How many folks really know what their own personal debt ceiling entails?
Why does this matter? It answers an interesting and important question 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 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
Conclusions on Your Personal Debt Ceiling
If your real 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?