When the federal government is low on cash to pay its bills, Congress can authorize the government to borrow money to meet its expenses. The limits to this borrowing — the debt ceiling — are raised periodically. Currently, members of Congress want to see measures put in place to reduce government spending and our national deficit before they agree to raise the limits again. These issues are still on the table, but a recent vote passed legislation to allow more borrowing until May.
While we are all frustrated that our government is not a good role model for managing debt, I suggest that the best way to handle this to get your own house in order first. Start with the one thing you can control … yourself.
What is the state of your own personal debt ceiling? Cash is low for many people right now. You may be in a situation where you are borrowing from your children’s education fund, home equity, and retirement funds or from family and friends.
Have you drawn your line in the sand, the amount over which you will not borrow? If you’re approaching that number, it’s time to change your behaviors and consume less. What should you do?
• Examine your cash flow. For each item in your budget, ask the question, “How can I/we conserve without giving up enjoyment?” If it’s time to get lean, do it, and involve the whole family. It’s not just about spending less; it’s about consuming less in day-to-day living.
• Review your credit cards. If you’re OK with carrying a couple thousand dollars on a credit card, be sure you are making substantial payments. If you have more debt, you can call your creditors and ask if they will lower your interest rates or contact nonprofit debt counseling services to help negotiate with your creditors. Just remember if it sounds too good to be true it probably is. You shouldn’t have to pay a lot for counseling and if a company says it can lower your debt by half something may be fishy.
• Analyze your investment risks. Re-assess your risk tolerance and use the results to guide your next steps, not your emotions. Consider switching to investments with less risk. You want to keep your money safe and continue producing retirement income.
My best advice: Go lean and less. Get sound professional advice. Keep a positive approach to necessary changes. It makes all the difference in how you experience them. And if your debt threshold is zero, good for you!
• Cynthia K. Fick is founder of Financial Life Planners LLC in Ahwatukee. Reach her at (480) 346-4073 or firstname.lastname@example.org.