You need a flowchart and a spreadsheet to understand all the different stages of the debt ceiling bill that passed the House yesterday and is likely to pass the Senate today. But let’s not get hung up on who does what to whom at what point, and when that super-awesome “sudden death mode” of spending cuts kicks in. Instead, let’s look at what the debt-ceiling bill means to you and your wallet.

1. There’s a decent chance we could see credit card and mortgage rates rise. The Standard & Poor’s rating agency signaled that they wanted to see about $4 trillion in cuts to not downgrade US bonds*. Only $2.5 trillion were delivered. International investors are spooked by the game of political chicken over the possibility of the US defaulting and not paying its debts. The borrower being unable or unwilling to pay their debt should it come due is the key factor in determining the risk of an investment.

The country’s bond rating is like the credit score for the nation; the lower the bond rating, the riskier it’s perceived to be. The riskier it is, the higher the payout for investing in it. The APR on all sorts of consumer loans are directly related to this rate and other closely related rates. If the bond rating goes down, expect your credit card, mortgage and student loan bills to go up.

For further wonky reading, check out S&P’s report, “The Implications Of The U.S. Debt Ceiling Standoff For Global Financial Institutions.” It might appear inscrutable but all you have to know is that anything that makes it more expensive for banks to borrow money from each other is going to make their products cost you more.

2. The point of raising the debt ceiling is so that the US can take on more debt. The more we owe, the less the dollar is worth. That means effectively paying higher prices on everything from milk to mansions. The immediate $1 trillion in spending cuts are caps on future spending and don’t change the balance sheet right now. There is a special “Super-Congress” of 12 tasked with finding $1.5 trillion in cuts and revenue and putting it to a vote by Dec. 23, 2011. Assuming they’re successful, will that be soon enough to stop effective prices from rising near-term?

3. Grad students will have to start paying interest on their federally subsidized student loans, even if they’re still going to school. Undergrads will still get to pay zero interest on these loans while they’re attending school at least part-time. The savings from these mean that the Pell Grant program, which gives grants to low-income students so they can go to college, won’t get cut.

Some fear that cutting government spending too early after an economic downturn is exactly the mistake Japan did in the 90’s after their bubble crashed, which sent them into a decade of economic stagnation. If that happens, we’ll have a lot more to worry about than just our Mastercard bills. Double-digit unemployment would be just the appetizer.

If you did happen to want to see that flowchart of how the debt plan works, the NYT has a great infographic.

* S&P said in a July 14 research note that $4 trillion in cuts would let the US not get its credit downgraded. In a conference call with clients on July 28, John Chambers, the chairman of S&P’s sovereign ratings committee, said that cuts of that level “would be a good down payment,” towards “stabilizing the U.S. government debt-to-GDP ratio.” That ratio is one of the key metrics rating agencies use to determine a country’s rating. Economic growth is another.

PREVIOUSLY
Hours Left Before Debt Ceiling Vote Deadline, So Read The Bill

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.