Not much better but not much worse

A few weeks have passed now and looking back at our spending habits, not much has actually changed. The exception being that we have continued to aggressively pay down the debt and we have not increased our credit in any way. We are at the limits of pretty much all our cards except for the one we are currently paying off. When it is done we will close it. The down side to this is there is no available credit for the unexpected.

We had a $2000 emergency fund but we bought most of our Christmas presents for each other out of it as well as paying a $330 financial adviser's bill and now it is down to about $900. That normally wouldn't be too bad as we can now build it back up again but I have just resigned my job in preparation for us moving in January. I have a job lined up however there will be 3 or 4 weeks where I won't be receiving a paycheque. During that time my wife will be working night shifts which means no overtime. Things may get a little tight in the new year but after the move my wife switches to a much higher salary so we will be back on track pretty soon.

One of the options we will be weighing up soon is do we continue the snowball to knock over these credit cards or do we go the option of the cheap consolidation loan.

A weekend away

We spent the weekend away and we had a great time. My brother-in-law is a great host and we enjoyed his family's company very much. He looked after us very well including taking us on a tour of the local vineyards and cellar doors. We blew our budget by about $100. This included petrol and buying some thank you groceries and wine so all in all I think that is pretty good. We came home with about 20 bottles of wine and port and it is all stuff we like to drink so I think that $100 over budget isn't too bad.

The cheque arrives

The cheque from the overpayment I made on my electricity account arrived and the money is sitting in our transaction account. I'm going to pay the final $103 of the card we thought we paid off and then put the rest off my store card. Thanks to some aggressive payments on the store card the balance should be around $1500 once I have transferred the remainder of the money from the cheque. Now that they first card as actually paid off we will be paying off the store card at a minimum rate of $450 per month. So in the worst case we will be cancelling that card in 3 months time. I am hoping to pay it off sooner, however, by putting as much spare money onto it as I can. After that we will go for my personal loan, which should by then have a sub $4000 balance. We will have an extra $450, on top of the $333 regular payment, in which to pay it off. At that rate we will have the loan paid off after another 5 months and then out snowball amount will be close to $800!

Wine

My wife and I have been discussing a weekend away to buy some wine for about six months and now the chance has finally come. This coming weekend we are both free of other events and we have decided to go. We will stay with my wife's brother which will help keep down the costs. The only real expense we should have will be a tank of fuel to get there and back. We have been putting all our spare change into a piggy bank for the last few years and it is finally time to crack it open and spend! We opened it last night and 50 minutes later we had separated out the different denominations of coins and estimated a total in excess of $300. That should amount to a pretty fun weekend.

We don't pay off the first card

When I asked my wife how much I had to pay of the card to close it she told me the available limit instead of the balance. To make a long story short, we still owe $103 on that card. Oh well, we will pay it off next pay day.

We pay off the first card

We have paid off the first credit card! It only had a $1000 limit (and a $1000 balance) and it is a very small step in the big scheme of things but it feels so good. As soon as the money that we just paid clears my wife will call them to cancel the card. I can't wait! Not only have we decreased the amount we owe and our credit limit but we have also increased the amount we can now pay on the remaining cards and loans. Our next goal is to pay off a store card which currently has a balance of $1700. We have already been paying this one off quickly because we need to get the balance to zero before the interest free period runs out. With the extra $100 a month we had been paying of the other card we will get there almost twice as quickly. We will also put any other spare money off it as well.

Once that card is paid off and cancelled I think we will go for the personal loan. Because it is relatively low interest with regular repayment, conventional wisdom tells us to leave it till last. If, however,we pay it off and add the regular repayments to our snowball we will have around $800 per month to pay off the next card. Then we will really be moving!

Take care in the supermarket

I have been taking extra care when I've gone to the supermarket to buy a few things that those few things don't turn into a few more. Every time I've gone in the last 2 weeks I have had a list of stuff to buy and I've stuck to the list 100%. Every time I see extra things that I could buy but I ignore them and stick to the list. I want to learn to take the impulse out of shopping and I'm sure that it will just take a bit of self-discipline and prior planning. I just wish I had some proper historical data so I could compare my new grocery bills with my old ones.

Money Owed

While I was entering all my data in quicken I remember that I had accidentally overpaid a final electricity bill a few years ago. I sent the company an email and they agreed to send me a cheque. From memory it was about $350! That will go straight off the $1000 card. We will have it paid off in no time! I also noticed that one of my old internet providers has been charging my card $10 for the last 3 years. I sent an email to them to let them know I expect a cheque in the mail. Fingers crossed that will be even more money off the card!

Some extra cash

Cutting up the cards has given me a big motivational boost and I'm very determined to to pay off that first card as quickly as possible. I had a look through the house and found a few items we could easily live without. There is a 2 year old flat screen computer monitor that we don't have a computer for, a spare color printer and a spare oil heater. I'm going to advertise them at work and put any proceeds off the card.

