Greetings Blog-ling! Welcome back to my blog!
Debt is not an easy place to be in. You feel anxious, you feel sullen and more often than not you feel guilty for spending your own hard earned money on a lunch with friends. At least that’s what being in debt looked like to me. The first time I fell into a credit card debt trap I was also deeply embarrassed. Maybe because I’m a generally intelligent person, I felt like I shouldn’t have fallen into this trap of high interest debt. I should have been better than that But fall I did. Not just once, but twice.
Today I’m going to share with you my second spiral into debt. As you would remember from my previous post, I was in a debt trap from January, 2019 to August 2019 which I completely paid off on 31st August 2019. However, as early as October 2019, I found myself descending into another spiral of consumer debt. This time too the amount was heavy and possibly it was even more of a psychological burden than last time.
September 2019 was my first month out of my personal debt rehab. I spent the month, clean and free from debt. However, I would soon come to realise that getting out of debt alone was not enough. It was about saving and spending less than your means. September 2019 was another month of just spending all that I had whether it was on my expensive commute or on clothes I didn’t need. My income wasn’t low. Where I live, people manage to raise entire families on it. For a single person, its probably obscene to be living on this much money. However, I was just reckless and plain simple bad with money.
2nd October is my parents’ wedding anniversary and I try to get them something nice every year. My parents and I have a great relationship and we love giving gifts. So I always like to go all out on their anniversary. The problem with 2019, was that I didnt really have enough money to get the expensive stuff I would have wanted to gift. After paying off the debt with a large lumpsum in August, I was left with no savings to give myself any room to breathe. My commute bill was huge at this point because I was bearing it alone now. Cabs to and from work everyday, for a journey of 40 kms one way. It wasnt cheap and now my travel buddy had to commute at a different time. So that which previously blocked 20% of my income now varied between 45-40% of my income. It was just day light robbery. I was also going for therapy which blocked another 10%, leaving me with about 45% of my income in hand.
My first debt cycle had made me cognizant about my expensive spending habits. So I was self aware enough to know that I could not afford to buy expensive gits and meet my needs of shopping or going out or anything else with the money I had on 1st October. So I turned to my credit cards once again. I swore to myself that I would not make the same mistake this time and that these would be the only purchases on the card which would be promptly paid off. What I failed to account for was the fact that if I didn’t intend to cut down on my expenses for this month and pay for the gifts with debit, how exactly was I going to pay off the debt next month?
Alas, that became just the first of many transactions to get piled up on the card. And once again by December 2019 I was back to where I had started in March 2019 but with a twist. Let’s say my monthly income was Rs. 100 at the time. My debt structure looked something like this:
- Credit card 1: The limit was equal to half my monthly pay. So in this case it was Rs. 50.
- Credit card 2: The limit was equaly to 1.7 times my monthly pay which would mean a debt of Rs. 170
- Loan from a friend: To pay of my last loan cycle my best friend was gracious enough to lend me money. He lent me a month’s worth of salary for me which was another Rs. 100.
My debt grand total was Rs. 320, which was a little more than my thrice my monthly pay. Even thought Rs. 100 of this was totally interest free, it was probably a greater psychological burden.
This should have been the point where I stopped and took stock of my life. Maybe I should have slowed down a little bit and come up with a way to pay this off. However what happened in January 2020 broke all records and s**t hit the fan. No, I’m not exagerating. I only wish I was exagerating.
The Limit Increase
My last charges on my credit cards in December 2019, were for flights and hotels for a trip to Jaipur which was planned for the end of January 2020. I had been invited to the Jaipur Literature festival as part of a contest where I had submitted my poem. While I hadn’t made it to the top 10, I was being invited as a guest to see the other finalists’ work. I definitely wanted to go because this was a dream come true for me! I had always wanted to go to the festival. However, this trip wasn’t without its own financial worries.
Despite having fronted the hotels and flghts, I was honestly rather worried about my ability to finance the remaining expenses of the trip like taxi, food and shopping. I had maxed out my credit cards and I just knew that my salary would not last until the third week of January to give me a decent expense budget. I asked my parents for a small some of money. I knew it wouldn’t cover my trip expenses but I couldn’t ask for more because that would mean having to tell them that I’d messed up once again!
But in the second week of January I had a godsend! Credit Card 1 sent me a message that I could avail a further increase in my credit limit. So now, Credit Card 1 which was at a previous limit of half a month’s pay had been increased upto a whopping 1.5 times of my monthly pay. Basically if the old limit was Rs. 50, it was now bumped up to Rs. 150. I now had a whole month’s pay worth of limit extra on this credit card. The money that I had borrowed from my parents was to fund expenses of the amazing street shopping at Jaipur. I had gone with the assumption that they would only take cash so I borrowed the money to have some in my debit account. This assumption led to another assumption that the increased limit would not be used much since I wouldn’t have anywhere to use it. The increased limit would just be safety net, I said to myself.
But when I went to the markets, I found that there were tons of vendors and shops who took cards and I was elated. I swiped on this new limit left and right. By the end of the trip I had spent nearly all of my additional limit and left with just under 20% of the total limit of the card. This too got promptly used up on cabs once I got back to work.
