Canajun Finances Home » What is Your Debt Ceiling?

This was written in 2011, when the first talk of Debt Ceilings in the USA started. These days knowing your personal debt ceiling is important for different reasons. With increasing interest rates, the free-wheeling borrowing days of the 21st century are over.

How many folks know what their personal debt ceiling entails?

Why does this matter? It answers an interesting and important question: how far in debt can I put myself now (given that the potential to borrow seems infinite)? With increasing interest rates, borrowing is not as easy as ever.

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

• Find each credit card you have, and add up all their credit limits, which could be a scary big number. We’ll call this value CC. Also, add up all the balances on your credit cards (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, then determine how much you still owe on your mortgage. Call that value MOO. The problem might be you owe more than your home is worth? That is an issue.
• 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) you can borrow if needed. 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 entire ceiling is quite low, you are near the top and best work on lowering that debt. The other thing to note is that these values are living and can change daily. What changes can happen?

• It is possible to increase the credit limits on debt vehicles (much like our friends in the U.S. are trying to do).
• You can LOWER your 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)
• Maybe incur more debt, by buying expensive things, like, groceries.
• Ultimately you can pay off debt and raise the ceiling by having less debt.

What is your personal financial debt ceiling? Knowing this is important in your financial plans.

Feel Free to Comment

1. 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’ 🙂

2. 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:)

3. 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.

4. 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.

5. 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.

1. HOLY CRAP that is a lot of credit, that is almost a Vaulted Credit Ceiling!

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