Life after Epiphany

Credit cards conquered… lessons learned.

5 Comments

When I first moved out of home, I was a little overly optimistic about what I could spend and still be OK. I was young, ambitious and forgot that the generation ahead of me weren’t born into their comfortable, middle-class lifestyle.

So I bought a laptop computer. It wasn’t a top-of-the-range laptop – it was just a low-spec’d machine that would enable me to type lecture notes and take my studies with me wherever as was convenient. Nevertheless, it was more than I could afford to spend.

I maxed out my card.

I had a limit of about $xxxx at the time, but I only worked on a part-time basis around my full-time study. This was going to take a LONG time to pay back, and a lot of discipline. All the while, interest was multiplying like a virus.

In an unusual run of bad luck, I wrote my car off at about the same time. (No – nothing as terrifying as wrapping it around a pole – I simply didn’t keep the fluids topped up under the hood, and it was an old car. One day the engine overheated and seized.) I lived a good hour’s drive from my place of employment, and 1.5 hours from my college campus. I lived 45 minutes from my parents’ home. Public transport in the area I lived was very limited. I needed a car.

AND there weren’t any laundromats near where I lived, so I was driving to my parents’ home each week to do my laundry. I needed a washing machine.

I’ll bet you can guess what happened. I took out a loan. I bought a car, I bought a washing machine and I paid off my credit card.

But now I was in debt to the tune of $xxK, and I STILL only had a part-time job. AND the temptation of a $xxxx credit limit on my card.

It took me 3 years, and I paid down that loan with a LOT of hard work. THE most intelligent thing I have ever done financially, however, was to cut my credit limit DRASTICALLY. I changed my credit limit to $xxx. On a part-time income, with living costs and a loan to service, and the same need for occasional retail therapy that afflicts most young women? A higher limit than that would have been begging for more debt trouble.

Over the course of those three years, after I graduated from college, I grew to be very successful in my work and by the time I paid off the loan I had secured for myself a contract role that was bringing in a good income.

Do you know what happened to my credit limit, after I was back in the black and my income had improved?

THE 25% RULE
I NEVER allowed my credit limit to exceed 25% of my monthly income.

The benefit of this was that I could still make online purchases or leverage small amounts of credit where I saw an opportunity to win. But I could ALWAYS pay my card off within a single pay period without impacting my general living expenses, and I NEVER ran the risk of amassing interest-debt.

Essentially this kept my risk completely contained. The worst case scenario was that if I made a budgeting mistake and spent too much, I could clear ALL debt the very next pay cheque, and still have enough money to meet all living costs and financial obligations. I just might not have much disposable income that particular month. This served me incredibly well in the years that followed.

I offer this little story of my own mistake and lessons learned to anyone who is just starting out and is tempted to spend more than they really can. It’s just not worth it. Hold out for the weeks or months it might take to save a bit more in order to be able to afford your needs/wants over the early years and to buy them free and clear. Don’t start playing with debt until seeking financial advice from someone qualified to dispense it. Contain your personal financial risk until you are better established and know what you’re doing.

My financial situation is very different, post-convent. When you leave religious life, typically you leave with little more than the clothes on your back. So I’m getting established all over again. But I’m pleased to say I no longer have a credit card. Each thing I purchase, in my moves to get more established in my post-convent life, is something I have saved up for until I can buy it outright, without having bad debt hang over me.

There is a place for the use of credit – but not in personal spending. Purchasing real estate or investing is, 99% of cases, going to demand more than what one’s personal bank balance has to offer. Credit is a useful tool; yet when it ceases to be a tool and you become its slave, it can be a very cruel master.

FINALLY – NEEDS vs. WANTS
I don’t need the latest, highest spec computer on the market. I don’t need $400 coats or shoes. Evaluating the difference between needs and wants, and limiting one’s personal credit risk – you might not be living life in the fast lane, but you’ll enjoy the freedom that comes with being safely in the black.

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5 thoughts on “Credit cards conquered… lessons learned.

  1. One thing I do enjoy about credit cards is the ability to spend on others. I do get a mindset (whether pride or benevolence) to more freely spend on others when cards are involved.

    But otherwise dangerzone

    • It is a beautiful thing to be generous with others, and its heartwarming to see you doing this – thanks for being a person who puts a smile on others’ faces! 🙂

      Perhaps its simply about knowing what we have to give, in these cases?
      I mean, we can’t give what we don’t have. I suppose a credit card allows us the power to give in advance of having, but it DOES mean that we continue giving it long after the friend is even aware of it anymore, because we are still paying off what we have given them.

      As I think about what you’ve said, I think you’re right that cards can change our mindset somewhat and for that reason can be a danger zone… it changes our perception of reality, making us think we have more disposable income than we really do.

      Self-knowledge is really helpful here. I am the kind of person who would ALLOW myself to be fooled by this more pleasant but false perception of the reality of my finances and I know this. So if I am honest with myself, I know that its safer for me personally to stick to paying for gifts from my own money rather than accruing debt.

      For others with different temperaments to mine, if they know themselves well and are honest with themselves, and can spend without losing control of the debt they accrue, perhaps there is less danger for them than there is for me!

      Thanks Nathan – you’ve helped me tease this out to include two more hints for using credit cards well:

      i. know what you have to give (REAL vs. PERCEIVED)
      ii. know your own personal weaknesses

      • Thanks Bek. As I was paying my card today was thinking how I choose to ignore what I’ve been spending on. I do a quick check that I haven’t got any phony interest charges and just pay it off. There was definitely a sense of ignorance about it.

        On the question of giving I do also note that there is significantly less suffering when doing by card. My monthly donations are now just another line in the statement. As soon as my life budget adjusts to this I no longer share in any suffering in this. There is the loss of love in the charity. Charity and love ate no longer a decision in this case.

        I’m going to have to give this a rethink

  2. Great post, and a great reminder! I am still struggling to clear credit card debt that built up when I was a student… and I graduated 10 years ago!

    Happy feast of St Dominic. I often think of you and remember you in my prayers. 🙂

    • Thanks, Le@h – hey its great to hear from you! Have a blessed Solemnity of the Assumption 🙂 I’m guessing its still August 15 in your part of the world. It’s great to have concrete things to pray for when we pray for our friends – especially those we don’t see or hear from often. Now I have something concrete to pray for when I remember you before the Lord – I’ll be praying for help and perseverance for you as you work to pay off the card. Hope you are well!

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