Living with credit

Emily’s list: Debt ceiling edition

Emily Crone

Personal debt and bankruptcies often just affect one family. Business bankruptcies can affect anywhere from a handful to thousands of workers. But can you imagine how many millions of people will be impacted if the federal government defaults on its loans and maxes out its figurative credit cards?

federal-reserve-building.jpgThe United States government just hit its debt ceiling this Monday, May 16. This means we have hit the limit for how much we are legally allowed to borrow, even from within government branches. For now, the government is using accounting gimmickry to stay at the ceiling without going over it, but Treasury Secretary Timothy Geithner says those tricks will only work until August.

The debt ceiling is a concept that doesn’t exist in other countries, which imply how much they’ll borrow by passing a budget that estimates how much they’ll receive in taxes and how much they’ll spend. In the United States, though, there’s the budget — and a separate, binding, legal limit on debt. Alan S. Binder of The Wall Street Journal. “Our Congress can pass a budget that implies an illegal amount of new borrowing,” writes Alan S. Binder in the Wall Street Journal. “In fact, it did so last month when the two parties agreed to a fiscal year 2011 budget projected to push the national debt over $15 trillion, even though the law limits the debt to $14.3 trillion.” To solve the crisis, the ceiling may have to be raised.

The scary thing is that nobody quite knows what will happen if we do go above that ceiling, since it has never happened before. There aren’t set rules for which government programs get put on hold or cut off first. If we do end up defaulting, Binder says that Geithner will have to answer awful questions such as, “Do we stop issuing checks for Social Security benefits, or for soldiers’ pay or for interest payments to the Chinese government?” Financial failure could cause a global financial crisis, hurt the U.S. dollar and allow future investors to charge us a higher interest rate, Binder says.

I’m nervous about this situation, but I hope that this teaches us a lesson about reducing spending.

I hope you’ll read on for my roundup of my favorite personal finance blog posts from the past week. I’m kicking things off with one that really helps break down the debt ceiling situation in a way that’s easy to understand.

1. For myself and others who don’t understand the details, The Amateur Financier explains what it means when America hits its debt ceiling and what is going to happen now.

2. A Wisebread writer lists five reasons why he doesn’t want to participate in the extreme couponing trend, which can certainly save you money, but involves many sacrifices — and the risk of paper cuts.

3. Free From Broke helps readers learn how to avoid free trial scams that can end up with continuous credit charges, and explains what to do if you think you are a victim.

4. Frugal Dad explains what life after debt feels like and offers advice on how to prepare for it.

5. Len Penzo reveals 14 personal finance moves that may sound questionable to some, but are actually perfectly OK to do, such as buying a used car or using credit cards to your benefit.

6. No Debt Plan explains what to do and what not to do when your credit card terms change.

7. Drivers across America are feeling the pinch of high gas prices. Financial Highway highlights nine smart phone apps that can be used to save money on gasoline.

8. Moolanomy reveals five myths about credit scores that you may not have been aware of.

9. Did you know that using your credit or debit card may get you out of having to pay a fee for your checking account? Beating Broke lists five ways you can get out of paying for a checking account.

10. When you’re feeling tempted to say “yes” to unnecessary spending or other bad behavior, Money Crush discusses three ways you can say no and stick to your goals.

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  • Thanks for the link to my article, and for the kind words about how I attempted to explain the whole situation. Nice to read your own thoughts on the subject, as well.