Debt Snowball

My wife wants us to pay off the credit cards in order of their interest rates. A very sensible idea but the problem is, that is exactly what we have been doing and we are not getting anywhere. In fact we are going backwards. As soon as we get any sort of available funds available on a card they get spent. We need to do something different. Cutting up the cards was a good first step because it stops us from spending any further.

After reading about Debt Snowballs at Get Rich Slowly I knew this was the solution for us. The card with the highest rate is one with an $8000 balance. If we pay that off at a rate of $100 per fortnight it will take us years. Instead we have decided to knock off some of the smaller balances first. We will start with the card with a $1000 limit. It has been cut up so we can't spend any more on it. We are going to pay the minimum balance on everything else and put the remainder off this balance. Once it is finished we will close down the account. Then we will attack the next smallest balance. Once again we will pay only the minimum balance on everything else but this time we will have the money that we had been paying off the $1000 card as well so it is getting an extra payment per month. We will finish off the balance, close the account then go to the next smallest balance but now with 3 payments per month.

I like this plan for two reasons. First of all we will see results. With a bit of discipline it won't take us long to knock off that first $1000 card and then we can close it. It is only a small step in the big picture but it will be a big psychological win for us. Secondly the plan involves reducing not just our amount of consumer credit but also our available credit. We had been treating our available credit as a target for spending and until we can truly break that habit there is nothing for it but to reduce our credit limits.

This is very exciting and I can't wait to make the call to close that first card!

Knowledge is power

I downloaded a trial version of Quicken and started putting in some account balances. The good news is that overall we are in the black. That's including the house, my wife's car which is paid off and our combined super. We aren't much in the black but we'll take anything we can get. "That's depressing," my wife said when she saw the credit card column. It is depressing. But at least we are doing something about it now. It will be good to see what we are actually spending our money on. My best estimate is that we spend about $1000 per fortnight on discretionary items. If we could cut that in half it would go a long way to spending less than we earn.

I also expect that by monitoring what we spend we will automatically spend less. In the last week we have only spent around $20 on groceries and our tithe. There has been none of the frivolous discretionary spending on credit cards that normally take place. The figures in Quicken may be depressing but my overall mood is good because I know we are taking the right steps to fix the problem.

I cut up my credit cards

It feels so good! Last night after work my wife and I decided to cut up 4 of our 6 cards. We are going to pay them off and close them down as we go. The remaining 2 will have their balances reduced from $8000 and $4000 to $2000 each. It has taken me a many years to get to this point but now that I am here things are moving very quickly. Just 2 months ago I was thinking it was time to increase my credit limit to help out with cash flow. This was only to be a short term measure as I was telling myself we would pay them all off next year. Then yesterday I just decided it was time to stop fooling myself. Over a gin and tonic I told me wife my plan and she agreed. She said we should have done it ages ago. I said that if we were serious we should cut up our cards immediately. That's when it got tough. She accused me of trying to take away her security blanket. How can a maxed out credit card possibly be a security blanket I asked. We have a small emergency fund. That is a real security blanket. Eventually she handed over two of her cards. I took two of mine out of my wallet and cut them all in half with a pair of kitchen scissors.

Emancipation!

The debt is still there of course. We still owe $18000 on those cards and another $12000 on the two we didn't cut but this is a start. We are going to pay them off. We are not going to increase our debt. We are going to be free!

Future spending plans

Obviously paying off credit cards and loans is high on the agenda next year but would you believe that we still have an old boxy cathode ray 4:3 TV? It is about 24 inches, runs off a $50 DVD player and doesn't have any external speakers. We need to upgrade that with a proper home theatre package. And we'll be living in a house with a pool but not a spa and we need to fix that. And my car isn't big enough. I think we will trade it in on a 4WD...

And the credit card spending start afresh

So the credit card balances are low but the future income is high. A new computer, a lavish honeymoon, some new furniture and the cards are full. So we take out a new $10000 card and transfer some of the balance. And spend some more. We also traded in my car on a new one worth $44000. The balance of my existing car loan was $3000 more than the trade in on my car so we actually financed $47000. And we bought a house. So now our monthly repayments are not that much less than our monthly income. Are we worried? Of course not, my wife will earn plenty of money next year and we'll pay it all off.

Good news

And then I was graced by another piece of dumb luck. I married a young woman who is in a profession with a much higher then average earning capacity. Don't get me wrong, I didn't really understand her future earning capacity until after I had proposed. We got married because we are in love. She is still relatively junior and on an only slightly above average wage even now. It wasn't until I went with her to see her personal banker that I really began to comprehend the money aspect of things and what is to come.

But it's a good thing right? Surely this would mean that we wouldn't have to worry about money. There will be plenty coming in and the bank sure seems keen to lend us as much money as we want...

