## Not Just for the U.S.

Given the impending debt crisis in the U.S., to do with how much the Government can borrow (thus named the debt ceiling), the question now is how many folks really know what their own personal debt ceiling entails?

Why does this matter? It answers an interesting and fairly important question which is how far in debt can I put myself, at this moment (given the potential to borrow seems to be infinite, I’ll leave that for now).

How is it possible to calculate your own debt ceiling? It’s not really that complicated, so let’s just put together a quick heuristic on one way to do this calculation:

• Find each credit card that you have, and add up all of their credit limits, and this could be a scarey big number, we’ll call this value CC. Also add up all of the balances on all of your credit cards as well (we can use that for another useful calculation), call this value CCO
• If you own a house, what is the mortgage on it? Call that value MO, and then figure out how much you still owe on your mortgage, call that value MOO
• Do you have lines of credit or other similar credit vehicles? Find the limits on those add them up and call them OCV, and of course figure the amount you have on those vehicles becomes OCVO

So now the calculation becomes quite simple:

Personal Debt Ceiling = CC + MO + OCV

That is how much money (today) that you can borrow, if you needed to, however, you also need to calculate

Amount Owing on Debt = CCO + MOO + OCVO

This amount is important because the real interesting value is:

Actual Personal Debt Ceiling = Personal Debt Ceiling – Amount Owing on Debt

If your actual ceiling is quite small, you are near the ceiling and best get working on that debt. The other thing to note is that these values are living and can all change day to day. What changes can happen?

• I can increase the credit limits on my debt vehicles (much like our friends in the U.s. are trying to do).
• I could try to LOWER my credit limits, which causes your debt vehicle owners no end of headaches (you ever tried to lower your credit card limit, it is like you are about to commit a horrible crime that they try every which way to talk you out of it)
• I can incur more debt, by buying lots of stuff.
• I can pay off my debt and raise the ceiling by having less debt

What is your personal financial debt ceiling?

• SophieW July 17, 2011, 8:31 AM

Holy \$#!t! This is scary! My debt ceiling is just shy of my annual (before taxes) income… Do I really need all this debt potential? And why on earth have I never looked at it this way before? lol

Maybe it’s time to drop the limit on those credit cards; it seems a little silly to have a \$22,000 credit limit when I haven’t gone over \$2,500 in the past 2 years (and I pay it off monthly so NEVER pay interest.) I’ll keep the LOC tho, as a ‘just in case’ 🙂

• Bankruptcy Ben July 13, 2011, 6:49 PM

I sleep fine. Obviously it’ll be nice when it’s paid off but I think it’s more of an issue to the bank than it is to me:)

• Matt Wegner @ Financial Excellence July 12, 2011, 11:05 PM

Wow Ben, that’s a lot of debt potential. I don’t think I’d be able to sleep at night with a debt ceiling that high.

My personal debt ceiling is zero. The bank is willing to loan me tons of money but I’m not willing to borrow anything. I’m debt free now and plan to stay that way… Maybe it’s more accurate to say my debt ceiling is fairly high but my debt tolerance is zero.

• Rachel Levington July 12, 2011, 11:01 PM

If there were such a thing as a debt basement, that would be preferable. I’m positive that no debt whatsoever is what we’d all prefer.

• Bankruptcy Ben July 12, 2011, 6:56 PM

Well I currently owe about \$720,000 and my bank has okayed me for another \$330,000. so aparently my debt ceiling is \$1,050,000.00. Kinda freaky.