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!