ICFE eNEWS #15-31 - Oct 29th 2015
View this eNEWS online

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

Of all the great things that credit does for us, there is something even greater that credit does to us! Credit creates an illusion.

Let me illustrate. Years ago a retired gentleman came into my office for financial counseling. As he was seated he said, “I do not have any financial problems. I am current on all my bills. I have a high credit score, and I can get a loan from any bank in the city. I am just having trouble paying off my credit card debt!” And with that, he produced 54 credit cards with over $227,000 worth of credit card debt! True story!

His debt had accumulated rather quickly (I suspected from the casino), and he had already borrowed against his home a second time to try to win back his losses. Seeing his monthly income, I knew he must be presently using his credit cards to the tune of $5000 per month if he was staying current on his bills.

I casually asked him, "Are you still using your credit cards?" He answered, "Yes, but not like I used to." That's like asking a man, "Are you still kicking your dog?" and he replies, "Yes, but not like I used to!" Not a good answer, but it shows the part that perspective can play in allowing us to look at things realistically - or not.

Credit had done to him what it does well; it had created an illusion! Because he was current on his bills, had a good credit score, and could go out and get more credit, he was deceived into thinking he was financially healthy. In his perspective, he had debt, but he was handling it.

Although more extreme, this man represents many Americans who have also been deceived by a constant use of credit. They measure their financial health with false indicators and see themselves better off financially than they actually are. They are like a person who determines his appearance by looking in a fun house mirror.

You see, being current on bills, having a good credit score, and being able to borrow more are not necessarily accurate indicators of our financial health. We must look below the surface and ask, “How am I accomplishing these things? Is it because I have enough real money to pay my bills, or is it because I use credit to make up the monthly deficit?”

To tell the difference, put all your credit cards in a drawer for two months and see how hard it is to pay your bills. If you run out of money before you run out of month, you are probably spending more than you earn. You must then decide to either make more or spend less. Continuing to use credit like a “lifeboat” is not a good alternative. Eventually, the “lifeboat” will sail into the horizon, and we will “sink” financially!

Credit can enhance our lives for the good, but it can also ensnare us by creating an illusion and hiding the reality of our true financial situation.

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

ICFE eNEWS is available FREE upon request by visiting the ICFE's Web site and filling out the contact form, 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 Richard
President - Executive Director
Institute of Consumer Financial Education (ICFE)

ICFE - Institute of Consumer Financial Education - ICFE.info - 619.239.1401