Nearly a year after telling investors to buy U.S. stocks, Warren Buffett is back on the New York Times editorial page.

Just like last year, Buffett has some simple things to say on an important topic. This time around, he points to blossoming federal budget deficits and the rapidly increasing levels of debt that the government has had to take on. Although he agrees that the threat to the economy justified extraordinary measures, he nevertheless points to Congress to cut spending and raise revenue quickly after the current crisis ends.

Whether elected representatives will actually follow Buffett's advice remains to be seen. But on a more personal level, Buffett's words offer useful advice for millions of Americans whose own finances are stretched to the limit. Just as an immense federal debt could crush America's economy, massive amounts of debt can cripple both your own personal finances as well as those of the companies whose shares you own.

Cut your own debt
In many ways, the entire financial crisis came about because people took on more debt than they could afford. Sharply rising home prices combined with easy access to credit tempted millions to finance an unsustainable lifestyle through home equity loans and mortgage refinancing. The real estate boom meant that many people bought homes they couldn’t truly afford, in essence resorting to creative financing methods that required home prices to keep rising in order for them to work.

Even now, as home prices may be bottoming, personal debt levels are still problematic. Just one look at the sky-high delinquency rates that credit card companies like American Express (NYSE:AXP) and JPMorgan Chase (NYSE:JPM) have reported in recent months shows that many people are still in over their heads.

To become financially secure, you must gain control over your debt. That means following some tough advice:

  • Pay more than you have to. Don't just make minimum payments. You could spend a decade or more paying off your credit cards if you make only those small payments. Work out a faster schedule to get those cards paid off.
  • Focus on "bad" high-rate debt. Some types of debt are better than others. While mortgages got many people into trouble, mortgage debt is relatively benign, as are some student loans. By contrast, many credit card companies charge absurdly high rates, especially to those with iffy credit ratings. Getting rid of that "bad" debt first will save you the most in finance charges, making it that much easier to pay off the rest in the future.
  • Negotiate with your lenders. Borrowers are in a fairly strong negotiating position these days, but you won't get help if you don't ask for it. Although low-interest balance transfer offers aren't as prevalent as they once were, you may still be successful if you ask your card company for a lower rate.

Once you have your debt under control, you'll find more money in the future that’s freed up to invest -- and that's where the true path to riches begins.

Avoiding the corporate debt trap
Investors who already have their finances in order should also heed Buffett's words in choosing stocks. Just as too much personal debt can crush you, so too can overleveraged companies suffer from unmanageable debt levels.

For some examples, take a look at these companies:


Long-Term Debt/Equity

EBITDA to Interest Expense Ratio

Continental Airlines (NYSE:CAL)



Level 3 Communications (NASDAQ:LVLT)






Tenet Healthcare (NYSE:THC)



Source: Capital IQ, a division of Standard and Poor's.

These companies aren't necessarily in imminent danger of failure. But they are potentially vulnerable if credit tightens by the time they need to refinance their outstanding debt. Even now, interest expense eats away most or all of their earnings. Moreover, their weak financial condition precludes them from pursuing certain business strategies that stronger, cash-rich companies like Apple (NASDAQ:AAPL) and Merck (NYSE:MRK) are free to explore.

Sticking with the stocks of companies in good financial condition will go a long way toward avoiding permanent losses in your portfolio. In a troubled economy, steering clear of potential meltdowns is often what it takes to preserve capital.

Get it done
Whether it's your own personal situation or the condition of the companies you follow, don't let debt crush you. As important as Buffett's warning is for the elected representatives it's addressed to, it's just as valuable a lesson for you to heed in your own finances.

Warren Buffett just announced his latest portfolio moves, and Fool contributor Morgan Housel has dug through all the details. Read about it here and find out what Buffett's buying.

All year long, the Fool's Rule Your Retirement newsletter is helping subscribers get fiscally fit. Join the crowd today -- it's easy with a free 30-day trial.

Fool contributor Dan Caplinger got himself into debt a long time ago, but he clawed his way out and never looked back. He doesn't own shares of the companies mentioned in this article. Apple is a Motley Fool Stock Advisor recommendation. The Fool formerly owned shares of American Express, which is also an Inside Value selection. Try any of our Foolish newsletters today, free for 30 days. The only thing the Fool's disclosure policy will crush you with is information.