Pure Chance

My immediate problems were alleviated by pure chance. I received a bequest from my grandmother's estate which get me out of some very hot water. I paid out the consolidation loan that was at 33% and put the rest off credit cards. I was shocked to find that even though I was nearly three years into the loan I had only reduced the principal from $7000 to $5500. I may as well have been burning my money for warmth! I had learnt a valuable lesson and the balances on my credit cards slowly crept down for the next 6 months...

In Hindsight

In hindsight there is a lot I could have done. I could have switched my cards to a lower rate. I could have applied in person for a consolidation loan and asked an actual person to consider my situation and not a computer. I could have traded in my new car for one much cheaper. I could have cut up my cards instead of using them as soon as they had available credit. I could have told my family what was wrong. I could have even got a quote on cheaper car insurance. Instead I suffered in silence an inaction. And believe me, I did suffer.

This is harder than I expected

These events are ancient history now but they are still very hard to write about. The immediate threat is gone and my life has taken a much needed turn for the better, however, just thinking about these events and these decisions I have made is painful. I want to remember it though because I want the inspiration. My situation right now is that that far removed from the extreme indebtedness of 2 years ago and I want, need, to fundamentally change the way my finances work.

Dark Days

The next couple years were easily the worst of my life. I was receiving calls from debt collectors at home and at work. I received letters telling me I was going to court. I couldn't pay my mobile phone bill and it got cancelled. I didn't tell my friends or family what was happening. I had to make up a story about not wanting to be a "slave to technology" who was "on call 24/7" to explain why my mobile was no longer available. I had to take calls from debt collectors in my shared office and try to explain to the debt collector that I would pay off my debt without letting my colleagues know anything was wrong. I lived in fear that I would go home from work one day to find my dad (who I was living with) had been harassed by a debt collector. I became deeply depressed. I became very anxious. I was diagnosed with bi-polar disorder. Credit card addiction and Bi-polar disorder make a disastrous mix.

A new cheap consolidation loan

I applied online for a cheap consolidation loan through my bank. I figured if I refinanced everything into one consolidation loan the repayments would be less. The bank said no. I tried again for everything but the car. No. For just the $14000 card. No again. I knew I was in big trouble. I was on the verge of financial meltdown.

I applied through a non-bank lender for a cheap consolidation loan. It was rejected for the full amount of my cards but they offered to lend me $7000 to consolidate one of them. I remember sitting there in the office filling out the paper work. and seeing the interest rate. 31%. The repayment was going to be the same as on my $15000 loan. So much for my cheap consolidation loan. If only I had walked away.

"Do you want us to apply to close that card for you?"

"No."

An Addiction Begins

My addiction to credit cards began about 9 years ago. I was in college and invited to go on a sponsored overseas trip. I had no income but, with a bit of help from my sponsor, was able to get a credit card with a $1000 limit in order to make reservations at hotels.

I maxed the card out before I even went on the trip!

A couple years after I got that card I got a job which had me travelling all over the country. My expenses were all paid for but I had to fork out for them up front. The first thing I did when I got my first pay check was increase my limit to $2000. That was soon maxed out with personal expenses and I was struggling to pay my work expenses each month. I decided to apply for a separate card which I would use only to pay for the work expenses and I would clear the balance as soon as I was reimbursed.

That card was very quickly maxed out.

At least I was earning lots of reward points.

I received an offer to increase the limit on my first card to $5000. Accepted immediately and maxed out almost as quickly. Next it was an $8000 limit. Then a $12700 limit. Don’t ask me how they came up with $12700.

I knew I would never pay them off so I asked for a cheap consolidation loan. I borrowed $15000 and paid off both the cards. Within a year they were both maxed out again. All my income was going on repayments so I applied for another card. $5000 limit. Soon maxed out. I a wanted to upgrade to a gold card for more reward points. Increase the limit to $7000.

Around about them I got a substantial pay rise. It was just enough to make payments on a new car so I financed $30000. I still had no way to actually buy anything because all my income was going on repayments so I took out another card. $2000 limit. This one never made it to the limit because I couldn’t make the first monthly repayment and it was frozen. It took me about 2 years to slowly pay off what I had spent. I still have the card in my wallet today.

Then the bank offered me an increase to $18000 on my original card. I new I shouldn’t so I ignored the letter. But then my glasses broke and I needed to replace them so I could drive. I went looking for the letter and asked to have my limit increased to $14000 instead of $18000. That gave me enough to buy the glasses and give me a bit of breathing room.

Then I left my job for one that paid about 25% less. I was $68000 in debt and in big trouble. On the bright side I had enough rewards points for an around-the-world trip...

Debt

My wife and I have $33000 worth or credit card debt, a $5000 personal loan, a $42000 car loan on a car worth $30000 and a $251000 mortgage. Our minimum repayments are about $3500 per month. We can afford this however at the rate we are paying this debt off (and spending) it will be 30 years before we get anywhere! I don't know what we should do!