently wealthy 26 year-old heiress they saw on television.
We even have television shows celebrating the idea of newlyweds signing over their financial futures in the form of near half-million dollar mortgages.
For now, I think I’ll keep my personal debt limit at zero. Sure, I use my credit card here and there throughout the month to pay utilities, etc, but the day that bill arrives it’s back to zero. I recently bought supplies for a DIY home remodel, and the large expense plus our normal monthly bills pushed the balance well over $1,000.
When I opened the bill, my heart beat a little quicker. I could feel the anxiety welling up inside me. I remembered that same feeling when I used to open similar bills from several credit card issuers. And I hated it. I immediately paid off the credit cards with an online transfer. Never again.