What Is Your Personal Debt Ceiling?

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.

US National Debt Clock by Rafiq Phillips on Flickr

*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.”

Debt Creep

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.


  1. If your credit card is with the same bank as your bank account, you don’t even have to wait until the end of the month. As soon as you get home (or if you have a phone app), log into your bank account and pay off your credit card as soon as the charge from the point-of-sale shows up on your online credit card account.

    • i could do that…I typically just wait for the bill to arrive to take advantage of the interest-free float. As long as the bill doesn’t grow too large, else I do what you suggest.

  2. Temporary anxiety… yep, know that feeling – right where I am at the moment… Did a temporary in-debt transaction, a bridge-debt if you will, knowing that I have the money coming in shortly…. Despite knowing the funds to pay off the debt are soon to arrive, it is still an anxiety situation…. But the alternative was to loose the chance to obtain the investment ( a home OUT of the city) which I very much wanted…. (Yep, I said wanted, not needed)…. I am enjoying this new home more than even I could imagine, and I knew all along it was the perfect home for my retirement – gorgeous views and a huge yard and garden plot, with room for my fruit trees.

    Soon the debt will be erased – but time was of the essence, and had I waited, the house would have been gone… it was a foreclosure and a great deal.

    So never say never to debt… “probably never” works great 🙂 …. but someday the right situation may come up and you have to entirely rethink your views…. but yes, being in debt again is causing some anxiety for a couple months – but I know it is a temporary situation 🙂

  3. I understand what you mean with the dread of opening up bills. When I was in college, I felt a bad feeling in my gut as bills came in.

    After paying off credit card debt and eliminating our car loan, it’s completely different.

    Now we feel empowered opening my mortgage statement and looking at our student loan balance because we’re paying them down faster than scheduled.

  4. My debt ceiling is also zero, we do the same thing and pay everything on our credit card and then pay that off in full at the end of every month. We are a single income family and I don’t feel that we have much room to stray outside our budget, so we don’t give in to the ‘wants’ any more.

  5. It is sad how people’s perspectives of what’s “normal” have changed over the years when it comes to debt.

    I guess my own debt ceiling is about $2000, because I recently paid for about $3000 worth of plane tickets and even though my credit card will be auto-paid for the full amount it’s making me feel anxious knowing that it’s hanging out there.

  6. I’m with you and also keep my debt ceiling at zero. Sure, I use my credit cards but pay them in full each month. The secret is to live simply and if you can’t pay for it in full, you can’t afford it.
    I also believe in paying yourself first. Every paycheck money is automatically deducted for my retirement accounts, investment account, and emergency fund. If you never see the money, you are not tempted to spend it.

  7. We just paid off $50,000 of our school loans and it felt great. It took 2 years. Now we’re saving for a 20% down payment on a house that is NOT going to be more than double our income.

    If it were up to me, I would just pay for a house 100%. But seeing as marriage is a team and compromising is good, we’ll do the 20%, only take out a 15 year mortgage that’s no more than 1/4 our monthly take home pay.


    • Check out the interest rates…. sometimes a 30 yr mortgage has a lower interest rate than a 15 yr….then you just double up on the payments (ie pay it like it was a 15 yr amortization schedule), and it will cost less with the lower interest over the years!

      Another good reason for a 30 yr is that, in case of extreme emergency, the must pay minimum is maybe something you can afford if times get tough… and thereby NOT go into foreclosure….. But as long as that situation doesn’t hit, keep paying on your 15 yr schedule.

      I used to get a 30 yr mortgage, and then just pay extra all along. The last time I had a 30 yr mortgage, it only lasted 10.5 years! It takes discipline, but you can do it, and still allow for bad times! Good luck tho – you have a good plan!

  8. It seems some folks don’t have a debt ceiling, but they do have a debt floor: a certain amount of debt they refuse NOT to carry! :o)

  9. I want to say my debt ceiling is also zero, but I’ve gotten into debt for personal reasons a couple of times that I normally wouldn’t do. Once after my father in law died and my mother in law had a new car that she hated and couldn’t sell it for a decent price. I bought it off of her even though my car ran fine. The second was after my uncle died, I got into debt again to move my mom to town with us.

    I hate debt, but I’m also grateful that debt was an option for when I had to make those key life decisions.

  10. There is an assumption that you can’t buy a house or a car without going into debt, but you can. I used a small inheritance to buy a house cash…I could have also used it as a down payment for a ‘better’ house and assumed debt.

    I have not bought a brand new car since 1973 and that one was a luxury model…a gas guzzler…bought at about half off sticker in the middle of the energy crunch. I drove it for ten years and when bought…it was not my primary vehicle.

    My granddaughter is finishing her first year of college…and has no debt. But she already has her summer job lined up…one she has had for every summer she was old enough to work. It is a seasonal job.

