I owed $338,000 to three banks because I didn’t know how to use credit cards. I am 30 years old; I live in a large city alone in a rented apartment and work for a company that produces plastic products. Now my monthly income is $9,000, but at the time when I started collecting credit cards, my income was less — only $4,000. The first card was followed by two more: I didn’t notice how I got into debt, and communication with debt collectors became my daily routine. I will tell you why I started to issue credit cards, how I fell into a financial hole, and then got out of it, and what conclusions I made.
In 2011, I was applying for a consumer loan, and the bank imposed a credit card with a limit of $90,000 on me in addition. In August 2013, my limit was raised to 108,000, and in April 2014 – to 130,000. Every time I agreed. I systematically did not close the debt until the end of the grace period, so the bank charged me interest at the rate of 19% per annum. Every month I paid about 1,500, of which 500 dollars went to repay interest. I didn’t need the card: I took it just in case; besides, the consultant explained that the first year of service was free. I am still paying off the debt on this credit card, but I plan to finish it before November 2022.
In June 2013, I issued another credit card from another bank at the mall. At that time, I was missing a patch; the first card was already emptied — I couldn’t think of anything better than to take a new one. My credit history did not inspire optimism even then because the bank provided a very low limit — only $4,000. And the percentage was about the same — 18.5% per annum. I didn’t stop there: a month later, I ran out of money again and had to act according to a proven scheme. I got another credit card from another bank, of which there were plenty in our city. The tendency to reduce the credit limit continued — I was approved for only $1,500.
Banks started calling me two or three times a week when the delays appeared. I explained to the employees of the debt collection service my difficult financial situation and promised to pay. Everything was polite and correct. They specified when to wait for the overdue payment. I promised something; they pretended to believe me and fixed the date for the next call – on average a week after that. The next time they called on the appointed day to remind themselves and find out whether to wait for the money. I tried my best to keep my promises, but it didn’t always work out — in this case, we agreed on a new date.
Letters came to the address of the residence with the requirement to repay the debt if I did not want litigation. They called my parents several times, as I left their numbers in the questionnaire when I issued the card. My parents reacted very violently: every time they told me what an irresponsible slob I was — it was unpleasant. I reassured my parents and promised to solve financial problems. As a result, I agreed with the bank’s specialists that I would make mandatory monthly payments, and they would not transfer the debt to a collection agency. As soon as I started paying, the calls stopped, but it didn’t get much more manageable. The debt did not grow, but it did not decrease either: I deposited money on a credit card and immediately spent it.
I was tired of feeling like a debtor, constantly communicating with claimants, making excuses, and explaining something. I decided to change everything radically. At first, I started reading literature on financial literacy and personal budget management: various articles on the Internet, and books by various businessmen. Separately, I will note the book “Rich Dad, Poor Dad,” which tells a lot about passive income. This book helped me understand that my financial well-being depends only on me. If I don’t make my plan and follow it, then I will live my life in debt, getting by from paycheck to paycheck. But the main role in getting rid of harmful financial habits was played by two of my friends – James and Peggy. James works as a director in an insurance company, and Peggy has her own business. I told them about the problem, and they decided to help me. But the help is different. Friends could just give me money to pay off loans, which would be useless: I would quickly collect new debts. Instead, they taught me how to get out of the financial pits on my own.
Thus, with their help, I was able to restore my financial strength. Now, I had an order in my head, thanks to which I followed the repayment schedules of loans and avoided unnecessary expenses. There are many conclusions drawn from this whole story, but there are a few particularly important ones. Do not dial credit cards “just in case”: the temptation is great to use them, especially if there are any problems (Stavins, 2021). Keep and plan your budget to understand what you can save on and how to optimize expenses. Save money for a financial cushion so as not to borrow from friends and not take out loans at crazy interest rates. If you do get into a debt hole, structure your expenses and create a rescue plan.
Reference
Stavins, J. (2021). Unprepared for financial shocks: Emergency savings and credit card debt. Contemporary Economic Policy, 39(1), 59–82. Web.