Controversy over deficit spending draws attention of many economists. For some, deficit spending is a necessity in today's world, even while acknowledging that spending must always be done for a good reason. Others would like to eliminate spending more than revenues exceed in total, pointing out that while it's difficult, there are households, businesses and even governments that manage to do it. If deficit financing is required, follow a few tips to help qualify the expense before it occurs and ensure the deficit is eliminated as quickly as possible.
The general concept of deficit financing is applied to governments that spend money on services before that money is actually available to spend. The same concept can be applied to households that incur debt to buy things that the monthly income stream cannot fully pay for at that time, such as the cost of a home or a car. In both scenarios, there is a need to secure financing that fits well with projected future income and allows for adequate repayment of accumulated debt.
One of the first tips in debt financing is to get the most favorable terms from the lender. In the case of household loan financing for the purchase of a car or home, this means finding a lender that offers the best possible interest rates while providing an amortization schedule that is within the projected monthly household income. This means that repaying the deficit financing on time is easier to do, and if the household generates a higher monthly income over time, part of this surplus can be used to pay off the debt ahead of schedule. With proper planning, the household can even make payments on time if at some point there is a drop in income.
In addition to creating a workable agreement with a lender, deficit refinancing also requires sound projections of future revenues. For example, a government will look closely at how much tax will be collected over the life of the debt to cover deficit spending and determine what percentage of those taxes can be diverted to pay the debt each fiscal period. Similarly, a household will support repayment of a mortgage or car loan based on reasonable income expectations through gainful employment. It is usually a good idea to be somewhat conservative in these calculations, leaving some room for changes in the economy that might reduce income flows to some extent. This means that the chances of being able to shut down deficit financing on time and avoid late fees and penalties remain good.