With leaders of both parties in agreement, the Senate is expected to vote on Monday.
"There are still some very important votes to be taken by members of Congress," Obama told reporters at the White House.
"But I want to announce that the leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default -- a default that would have had a devastating effect on our economy."
"I want to urge members of both parties to do the right thing and support this deal with your votes over the next few days," Obama said.
If the debt ceiling is not raised by Tuesday, Americans could face rising interest rates and the value of the U.S. dollar may drop compared to other currencies, among other problems.
Provisions of the deal:
The deal would raise the debt-ceiling of $14.3 trillion by $2.4 trillion in two stages while cutting spending over 10 years.
Under the plan, the debt-limit would be initially increased by $900 billion in the first installment, accompanied by spending cuts of $917 billion over 10 years, including $350 billion in defense cuts. But this plan is still subject to a Congressional vote where it can be disapproved, and Obama would be able to veto the disapproval.
To prevent a default, $400 billion would be added immediately.
A second increase of $1.2 trillion to $1.5 trillion would be available by deficit reduction, which could come through a tax overhaul and change to safety-net programs, subject to a second vote of disapproval by Congress.
At the same time, a new joint Congressional committee would be created to hammer the finer details of budget cuts.
If the committee failed to agree on a plan, Congress would either have to approve a balanced budget agreement or accept an across-the-board cut in spending in line with the committee's goal, with 50% of the savings coming from the Pentagon beginning in 2013.
The cuts would be in military spending and Medicare payments to health-care providers.
Spending cuts have been capped for the next 10 years, but the details of what programs would be cut have been left to congressional committees.
It was all-crucial for US government to raise the borrowing limit, the battle arose this time because many lawmakers said they wouldn't raise the $14.3 trillion debt-ceiling unless deficit reduction package being considered. The two parties have struggled for weeks to resolve their differences on spending and debt issues. A total debt-limit increase of $2.4 trillion would provide the government with enough cash to cover its bills through 2012.