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Technically Insolvent


Could You Be 'Technically Insolvent?

by Colin Mc Caig

It seemed a crazy question. But there it was...staring at me from the page.

'Would you work for or invest in a company that was insolvent?'

'Not unless I had more money than sense I thought', and even then, I'd be hard pushed!

'So why then', the article went on, do so many individuals allow themselves to become technically
insolvent?  Meaning that if you're carrying debts of any kind, and can only making that minimum 
monthly repayment, you're slowly becoming poorer every month.

The statement sounded very simplistic, but there was no denying the truth in it. Far too 
many of us do seem to live in a state of willful ignorance about the true state of our finances. 
Many of us, I guess, would even become very defensive if confronted with the harsh reality of 
our spending.

In fact, as I thought more I about it, I concluded that the root of the problem lies in the illusion 
that credit  allows us to maintain. You probably know where I'm coming from...when you're
handing over that little piece of plastic, it doesn't really feel like you're spending *real* money, 
does it?

I've found myself guilty of this...even with my debit card! Happily I flash it at every opportunity, 
but when it actually came to visiting a cash machine, i always seemed just that little bit more 
aware of how much was really sitting in my account

So to better illustrate the financial mind tricks we sometimes play on ourselves, I compiled 
some of the most common credit excuses I've come across and the replies I might give to each.

My credit card helps me out with things my debit card can't afford.

Answer: Why then, would you want to use your credit card? Why not simply take the cash out?

'My card helps me out those months when I can't make ends meet.

It's bad enough using your card on a whim to buy useless consumer junk, but if you're 
extending your credit spending to utilities and life's basic necessities, this is a sure-fire 
fast-track to financial suicide.

'But I always pay it off every month anyway.'I wish  I had a dollar for every time I've 
heard this one. Many of us claim to, but I've met very few who actually do. Even if you 
were part of this rare breed, would it not be more prudent to use your debit card?

'My card gives me reward points and bonuses as a loyal member.'

This is a trick employed by many department stores to get you to sign up on the spot for 
a card that generally charges you an extortionate rate of interest 
(how does 29% sound for starters?). On top of that, check the small print. In the UK, where I'm from, you might find you have to spend, say 500 before you can collect your 15 'bonus' voucher. I could quote more examples, but all would have a fairly common theme...a general desire to maintain a veil of illusion and reluctance to confront the true reality of our spending habits. So try this little exercise... Treat yourself like one of those companies you might invest in or work for. Draw a line down the center of the page and on one side record your profit and on the other your loss (and DO include all outgoings and monthly debt payments!) It's an interesting exercise, which frequently shocks many - especially many who thought they had a firm hold on their finances! But what about your profit and loss? Are you a prospering company, or like so many, are you slipping slowly towards insolvency? Copyright 2004 by Colin McCaig colin@cmcaig.com Article Archive

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