President Barack Obama announced Sunday night that he and congressional leaders have reached agreement on a plan to raise the debt ceiling, avoiding a government default that “would have a devastating effect on our economy .”

Under the agreement, Congress will immediately pass $1 trillion in spending cuts over the next 10 years. Then a special House-Senate committee will identify additional spending cuts that will go to Congress for an up-or-down vote by the end of the year.

“In this stage, everything will be on the table,” Obama said. “To hold us all accountable for making these reforms, tough cuts that both parties would find objectionable would automatically go into effect if we don’t act.”

Obama urged “members of both parties to do the right thing and support this deal with your votes over the next few days.”

Senate passage is likely, but many conservative House Republicans may balk at the deal because they think it doesn’t go far enough in cutting spending. This sets up yet another challenge for House Speaker John Boehner, who most likely will need Democratic votes in order to get this deal through the House.

The announcement of the deal capped yet another day of intense negotiations, primarily among Senate leaders. Senate Majority Leader Harry Reid decided this afternoon he would support the plan that ultimately was presented to Obama.

According to early reports of the deal, before Obama made his announcement, the debt limit would increase anywhere from $2.7 trillion to $3 trillion in exchange for a two-stage cut in the federal deficit. In the first, as Obama described, about $1 trillion in spending would be targeted for cuts now while the remaining cuts would be established by a special bicameral panel. If Congress failed to pass the cuts recommended by that committee, then cuts would automatically take place to Medicare and defense programs.

Early Sunday, Senate Minority Leader Mitch McConnell said that Congress and the White House were “very close” to a debt deal. On CNN”s State of the Union program this morning, the Kentucky Republican said GOP leaders and the White House have “made dramatic progress” toward agreeing on a deal.

Saturday night, Reid, a Nevada Democrat, postponed a scheduled 1 a.m. Sunday vote on his own debt reduction plan, one that would have raised the ceiling, made spending cuts, and prevented another bruising fight over the debt ceiling until after the 2012 elections. Reid set a procedural vote for early this afternoon to see if he had enough support to limit debate on that proposal. That effort failed to achieve the necessary 60 votes, making the bipartisan compromise the best chance at resolving the debt crisis.

“There are many elements to be finalized, and there is still a distance to go before any arrangement can be completed,” Reid said before the vote on his own plan. “But I believe we should give everyone as much room as possible to do their work.”

News of the deal couldn't have come at a better time. On Tuesday, the nation's debt will exceed it's $14.3 trillion ceiling, creating the possibility for the United States to default on its bills for the first time.