    • Congrats to your Granddaughter on debt free college! My daughter is in her 4th year of college – STILL debt free! I am very pleased with the way she has scrounged for scholarships and grants, plus a weekend job, to put herself thru college! My “job” is just to babysit the grandkids and help with their homework so their mom can do her homework 🙂 lol!

  11. I do have a debt ceiling… at my current income it is 0 on the credit cards and 1/4 of our monthly take home for the mortgage (I was horrified what the bank thought we could handle!). I also have a TIME celing with my debt. If I can’t pay it off in a month for consumer credit, or I can’t pay it off before I’m 50 for the house, then I’m not going to stretch that far.

  12. My wife and I achieved debt freedom in December 2010. What a great feeling!!!

    Our personal debt ceiling is basically zero. We still use our credit card (we have several but only one that we actually use and it’s out of convenience and for the card rewards) to pay monthly expenses and to make online purchases, but we pay it off every Friday.

    We would like to buy a house sometime in the next four to five years so we’ve been saving, saving, and saving some more for it. Ideally, we’d like to pay cash for the house, but we’re not sure if that is going to work out or not. If housing prices continue to decline, then a 100% down payment may just be possible. We shall see… Until then, my wife and I will continue to strive for simplicity in our life, stay out of debt, and keep saving as much as possible.


  13. My consumer debt ceiling = $0
    My educational and mortgage debt ceiling = Not Sure.

    My wife and I are both new professionals who have a combined household income of $245,000 a year. I don’t think I would say my educational debt ceiling should have or is 0. If it had been zero our income would not be what it is today (then again neither would our school debt). We are currently living in an apartment and paying down educational debt aggressively. We have saved a down-payment for house and are considering buying because staying in an apartment with our 1 year old son until we are debt free does not feel tenable to us. Instead we are going to buy are reasonably priced home (1-1.5 years wages) for our area and add a couple of years to our debt free date.
    Are we crazy? Not sure, but that is our current plan. I would be interested to hear what others think. We with our current plan we will be entirely debt free in under 10 years (paying off 300K in student debt), saving 15+ percent a year for retirement (5% our own money, rest match) and giving 10% of our net income away annually (charity, church).

    • I think that’s a great plan. I myself also prefer zero consumer debt (as in anything I put on my credit card I have as cash in my bank account to pay off at the end of the month).

      I feel there is a difference between good debt and bad debt. I do feel education is an investment in yourself and your earning potential… though these days certain types of education probably aren’t worth the investment while others… like apprenticeship in the trades… would probably be more worthwhile.

      I do have two investment properties with mortgages. I feel these investments are examples of good debt… 20% down… cashflow positive after expenses… I definitely don’t have a debt ceiling on debt that makes me money =)

      Meanwhile I’ve also played margin on stocks… not something I necessarily recommend to everyone and something I’ve stopped doing myself… but if your margin interest is lower than the return on your investment then again it pays for itself… certain investment trusts… like oil and gas… or real estate have fairly high returns of up to like 8 to 10%… vs borrowing costs of say 3%…

      I’ve paid off my car and my student loans already… and next time I buy a car I’ll probably go used and in cash… depreciating “assets” are really just wasting money.

      Bad debt ceiling $0
      Good Debt Ceiling = as much as the bank will lend me =)

  14. I have a debt ceiling of zero as well.
    But, I have continued to carry my house mortgage @2.5% instead of paying it off as my investments are currently returining quite a bit higher than that.
    It is a variable rate mortgage, so I have two “stops”.
    1.) If the interest rate on the mortgage climbs to >5% , I sell enough stocks to pay off the balance.
    2.) If my investment portfolio falls to the point where the balance is =< my stock portfolio, I cut my losses and take the sure gain of paying off the house.
    Scenario two is completely backwards to conventional wisdom, but I feel that I would sleep better at night knowing that if another financial apocolypse happened, I at least have a roof over my head.
    (Yes, I have a seperate emergency fund and this is not my retirement account)

  15. Having just become debt-free last month, I’m determined never to be in debt again, so my debt ceiling is zero. Previously, I would run up credit card bills to the tune of $10K and then live with anxiety all the time. It was a terrible way to live and I’m glad I finally got off that treadmill.

  16. I am curious… does anyone ever carry a medical debt balance besides me?! To make our health insc. monthly premiums tolerable I chose a middle of the road policy (which is good) with a individual deductible of $2500. -. There are 3 in my family and one year we all had to have surgery and went $7500.- in medical debt. POOF- just like that! We did pay it off within a year but things happen and we are again in medical debt! Thanks goodness the medical issues are minor but it sure get’s frustrating year after year carrying some form of medical debt. Just my two-cent-vent!

