Getting lulled into debt

by Manshu on July 31, 2009

in Opinion

I never had any big problems with debt and I pay off my credit card in full every month. I have only faced credit card troubles once in my life for a brief period.

About three years ago, I ran a high balance for about 8 months.

The way the balance crept up on me was totally unexpected and caught me by surprise. I bought my first laptop and partially paid it with my credit card. There was a monthly payment scheme that allowed you to pay about half the sum up front, and the remaining in equal installments over the next 9 months.

The laptop was about 45,000 Indian rupees, which is roughly 900 USD. I paid Rs. 20,000 up front (500 dollars), and after that my card was charged with 3k every month. There was no interest if I paid the amount in full, but the credit card company hoped that I wouldn’t pay it in full every once in a while, and that is how they’d make their money.

I was smarter than them of course, and paid off my balance in full and never incurred any charges. At the end of the nine months, I was very pleased with myself at not having incurred any charges.

But something unexpected happened and I wasn’t so smart any more.

I was used to seeing a charge on my card every month, and when I paid the card in full, I was happy to see that the balance on the card was 0. This made me a little complacent, and I thought to myself, that I can spend about 3k on the card every month because I know that I can easily pay that off in full. So, very soon I was spending that amount on stuff that I didn’t really need and hadn’t cared for either.

A few months of paying off the 3k in full, made my confidence grow, and I was a little more complacent. Soon enough, the 3k increased to 5k, but I was still able to pay in full.

Guess what happened next?

Over the next few months the charge kept rising steadily, and one day I discovered that my monthly bill was 20k and this was surely something I couldn’t pay up fully.

The thought of paying interest really irked me, plus I was really annoyed that the credit card company had fooled me.

I thought of paying up in full, cancelling the card and then taking a prepaid credit card, so that I couldn’t be fooled again, but of course that would have meant that I can’t control my own spending.

So, I developed financial discipline, controlled my spending habits and paid off the balance in full. It took about eight months to pay it in full, but it happened.

Since then, the discipline has stayed, and I didn’t feel l needed to cut my credit cards. For a brief time I mulled whether I should take credit card insurance, but, then I thought the best insurance was to have no balance at all. Nothing can beat that.

Now, I have 5 credit cards in two countries, but no outstanding balance anywhere. In fact, one of my Indian credit cards has a negative balance. I booked an air ticket, when I last went for a vacation, but had to cancel it, and never got a chance to spend the money because the vacation ended.

I feel lucky that I learned a debt lesson early on in life and that it didn’t take a big toll at all. The biggest thing I learned from my experience was that the discipline has to come from within. No amount of nudging by spouses or warnings by friends can save you, if you yourself are not serious about it.

{ 8 comments… read them below or add one }

Ancella July 31, 2009 at 5:59 am

This is a nice article! Glad to know that you finally managed to get your expenses under control, even though you learnt it the hard way.

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Manshu August 1, 2009 at 6:06 am

Fortunately for me, it wasn’t a very hard lesson.

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Mark Wolfinger July 31, 2009 at 4:22 pm

“The biggest thing I learned from my experience was that the discipline has to come from within. No amount of nudging by spouses or warnings by friends can save you, if you yourself are not serious about it.”

That’s what makes trying to explain it to others so frustrating. It’ so obvious to you, you just cannot understand why everyone doesn’t get it. It doesn’t have to be on any specific topic. People just have to learn for themselves, ignoring the good advice that’s available. A total waste.

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Manshu August 1, 2009 at 6:09 am

Especially when you are trying to explain something slightly complicated like Options to people who don’t understand risk πŸ˜‰

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Jason July 31, 2009 at 5:46 pm

Well, thanks for sharing your story with us. People should read it and try not to make the same mistakes with their credit cards.

At least you did not try to avoid the situation and just keep spending, till the balance was unmanageable. I see people all the time who start off like you did but they never stop spending. The balance just keeps going up, then they file for bankruptcy and pretty soon everyone is doing it, and not soon after that the economy is in the fu**ing mess, like right now. I’m glad you stepped up and did the right thing.

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Jessie August 1, 2009 at 11:16 am

Sounds like you learned how to manage credit cards early on – congrats to that!

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Mikael @ Retire Rich August 1, 2009 at 1:19 pm

I am glad that you learned a valuable lesson from the experience (most don’t) but I must also give the credit card companies some “credit” πŸ™‚ They definitely know what they are doing.

Mikael

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Gevork's Debt Guide August 1, 2009 at 10:27 pm

Awesome post, most people especially here in the US would have that type of discipline you did, thats why it is often recommenced that they just cut their cards.

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