Congress votes to raise debt ceiling by $ 2.5 trillion, narrowly avoiding first default


The House voted on Wednesday to raise the debt ceiling, preventing the federal government from defaulting until 2023. (iStock)

Representatives room voted early Wednesday to increase the federal borrowing limit by $ 2.5 trillion, temporarily avoiding default and funding the government until early 2023. Now the bill to raise the debt ceiling is heading towards the end. President Joe Biden’s office for final approval.

The measure was approved 221-209, with the support of only one House Republican, Illinois Representative Adam Kinzinger. He passed a Senate vote along party lines Tuesday afternoon.

Senate Minority Leader Mitch McConnell, who previously said Democrats should act alone to lift the debt limit, worked with GOP lawmakers to avoid obstruction and bring debate to a close in the Senate. This paved the way for Congress to pass the bill by simple majority.

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Secretary of the Treasury Janet Yellen previously estimated that the federal government could reach the debt limit by Dec. 15 without congressional action. If the United States defaults on its financial obligations, consumers could feel the consequences in a number of ways – from rising interest rates to delays in Social Security checks.

Read on to learn more about the impact of the debt ceiling on your finances. If you are looking for financial products like loans and credit cards, visit Credible to compare offers without affecting your credit score.

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What happens if the debt ceiling is reached?

Raising the debt ceiling does not increase public spending. Rather, it allows the Treasury Department to pay for expenses it has already incurred. The vast majority of federal debt currently subject to the debt limit was accumulated before the Biden administration, according to the White House.

The United States has never defaulted on debts before – the federal debt limit has been changed about 78 times since 1960, including three suspensions under the Trump administration, according to the Treasury Department. While the debt ceiling was previously seen as a bipartisan issue, it has recently become more polarized as GOP lawmakers refuse to support raising or suspending the debt ceiling amid concerns about government spending.

Although Congress voted to raise the debt ceiling on Wednesday, it is not a permanent solution. By adding $ 2.5 trillion to the federal borrowing limit, the government will be able to avoid default for about two years, according to Senate Majority Leader Chuck Schumer. At that point, Congress will have to figure out how to fix the problem or risk a federal default again. If a more permanent solution isn’t found, here are a few things that could happen.

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America’s credit rating would take a hit

An important part of federal debt comes in the form of securities sold by the Treasury Department, such as bills, notes and bonds. These securities serve as income to meet the country’s financial obligations. Since the United States has never defaulted on its debts, Treasuries and other products are considered some of the safest investments in the world.

If the United States cannot repaying these debts, there would be significant negative impacts on the country’s credit rating. Investing in the US government would not be considered a safe investment, which could impact federal revenues and lead to higher Treasury yields and interest rates.

“Since US Treasury securities would no longer be risk free, future generations of Americans would pay a high economic price,” according to a September 2021 report by Moody’s Analytics.

In contrast, interest rates are currently near record lows on a variety of financial products, including personal loans and private student loans. If you are in the market for any of these products, visit Credible to see your estimated offers for free.

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Social Security checks, CTC payments, and federal paychecks could be delayed

The government relies on the federal debt to meet its financial obligations, including those of US taxpayers.

If the debt ceiling is ever reached, it could lead to indefinite delays in Social Security checks, Child Tax Credit (CTC) payments, and federal paychecks, such as those for military service members. , as well as other expenses. It would leave millions of American families without the income they rely on.

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Mortgage rates would rise

When interest rates on federal investments rise, mortgage rates follow suit. Moody’s Analytics determined that a default would cause mortgage rates to spike, “at least until the debt limit is resolved and Treasury payments resume.” At this point, however, the damage would be done and rates may never fall back to where they were before, the report continues.

Homeowners and potential buyers have benefited from historically low interest rates in recent years. But it would come to an abrupt end if the United States defaulted on its debt. Although the debt ceiling issue has been temporarily resolved until 2023, the time has still come to lock in a low interest rate for mortgage purchase and loan refinancing.

Visit Credible to compare mortgage rates from multiple lenders, so you can get the lowest rate possible for your financial situation.

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