Posted On: December 1, 2012 by Nancy Barron

Fiscal Cliff or Fiscal Ledge?

The federal government may be talking about a “fiscal cliff," but most consumers are more concerned with clinging onto their personal "fiscal ledge." You might think of that as the narrow strip of granite security between what you own and what you owe.

The difficulty the government has in shrinking the federal deficit echos problems in anyone's handling of personal finance. How do you balance the family budget? Where is the revenue coming from and how much can you spend? If you have to borrow, who will pay it back? Now, it is more important than ever to think about the difference between credit and debt. The width of that ledge may seem impossible to measure, but in fact it is not. Forget that you once thought you weren't "good" at math. It is pretty clear that most members of Congress weren't math majors either. You can take comfort in knowledge that the simple functions of credit math are more about basic arithmetic than advanced calculus. Every purchase has a number, and that is the total sales price. Every finance transaction has a number, too, and that is the cost of credit.

The holidays are all about making lists and checking them twice. This time, make a list of your savings, your sources of income, and only those sources of credit that you can actually repay. Everyone knows it is important to avoid impulse shopping, especially when you are in a hurry, but avoid impulse borrowing as well. Not all debt is alike. Shop for credit and evaluate the terms as closely as you would a Red Dot sale tag. If you have to borrow, borrow from the source that has the lowest interest rate. Keep a running tally of the balance on your credit card, and pay with a debit card instead of a credit card, whenever you can.

Getting to New Years Day with these few rules in mind will mean you won't find yourself clinging by your fingernails to a fiscal ledge in 2013.