The deal will cut $1tn of spending over 10 years, and set up a committee to report by November on a proposal to further reduce the deficit.
But Congress still has to approve the deal, and with votes in both houses expected on Monday.
The parties face a Tuesday deadline to raise the $14.3tn debt limit.
“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,” Mr Obama said.
The US president said it was not the deal he would have preferred, but noted that the compromise plan would make a “serious downpayment” on the US deficit.
Not really a reason to celebrate. The United States has been living beyond its means for years and tried to spend its way out of trouble. All the President and the other politicians has done today is raise the nations overdraft, so they can spend even more.