What is the debt ceiling? If Congress doesn't act, interest rates on credit cards could rise

CLEVELAND - Local experts tell us if our country defaults on our loans, there would be dire consequences for your personal money in many different areas. But what is the debt ceiling?  And why you should care?

In order to answer that, let's look at deficit versus debt. Deficit is the lack of money for a given year. The debt is that lack of money over a number of years.

So, for example, if you maxed out your credit card and it came time to pay, you would have to convince the credit card company to raise your limit. The debt ceiling is that limit for our country and in order to raise it, Congress has to act.

"This is serious stuff," said Dr. Ned Hill Dean of Cleveland State University's Urban Affairs Department.  He told us the debt ceiling is critical to figure out.  One reason is that so many people from around the world invest their money in the United States government because we pay our bills. If we don't pay those bills, "All of a sudden the credit rating drops," said Dr. Hill.

"We now get viewed as something like Europe. You know, Germany will be well, but no one trusts France and no one trusts Greece. And our borrowing costs go up," he said.

And all of that perception turns to reality, which is the real loss of financial stability, said Dr. Hill. If people around the world put less money into our country because we're considered more "risky," the result is higher interest rates on everything from your credit cards, to student loans, mortgages, and cars. Plus, businesses will have a hard time borrowing and hiring. It would be round two of the "r" word.

"So, we're not only going to have a recession from 2008 to 2009 that we haven't fully recovered from yet, we'll get the second dip," Dr. Hill said. "People in Ohio remember 1982 to 1984 when we had a double-dip recession that took us almost 10 years to climb out of."

As we inch closer and closer to the debt ceiling, financial experts tell us it's time for you to look at what's in your investment portfolio.

"Every person has to constantly reconsider their portfolio allocation. How much risk they're taking," said Jon Shane in Pepper Pike. He is a top financial advisor with Merrill Lynch. He told us if we as a country don't meet our obligations by a debt ceiling deadline, the markets -where likely your money and many 401-Ks sit- would be tossed around.

"I would imagine you would see quite a significant sell-off," Shane said. "As you approached the debt ceiling crisis in 2011, the market sold off 7 percent."

With that history in mind, Shane also said if you have cash, then a drop in the market could be a good time to get in. That way when the market bounces back you can see gains.

Remember, after the problems in 2008 and 2009, we saw the markets dip to around 6500. As of today, it is around 15,300.

He said other options would less-profitable investing like certificates of deposit or CDs, but you'll have to accept very low rates of return.

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