Managing Your Own Personal Debt Ceiling

With the United States within days of reaching the debt ceiling limit, politicians worked to get a deal done to essentially raise our credit limit and avoid a default.  However, according to the Federal Reserve Bank of St. Louis, US debt to GDP is approaching nearly 120%, highlighting the importance of developing a plan to address our ballooning national debt.

Unfortunately, most Americans do not have the luxury of piling on more debt. Many are unsure of what their own debt ceiling should be and the best way to free themselves from the burden of heavy borrowing.

While having no debt would be ideal, it is unavoidable for many especially when purchasing a home, automobile or paying for college. However, having a debt strategy can help minimize the long-term effects of financing costs, late fees or blemishes on your credit rating.

Acknowledge problem

The first step to reducing debt is to acknowledge that a debt problem exists. Getting out from under debt is no easy task and no quick tips are going to turn things around instantaneously. The cornerstone of any debt reduction strategy is having the discipline to make the drastic changes that may be necessary to improve your financial position.


Establishing, analyzing and monitoring your budget is critical to reducing debt. If you want to work your way out of debt, you need to avoid incurring any new debt. In order to do that, you need to balance your budget or make sure that you’re not spending more than you are bringing in. With the average American holding nearly $6,500 in credit card debt, it is important to reel in unnecessary spending. Consider using and other online budgeting calculators to create and monitor your budget each month while also reducing expenses and financial waste.

True cost of debt

One of the biggest eye-openers is understanding the true cost of your purchases when paying with debt. For example, let’s assume you charged $800 to a credit card for that new flat screen television. If the credit card company charges 24.99 percent interest and you make minimum payments, the TV may be obsolete by the time it is paid off.  Would you have chosen to purchase that same TV if you had to pay 45% percent more at the point of purchase? Probably not. Remember, when you buy with credit and carry high interest balances for long periods of time, you are just overcharging yourself.

Begin switching to cash

After reviewing your budget and making tough choices to reduce your spending, consider a switch to cash. If you want to eliminate debt, stop using debt altogether. Credit cards make spending more than you can afford too easy and too convenient. Paying with good old-fashioned cash (at least temporarily) can help you to understand the true cost of your spending and may help prevent you from spending funds you do not have.

Consolidate debt

Consolidating your debt through low-cost and low-interest balance transfers can help speed up the process of paying of your debt. Consider visiting to research low-interest offers from multiple credit card companies. Transferring high interest cards to lower interest options could significantly reduce your financing costs.

Remember, carefully monitor your rates as many credit companies offer introductory terms that will increase later on. Also be careful of excessive balance transfer fees.

Finally, consider negotiating with your current credit card companies to obtain lower rates. Almost everything is negotiable, including your credit cards. Making the switch to lower interest cards can shorten the time required to pay off your debts. Consider visiting to calculate the benefits of paying off your debt quickly.

Pretend your raise never happened

While the job market may not be as strong as it once was, some workers have seen increases in compensation due to their company attempting to help them keep up with inflation. If you are fortunate enough to receive a raise, consider pretending it never happened.

Instead, continue to live on your pre-raise income and pay off your debt with the additional funds. While this takes extreme discipline, if you can pull it off over a few years you could really make a significant dent in your debt.  Additionally, it may be necessary to acquire a 2nd job or even develop a side hustle to earn additional income.

The bottom line is that we can’t solve a debt problem with more debt.  The process of breaking the stranglehold of debt may require drastic changes to the way you spend and save and earn. Implementing the strategies noted may help you to develop an effective debt reduction plan.

Since everyone’s situation is unique, consider speaking to your adviser to determine the most appropriate strategy for you.

Kurt J. Rossi, MBA, CFP®, AIF® is a CERTIFIED FINANCIAL PLANNERtm  & Wealth Advisor.  He can be reached for questions at 732-280-7550,, & LPL Financial Member FINRA/SIPC.