GUEST BLOG POST: 4 Lessons from the Debt Ceiling Debate

July 20, 2011

Let’s get to the root of the problem. Our national problem with debt belongs to us all.  It is a startling fact that the aggregate amount owed by U.S. consumers to their creditors is approximately equal to, if not slightly greater than, our government-held debt, according to various official estimates.  So, while Congress and the Administration works to clean up our national act, we could all do some housekeeping of our own.

Here’s what responsible credit management looks like, at any level.

  1. Keeping the costs and benefits of borrowing in the same time period. Put another way, a fiscal fiasco is created when we use long-term debt to pay for things we enjoy or use today.  Whether it’s a night out on the town, or keeping the lights on in federal offices – these costs should be paid in full now, and not carried forward into next month, or into a future election cycle.
  2. Understanding that good credit is more than just the ability to borrow money.  In today’s world, credit has become synonymous with trustworthiness.  Without good credit, it’s difficult to get a job, rent an apartment or maintain status as a dependable trading partner or global economic power.
  3. Managing the loopholes is necessary, too.  There’s a lot of fine print to take into account, whether in our tax code or in our credit card agreements.  We cannot keep our focus on just the going “rates” when it comes to our debt: the special situations matter, too.  For Congress, this requires careful examination of all the special deductions and allowances that limit our tax revenues.  For consumers, this requires understanding all the hidden fees involved in using credit.  Examples include late fees, fees to get phone support, foreign transaction fees, over-the-limit fees and even inactivity fees.  Real devils live in both the macro and micro details.
  4. Taking a multi-prong approach to debt control.  The debate on Capitol Hill notwithstanding, there is no single solution to ongoing deficits: both more revenue and less spending need to be considered.  Translated for the consumer, reducing debt effectively may require several simultaneous strategies: managing income, investments, taxes, and spending, as well as, revising overall financial goals.  The good news is that there are more resources available to you than ever before.  In the old days, financial professionals focused almost exclusively on selling financial products, services and securities, as traditional stock brokers, and less on financial planning.  This has already changed a lot, and the industry is continuing to evolve.  Now, its much easier to find a true financial planner who can help you with all aspects of your finances, with many planners having no requirements around your net worth.  Financial planning is becoming more and more accessible to everyone, which is a great thing in what is still a very difficult economy.

In sum, the American government is not too big to fail, and the American consumer is not too small to listen.  One translation of our national motto “E Pluribus Unum” is: “Out of many, one.”  Another is: as Americans, we all have some work to do.

NOTE FROM LIZ DAVIDSON, FOUNDER AND CEO OF FINANCIAL FINESSE, ABOUT THIS POST: I completely agree with Eleanor that it’s much easier to find a true planner who essentially sits on the same side of the table as you do.  Here are a few resources to help you find one.  Consider working with a Certified Financial Planner™ Professional because they voluntarily hold themselves to a higher standard of education, examination, experience, and ethics.  The great thing about working with a CFP™ professional is you know they can help you develop a financial plan for your future.

Another resource is NAPFA which is an organization of fee-only professionals.  (Many NAPFA professionals also maintain the CFP™ marks as well.)  A NAPFA advisor’s income is generated soley through fees.  Also, if you don’t have a lot of investable assets but want genuine broad based planning, a NAPFA advisor might be a good fit.

This article on “How to Choose a Financial Planner” provides a list of questions to ask when you interview potential advisors.