  17. Our current yearly household income is around $90,000. My wife is a stay at home mom, we have a 1.5 daughter, we are basically single income, with my wife doing some writing on the side for some money each month. Our credit card debt is high at $16,000 on a 0% APR card, as we pay down our debt, I try and bounce from card to card at 0%. This is drastically down from where is was a few years ago. We are renting in Southern California which is where the majority of our money is being filtered too. Our savings is quickly becoming very very low (less than $1000), and starting to wonder if it is ever going to get better. I just feel like we are getting no where, living paycheck to paycheck right now. I think once we have a car payment done at the end of the year, and I can start focussing on this debt it will start to come down. Trying to set goals and stick too them. If I knew what I know now 10 years ago, I would have been much smarter with my money. I just wonder if anyone else is in this same boat.

    • Oh Sun, we’ve been there. There was a point in our lives where we had more than six figures in student loan and credit card debt. I thought we’d never be debt free. We lived hot dogs and peanut butter for quite a few years, but the thing that really helped us the most was having a cheap place to live. Our full monthly payment was about a thousand dollars, much of which came back to us in tax refunds (due property taxes and mortgage interest). We could not have rented as cheaply, but we were very, very lucky and I wouldn’t recommend buying at this point.

      My advice to you is to find a cheaper rental. Since there’s just 3 of you, a cheap one bedroom would be sufficient, so long as the neighborhood is safe. It would be best if you could store your stuff in relative’s garages and basements. If you do that for a year or two, your debt should be gone and you should be able to start actually saving again. Good luck – You can do it!

  18. I know two people in your boat Sun. Over what you stated they are in Phoenix and Las Vegas with mortgages on houses that are underwater. They are in credit card debt over $10,000 and incomes 75% less than they made four years ago. Both have families with 3-4 kids—unfortunately the situation broke one of the two families. Now that man supports two households on that “meager” salary. I put “meager” because we have been living on that income for a year now without debt.
    My first suggestion was to move- but with support in the home town that is an unthinkable thing to either of them.
    The second one is to get a harder look at the budget. One has done that- throwing every penny to debt. The divorced one is digging further in.
    Check out Dave Ramsey. I don’t agree with all of his moves- but he gives some great starts for seemingly “hopeless” situations. He isn’t just an advisor for the poor. He is an advisor for those who just do not have a grip on debt yet.
    Good luck. This site is a good place to start!

  19. First, let me say that we have only had mortgage related debt for several years. We paid cash for our last 2 cars. We hope never to have consumer or education debt again. However, I think we’re now at a point where I would rather have some small debt than give up our savings. Right now, we’ve got about 8 months, but I’d feel better if we had at least a year or more.

    I think I would be comfortable taking on up to one percent of our gross income in consumer debt if we felt we had to.

  20. I borrow cash from credit cards, transfer the new debt to interest free cards, and invest the cash in low risk investments or annuities. On such transactions I usually make 4 to 5 percent. It works – you just need to be disciplined. I am always amazed at how little people understand debt, risk, and how that effects their silly analogies between a household budget and the US Federal budget. By the way, if you think I am doing something outlandish with debt, ask yourself how does a bank make money -other than gouging customers with fees?

  21. I carried credit card debt once in my life — to pay for a divorce attorney. Never again if I can help it.
    If it were an emergency (e.g., medical care) I’d just have to suck it up. The rest of the time I won’t buy anything I can’t pay for in full when the bill comes in.

  22. I have been debt free since 1998. I use my credit card but pay it off on line before it even comes due. I paid cash for my car, and condo. Now I plan to buy a home next year. I have been saving for it for the last 5 years and will pay cash. What ever happened to the concept of “lay away” plans?

    I used to think I lived on another planet with my attitude to savings and credit. I discovered frugal blogs like this one and it is wonderful to find company!

  23. My consumer debt ceiling is zero.
    Student loan is closer to 50 or 60 K.

    One thing I think is interesting is that so many people complain about the government spending money it doesn’t have. But I’d bet that many of them have huge of amounts of debt also. Sort of like the pot calling the kettle black?

  24. A distinction between good debt and bad debt is important to consider. I have never succumbed to the lure of credit cards…but have occasionally gone into debt for education and business building needs… purposes that will in time pay for the “investment”… but keeping our debt ceilings high keep us from becoming slaves to a payment schedule.

  25. Jason,
    I see today over at The Simple Dollar you have been using my thoughts on investing in dividend growth stocks as a hedge against your expenses. Glad you are putting this into practice!
    Let me know how things are going.
    To that point, my income got a raise on Monday when P&G increased their dividend by 9%! When is the last time you got a 9% raise for doing nothing?

    • Indeed – I should have attributed the idea to you there, but I am planning my own post here at FD and plan to mention your original comment. Look for it in a couple days.

      And awesome on the P&G raise! I’ve added a little P&G, but not enough to be noticeable (yet). Still, a raise for doing nothing – you can’t beat it!

      • Jason,
        No problem on the attribution. I’m just glad someone else finds my thoughts and strategies useful.
        I’m looking forward to your post.