Debt limit deal passes, brings personal finances into the spotlight

President Joe Biden discusses the U.S. debt limit on May 20. He worked with Republican Speaker of the House Kevin McCarthy to create and garner support for the debt limit deal, which passed through Congress last week. (AP Photo/Susan Walsh)

President Joe Biden signed the bipartisan debt limit deal into law on June 3, averting a national debt default after weeks of contentious, to-the-wire debate.

The deal suspends the current national debt ceiling of $31.4 trillion until January 2025, post-presidential election. As a stipulation, it caps non-defense spending, according to AP.

Biden took to Twitter in praise of the deal, saying, “No one gets everything they want in a negotiation, but make no mistake: this bipartisan agreement is a big win for our economy and the American people.”

BYU economics professor Riley Wilson said the probability of the U.S. defaulting on its debt was “always low.” Historically, Congress has approved debt cap increases and avoided tough budget decisions, he said.

The current deal and other proposals, which focus on smaller-ticket items like food aid, will not make much of a dent in the national debt, Wilson said.

“These programs make up such a small part of the budget that unfortunately these are unlikely to significantly change the debt trajectory,” he said.

Unlike household debt, national debt can roll over indefinitely, Wilson explained. 

“It is typically okay during short, economic downturns to take on more debt to try and boost or bolster the economy,” he said. “Doing this aggressively for a long time is not sustainable.”

Though the deal’s primary aim was to avert a catastrophic first-ever default, it still has other relevant points for Americans. 

A major issue on the chopping block during negotiations was the federal student loan payment pause, which began at the start of the COVID-19 pandemic. Payments on student loans will resume by the end of the summer.

Laurie Taylor, a financial planner with Deseret Mutual Benefit Administrators, said she has had many clients express concern about an uncertain economy in recent months.

“We’ve had a lot of people generally worried about the debt that they’re carrying,” she said. “People are wondering if they need to step out of the market with their 401(k).”

The market experience downturns once or twice a decade but generally trends upward over time, Taylor explained. The best thing to do is stay invested and ride the market, she said.

Young people can feel confident following “the same conservative advice we’ve heard for years,” Taylor said. She recommended avoiding debt, living reasonably on a budget and having an emergency fund.

Despite recent economic strain, college-aged adults should participate in the market, she said.

“Staying on the sidelines is just hurting yourself. You need to save, but buy a home you can afford on 28% of your gross income,” Taylor said. “Keep living your life and setting your goals.”

BYU construction management student Bryce Kerr and his wife have invested in real estate as undergrads. They live in one owned property, rent out another and are looking to acquire a third.

“I’ve been following the debt ceiling and the macroeconomic trend, especially how it pertains to real estate,” Kerr said. “A lot of the economy is driven by uncertainty.”

Kerr said he began saving portions of his income beginning at age 14. Since then, he has budgeted, worked long hours during the summer and participated in “house hacking.”

“My recommendation to anyone who wants to … create financial freedom is to get into real estate as soon as possible,” he said. “It’s one of the safest ways to invest and build wealth.”

BYU students interested in exploring their financial options can visit the Financial Fitness Center.

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