The Honest Story of My Debt – How I got trapped in the Debt Spiral

I think I read somewhere that you can’t move forward without truly understanding how you came to be where you are.  Or words to that effect…

So, today is a day for total honesty…

By which I mean acknowledging that I have allowed myself to accumulate $41,395 in credit card debt and payment plans.  The total number is just a bit scary and very hard to get my head around.  How did this happen?  When did I let myself go like this?

I’m a big girl now

If I look back, though, I remember being so excited at eighteen to have my first full-time job (just like a grown-up) and to be eligible for a credit card (again, just like a grown-up).  At the time, I lived in Hong Kong and the banks weren’t quite as liberal with their credit – at least not for eighteen year old girls with less than 6 months work experience – so I didn’t get a credit card until probably early the year after when I moved back to Australia and started working for my father’s business.

At the time, dad’s business was doing it tough.  We could barely make payroll for the staff, let alone my father and myself.  I was lucky if I was paid every 3 months.  But I had a letter saying what my salary was, so I got a credit card.  A measly $2,000, but it kept me eating and drinking with my uni mates.

Large lump sum payments

Unfortunately, because my income was so patchy and unpredictable (I’d often go months without any payment, and then receive a mega payment to compensate), I tended to live off my credit card.  And, of course, when you make sporadic large payments, credit companies keep offering you increases… because clearly you just have cashflow challenges (rather than a spending problem) and a credit card is the perfect tool to smooth out your cashflow.

The Refinancing Debt-Spiral

The debt spiral

Suddenly I was carrying credit card debt of $8,000 within about eighteen months.  That was a scary large number.  So I refinanced that onto a personal loan, thinking that my credit card would be closed and it would all be sweet.

Wrong!  Apparently had to close the credit card account myself.  Which, of course, I didn’t do.  And so, then, I had $16,000 in debt.

And the cycle continued.

I’d continually rack up credit card debt, and then take out a personal loan to refinance it to a more manageable interest rate.  Except I’d not close the credit card accounts down.  Actually, I am fairly sure I did close credit cards on one occasion… That lasted about 6-12 months before I succumbed again.

Where am I today?

Fast forward ten years, and I now have $41,395 in credit card debt, and the same again in personal loans.  Together, that’s around 120% of my after-tax salary!

There are no excuses for this! This is the consequence of my actions (mistakes).  This is what happens when you prioritise instant gratification over savings and future happiness… Now it’s time for me to pay the piper (well, the Banks, anyway).

My Big, Hairy Debt Pledge

At 30 years of age, it seems like an appropriate time to take stock and find a way out of this quagmire of debt that I now live in.

So, as you saw in my previous post, I made a big, hairy Debt Pledge – I will pay off my credit card debt in 18 months!

That’s one big ugly pledge.  Can it be done?

Honestly, I really do have my doubts.

I keep saying to myself, that every little bit will help (which is true), but then in my head I keep trying to make deals with myself… So, I find myself saying ‘oh, well, if you pay off this card, then you can use it to get 50 months interest free here’ or ‘once you pay it off, you’ll be able to go shopping again’.  Clearly, this is part of the reason I keep getting myself into trouble – because it’s this kind of compromised thinking that got me into this mess in the first place!

So I have to be really strong.  I have to push beyond the mental compromises and stick to the plan.

And, clearly, I need to start living within my means.

I wonder what that looks like?!

The hardest thing to get my head around, though, is that I’m currently sitting in Italy and it seems like such a waste not to enjoy myself over here when I’ve spent so much money getting here and I’ve never been here before!

Taking stock

But putting that aside, let’s take stock of how bad the situation really is…

  • Ferratum Payday loan: $240 (due January)
  • Certegy Ezipay (Scuba Equipment Payment Plan): $205 (expires Feb)
  • Flexirent (Laptop Rental Plan): $590 (expires March)
  • Overdraft Account: $1,000
  • DebitSuccess (Skincare & Facial): $1,400 (expires June)
  • GE Creditline: $5,000 (various interest-free purchases)
  • GEM Card: $7,500
  • AMEX Card: $12,500
  • ANZ Card: $13,000

Total “Rubbish Debt”: $41,395

Disclaimer: I am not even going to deal with my loans at the moment.  I am continuing to make the requisite payments each month, and will continue to do so until I’m in a position to face them.  The reality is, both have a 5 year term remaining, so if nothing else I will be free and clear in 5 years (although hopefully much sooner).

Well, we have our baseline.  It’s 30 December 2016, and in twelve months from now, I want to have that debt gone.

Can it be done?  Who knows – but I guess we’ll all find out.

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