ICFE eNEWS #13-02 - February 4th 2013

People will do what they know, but once they know better, they should do better. - Dr. Phil

A Lesson In How NOT To Pay Your Bills
By Jim Garnett, a/k/a Ask Mr.G, a member of the ICFE's Board of Educational Advisors.

I heard a news commentator say recently, "America's credit card is maxed out at $16.4 trillion. Congress will soon be voting to raise the debt ceiling so we can have the ability to pay our bills."

Think about his statement: Do people actually believe that the "ability to pay our bills" is based on how much they can borrow? Is constantly going deeper into debt now the accepted method to stay current on our financial obligations?

Well, I know a group of people who believe that. They go by the name "politicians," and yes, they actually believe that it is okay for our government to pay its bills by going deeper into debt. "Paying our bills" used to mean paying down debt, but now it means recklessly adding to it!

You and I can learn something from Washington - we can learn how NOT to do it! We can learn from the school of hard knocks without having to actually go to class ourselves!

Can I suggest to you that the principles of sound finance are the same, whether applied to governments or to individuals. In both situations, constantly having to borrow is a sign of inability, not ability, to pay the bills!

The practice is similar to digging a hole in our front yard so we can get enough dirt to fill in the hole in our back yard! The back yard is going to look nice, but the front yard is soon going to look like a war zone.

But many are not learning from Washington's mistakes. Borrowing to pay bills has become an accepted practice for many American families: "About half of 3,000 Americans polled in a recent survey said that they're spending more than they earn..."
Source: Survey by Rasmussen as reported in the Huffington Post Money 1/23/13

This could explain why the average American family that does not pay its credit card balance off each month, revolves almost $16,000 of credit card debt each month! To pay that amount off at minimum payments would take almost 18 years and would cost over $11,000 in interest!

The "ability" to spend more than we earn comes about by using credit to make up the shortfall between what we spend and what we earn. It can be credit cards, bank loans, tapping into retirement, payday loans, or securing a second mortgage can be ways of going into debt to pay the bills.

Therefore, a good way to see if you are spending more than you make is to totally discontinue the use of all credit for a couple of months. Use only the cash you have available to pay your bills. If you run out of cash before you get them all paid - you are spending more than you earn!

How do you address that problem?

  1. Make a list of what you actually spend in a month.
  2. Compare that to your "take home" pay.
  3. If the expenses are more than the income - spend less or earn more.

The path to financial fitness is not achieved through borrowing, and raising our personal "debt ceiling" does nothing but enable us to continue our bad overspending habits.

The real fix to get our finances under control is to simply spend less than we earn.

©Jim Garnett. The information on this site should be understood to be a general discussion of the subject matter and DOES NOT constitute a legal opinion about the situation. For further information please consult a qualified attorney.

Ask Mr. G
© Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023

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Sent by:

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

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