I have not had an especially good relationship with my money. It has always been something that I’ve used to provide myself with comfort and gratification. While those are not inherently bad things to have, losing perspective in one’s pursuit for them is fairly easy. In my three years of working, I’ve fallen into consumer debt traps. Twice. And while I’m not particularly proud of that, I have learnt a lot from these experiences. In this two part series, I’ll share with you my experiences with credit card debt and its repurcussions on my life.
I started my first job in 2017 in Pune, a city about 150 kms from my hometown of Mumbai. While there, I was staying in a rented apartment and paying for my champagne tastes on a beer budget (or at least a cheap white wine budget). I had no savings, but also no debt. It was a pay check to pay check life at its finest. Not the best situation definitely, but it was miles better from where I landed up for the next two years. In this post, I will share my experience with the first round of debt.
In March, 2018 I moved back to Mumbai for a new job and started living with my parents again. And suddenly, all my money was up for spends! I paid no rent or utilities. I paid a little for groceries and a few other small bills. I was living for nearly free. My commute was cheap as well because I relied on public transport. Money that could have been saved and invested was spent fulfilling my day dreams of clothes, shoes, bags and jewellery. I bought more than I knew what to do with. Ironically, this was not where I started to accumulate debt. All this shopping was on my debit card which basically meant no savings whatsoeve but also no debt.
The trouble started around October, 2018. My cheap commute had only problem: I spent 4 hours a day doing it and it was getting to me. I was always tired and drained. So a friend and I decided to pool cabs to work, which saved us about 2 hours each day. It was expensive but doable. Between the two of us it was less than the rent of an apartment in Mumbai. It accounted for about 20% of my monthly pay. Since I had no rent to pay I could afford it.
I would book and pay for the cabs for the week and every Friday, my friend would pay me her share. I kept putting the charges on my credit cards and at the same time I had her share in my bank account. This led to me becoming extremely careless and misguided about my money. At the time, I had decided to use credit cards and clear their balances on a monthly basis so that I could avoid all the confusion that came with cab pooling.
However, what ended up happening was I would use my credit cards for the cabs and my debit card for personal shopping. Big mistake! The debit card balance looked higher because my friend’s cab share was there too. So, I would get the false sense of having more money everytime I looked at my balance. This translated into a cushion to go and shop more. At the time, I had two credit cards whose combined limits were about a month’s worth of pay. In three months by December 2018, both of them were maxed out and had started incurring interest.
In January, 2019 I applied for a third credit card in the bank where I’d had a savings account for years, which was also my primary salary account. They gave me a card with a limit of 1.7 times of my monthly pay. While this should have been a new lease of life for my finances, I was extremely flippant once again. It suddenly felt like I had doubled my income and I could go crazy with it. At the start, I was careful and just tried limiting my expenses on it to cabs/ But in a couple of weeks I went crazy. I began using it for my shopping sprees, not really bothering with the balance on it because I hadn’t received my first statement on it. To show you just the bizarreness of my spending spree: I went to a store to get my glasses repaired and came out with four pairs of sunglasses simply because they were on a buy one, get one free offer. I already had 8 pairs of sunglasses. I was once again, piling on balances which were going to accrue a lot of interest.
Between January, 2019 and March, 2019 I found myself saddled with consumer debt and the pile just seemed never ending. This money was spent on a myriad of expenses. It was a near equitable balance between cabs and frivolous shopping.
As I made clear, rather than doing the intelligent thing and not touching my salary while using the credit cards, I used both cards equally freely. During this period, I’d also enrolled for two rather expensive courses for my development, one paid with my debit and the more expensive one picked up on my credit card. That sealed the deal. By the middle of February when the first statement came for my third credit card, I’d used up close to 2/3rd of the limit on it. And by the mid of March it was compleltely used up. I now had three maxed out card, the total of it was equal to three months of pay.
I spent the next five months trying to bring that debt down. I’d spend a third of my monthly pay to pay off the debts. While that was a decent chunk, what I failed to realise was the need to cut off some of my spending. Invariably, I’d spend off all the limit that I’d managed to gain through the repayment. So if you look at it, I was spending as much as I was making. At this rate it was impossible for me to pay off the debt. I would always be saddled back with the same amount.
Another mistake that I made during this time was to divide my repayment amount equally rather than logically. Suppose my debts was Rs. 100, Rs. 200 and Rs. 500 between the three cards and I could spend Rs. 60 to pay it off every month, I would put Rs. 20 into each of them. This didn’t help me make a sufficient dent in them because most of this Rs. 20 went in paying interest rather than principal. As a result, it was taking longer to pay off.
More borrowing and the first step to round two
Around this time I started going to therapy and I realised the need to have better control over my life. I broken down in front of my best friend, who lent me about 35% of the debt quantum to pay it down further. Motivated and slightly embarassed at having to borrow such a large sum, I temporarily became judicious with my money and stopped some expenses. I also used my bonus in August to pay off the debt completely. That was a terrible mistake of its own. Once again, I completely mishandled the situation, something which we will cover in the next post.
What I should have done differently
When I look back on that entire experience the first time around, there are few basic things that I would definitely have done differently.
- Spending what I earned: My first step towards the debt spiral was using my credit card limit as additional income or an extension of my income. Everytime I swiped my cards, I rationalised that this was money I could pay off from my salary because I had the money in my account. Ofcourse that was something I never followed through on because I lacked the self control to keep my bank balance untouched.
- Not spend my salary: When using your credit cards, you are basically leveraging the money in your bank account. That money should ideally be untouched. However, when you’re spending both it’s nearly impossible to pay down the debt. That’s exactly what I did. Because my first two credit cards didn’t have a high enough limit to cover cabs and shopping, I used the debit card for shopping and the high amount visible there was a false sense of safety.
- Not cutting down: This was the first thing I should have done. In the midst of massive debt as I had, rather than scaling down, I cotinue on with my old spending patterns. It was during this period that I bought a phone, semi expesive birthday gifts for my parents and blew up a shit ton of money on stationery and jewellery.
This isn’t the end of my debt saga, unfortunately for in less than 3 months I was down on another spiral. But that is something I will share with you in my next post along with what I do now and some other tid bits! Stay tuned for that.