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ICFE eNEWS #19-31  November 2019

"I Really Do Not Have A Problem"

By Jim Garnett, a/k/a Ask Mr.G, a member of the ICFE's Board of Educational Advisors

Let me share a true story with you about a client who came to my office to seek help. The man was 66 years old and had just entered retirement. As he entered my office he immediately told me that I should not think of him as one of my “average clients.”

“I am not like the normal people you see. I am current on all my bills, have a high credit score, and can secure a loan from any bank in town. I really do not have a problem. I only need a little advice on paying off my credit card debt.”

(Please remember that phrase, “I really do not have a problem.”)

Our clients are required to fill out a financial information sheet listing their monthly living expenses, monthly income, and the type and amount of debt they possess. This allows us to know how much and what kind of debt the person has, and also his ability to pay the debt.

I thought it a bit strange that he handed me two information sheets instead of just one, but I found out later the reason.

This client was living on Social Security income amounting to $1800 per month, and spent more than he made every month by several hundred dollars. Now I saw the reason for the two financial sheets instead of one – each sheet had room to list only 27 credit cards, and he had 54 cards! Most of his cards were active, but a few were closed with remaining balances.

His credit card debt came to a staggering $220,000! To service this debt, he was currently making monthly minimum payments of about $5800 per month, and at that rate would never pay off the debt.

I told him that if we were to put him on one of our debt repayment programs (DMP’s), it would require a monthly payment of around $4500 and would take just under 7 years to pay the debt in full.

“That sounds great!” he said. “Let’s do it!”

Then I had to tell him, “I’d love to have you on one of our programs, but there is a problem, actually, a big, big problem. According to your monthly income and expenses, you have no way to make payments. You are out of money each month already by several hundred dollars. You’d never be able to sustain the payments.”

With a shocked look on his face, he said, “But I have been making the payments by myself. Remember, I told you I am current on my bills, so I can surely make this work!”

“I understand,” I replied. “But you have been using your credit cards to make your credit card payments. Had you not been charging an additional $6000 on them each month, you would have crashed and burned long ago.”

“That’s how your debt got so large so quickly. To keep afloat, you have been adding over $70,000 a year to your credit debt. You have been trying to use credit to pay off credit debt. It just made the whole bigger!”

One thing I always appreciated about being a counselor is that you learn valuable lessons from “the school of hard knocks” without having to enroll in class.” In other words, you learn from other people’s mistakes!

From this man I learned that when you get to using credit a lot, it can CREATE AN ILLUSION. The illusion is that your finances appear to be better than they actually are. Like this man, you can be paying your bills on time, yet be on the verge of bankruptcy.

A recent AARP survey revealed that over 50% of Americans spend more than they make every month. That is sad, but even more so when you consider that nearly 100% of this 50% of over-spenders do not know that they are over-spending. Normally, credit cards make up the shortfall.

So, friends, be careful. Credit cards can be a real convenience, but they have an uncanny ability to keep us from seeing our finances as they actually are. The best thing to do is to sit down and figure out what you spend each month and what you earn. If your cash flow is negative, make more or spend less. Do not use credit as your safety-net to stay afloat. It will make you think you “really do not have a problem,” when you actually do!

Get questions like this one answered in my new book, The Nuts and Bolts of Cash and Credit: An Encyclopedia of Financial Knowledge" on Amazon.com.
Ask Mr. G
© Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023

Paul S Richard PhotoICFE eNEWS is available FREE upon request by visiting our Web site and filling out the contact form, and selecting "Yes" for "Add to Mailing List. Please pass this eNEWS on to your peers and interested others and invite them to subscribe for free. Also, visit the ICFE's new Web site: StudentDebtHelp.org

Sent by:

Paul S. Richard
President - Executive Director
Institute of Consumer Financial Education (ICFE)

About the ICFE:

The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation and founder of the College for Financial Planning in Denver, CO.) The ICFE is dedicated to helping consumers of all ages to improve their spending practices, increase savings and use credit more wisely.

The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its financial continuing education courses programs and resources. In addition to eight Certification courses covering identity theft, credit files, credit repair and credit scoring, among others, it also publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.

The ICFE is a partner with the national Jump$tart Coalition for Financial Literacy and the California Jump$tart chapter. The ICFE staff is also active with San Diego Saves and Military Saves, both offshoots of America Saves.

The ICFE is also an on-line help for consumers who spend too much. ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.

The ICFE helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G library, a free eNews service, and an online resource center for students, parents and educators, plus financial education learning tools in the ICFE Book Store.

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