By the beginning of February 2020 I was again cripped with debt. This time a little more than four times my monthly salary. A third of my annual income was now debt. Let that sink in.
Relapsing into another debt cycle felt like a blow to the self esteem. I questioned everything. Not just money wise. I questioned my self control, my ability to ‘adult’ and just generally everything. And honestly when I look back at the whole relapse, barring a few purchases and my trip, I geniunely cannot think of anything on that list of charges, that brought me joy. For the most part, I couldn’t even recollect more than half the stuff. And yet, I had blown up money on it.
I was paying tons in interest and my minimum payments alone were about 30% of my salary. So in our example of a Rs. 100 salary, I was paying close to Rs. 30 in just interest. In the midst of this chaos, I had to ask my friend if I could defer his loan payments for a couple of months. I was due to move to a higher paying job in March and I was hoping that the increased income would help me out. To ask him for a break on the repayment, It was a real kick in the gut. I felt ashamed asking him for time to pay back his own money. It wasn’t by any means a small sum and it felt terrible to owe it to someone who has been a friend for years. While he didn’t question me much, to this day I wonder if at any point he shook his head and said, “Really? Again?” I felt horrible everytime I made a purchase. But even that hadn’t stopped me.
The Change (But not just yet)
I moved to a higher paying job in the middle of March right before the pandemic. I was beyond fortunate to make the transition! I’d heard these horror stories of offers being revoked and I could not bear to think what would happen if mine was revoked too. I would be trapped with a ton of debt and no prospects!
When I got my first pay cheque at the job, it included a joining bonus plus 15 days of my new monthly pay. A sizeable sum! But again, good sense was yet to prevail. I couldn’t spend the money on physical merchandise so I bought e-books. I spent on buying movies and apps. You get the drift. I donated a good chunk too. The donation is something, for which I have no regrets. That’s the only spending of the money that brought me satisfaction. I didn’t put anything into my debt barring the minimum payment, because I wanted to hold on to liquid money lest they kick me out tomorrow! When I look back at this rationale with my financially wiser lens, I shake my head and wonder why was I like this?
By the time mid April hit, I realised I hadn’t saved anything from this pay either yet. And that was my moment. It was like a truck hit me. It was as if someone dunked my face in ice cold water. I realised that if I couldn’t bring myself to save money with this big a cheque, there had to be something seriously wrong with me. This was not and could not be normal!
And as if it was serenditpity, YouTube recommended to me the first ever personal finance video I had seen. I had never searched for it or even mentioned it to anyone that I wanted to improve my finances. But it landed up on my page. That became my point of recovery!
Lessons for me (And maybe you too)
- Cutting down is diet: They say that diet forms 70% while exercise forms 30% of the magic concoction towards losing weight or being healthy. Cutting down on expensses is the diet for financial health. When trapped in a debt cycle, you cannot live like a king. You cannot afford to buy the things you want to buy. And you need to realise that! This is true for even after the debt is paid off. Living with champagne tastes on a beer budget is a recipe for debt traps. Cut out things that are just to fill in a temporary void. They’re really not worth it! Especially not worth the interest they accrue. Pay for it if they serve you any purpose and if you have the money for it! Credit limit is not equal to bank balance!
- Budgeting is key: You have to budget your money. You need to know where every bit of your money is going! Some people say it gives them anxiety, but honestly budgeting has helped me clear out stress and even align my financial goals. I came across the book You Need a Budget by Jesse Mecham and it has been revolutionary for me. I even use the App that the book talks about to budget my expenses. Frankly, everytime I look at the App and see my improving financial health courtesy my budget I feel a renewed surge of energy.
- Credit cards are not the devil: Despite having suffered two debt traps, I will never say credit cards are the devil. The devil is in our spending habits. If we use credit cards only for transactions which we anyway would have made, say groceries, and pay it off in full each month, there are so many benefits to be had and leveraged! There’s points, travel miles, lounge benefits and much more. There is a need to use the cards judiciously!
- Savings are everything: Putting aside money for your short and long term needs is imperative! You cannot live paycheck to paycheck because that is where the true anxiety lies! Knowing that I need money every month to survive and that without it there’s nothing to fall back on, is what keeps me up at night! Savings are also essential to open up the true options that money has to offer. Shopping is just one tiny option of them.
Where am I today?
I am left with close to 30% of the credit card figure i started with. Between April-June I’ve directed as much money as I could. Since I’m working from home and living with my parents, I have cut down my expenses severely. I chip in for groceries at home and that’s about it. My top repayment month was June where I directed about 70% of my pay to bring down the debt. I pay off my friend’s loan too. A regular instalment of 10% of the total loan amount. I am poised to pay it all off by 31st August. And trust me, I cannot wait for the day to arrive. Because once that is done, I intend to begin my next quest: Investing!
I hope this post helped you. If you are in debt or know someone in debt, do share this story with them. At the very least, you or they will know someone who messed up twice and isn’t afraid. It gets better trust me. You just have to commit! I’m a person who’d rate herself a 5 on 10 on a self control scale. But I did it and it was tough! You owe it to yourself to be debt free. Especially high interest debt free! You owe it to yourself to be financially healthy and stress free!
I hope to see you here in the next one!