Last week I shared some of the influences on my view of money from both my parents and other relatives. They either deliberately or unconsciously educated me by their lessons or their example. This week My has asked us to focus on the subject of DEBT.
Have I ever been in debt? For a short time yes, and for a fairly modest amount. Some people incur debt at times when they have little choice – unexpected medical expenses, their vehicle breaking down or another essential household item – a refrigerator or a boiler etc. People might take on debt in the form of a mortgage. These all seem like reasonable and perhaps necessary forms of debt and most people would be grateful for the provision of credit allowing them to carry on with their life and make payments over time without feeling anxious.
I have never been in that situation. Since I “left home” (as in became independent and old enough to live alone) I have rented properties in various locations in the US and England where I have worked. So no mortgage. But the cost of rent (and sometimes additional utilities bills if they were not included in the rental agreement) in a US metropolis (likewise when I lived in London for a short time) swallowed up a large part of my monthly salary. The training from my English relatives was ingrained – switch off lights and don’t waste electricity!
I have never had to pay out for medical expenses, and whenever I have had car trouble or a household appliance break down, I had the funds to cover the bills.
My dubious dabble with debt came not long after a bank let me have my very own credit card. I wish I had someone to lecture me at the time. I learnt the hard way what can happen when you have credit card. I went a little shopping crazy!
I had seen my parents use credit cards for everything for years – restaurants, hotels, shopping malls – everything was paid for with a credit card. I just never saw what happened next. So during my first few months of having a credit card – new clothes and shoes (oh so many shoes) poured into my closet. I am sure I treated myself more than ever before and suddenly became very generous towards my friends too. It was so easy with this little piece of plastic that allowed me to buy things so easily.
Why was I spending so much? For a start because it was so easy to spend with a credit card. My peers, friends and colleagues were spending money too. They may have influenced me more than I realized. But I was also reaching a stage where I was having a taste of depression. I was impulsively spending money on things I thought made me happy.
Then my credit card statement would arrive and there was a shock – I could not understand how I could have spent so many thousands of dollars in such a short time. Only to my relief there was a little line at the top of my statement which at the time felt like my salvation, but later turned out to be rather a sinister enemy. The line was: MINUMUM PAYMENT DUE. It was easy to pay off the $150. I could afford that easily.
I thought I was being very organised with my finances. Everything was set up to come out of my account just after my salary was paid. So the day after money went into my bank account, rent can out and the day after utility bills. Which left me with just over $1000 per month left. But once you have paid for your food and groceries, gas for your car, Starbucks on the way to work and at lunchtime (I think I spent $100 a month at Starbucks maybe more!), drinks out with your colleagues on Friday night, days out at the weekend with friends, there is not a lot left of that $1000. Now I had to make sure I paid the $150 minimum payment on my credit card.
Only…I kept on finding myself using my credit card for other things – tickets to see Beyonce, a weekend away in Colorado, the Chanel coat I had just fallen in love with. My next credit card statement would arrive. Damn!!! But that old corker MINUMUM PAYMENT DUE would be my rescue. Only this time it had gone up to $200.
It took me almost a year for me to realize that if I continued at this rate I was going to end up in big trouble! So I had to do something drastic. The one thing I absolutely was not going to do, not at all, no way on earth – was ask the bank of Daddy to bail me out. There was already some tension between my parents and I. I had not enjoyed my studies and I hated my job. But stacking up credit card statements for thousands of dollars meant I had to find a solution. Two solutions presented themselves. The first was being plucky. I asked my boss for a pay rise. I had not been with the firm for long, so that was very bold of me. I only had the guts to do that because I knew my boss was happy with me. Amazingly, my boss agreed on the condition that I step it up another level at work. So for the next year, I pushed myself to the point of exhaustion.
The other solution to paying off my credit card bills was to move from the apartment I liked so much into the apartment of a friend who was happy to have someone to contribute to her bills. It suited both of us. It cut the living expenses for both of us. We were both working long hours and tended to come home and shower and sleep so we hardly knew we lived with someone else. Except on Sundays.
Oh and I forgot the other solution to my credit card debt – I TOOK A PAIR OF SICCORS AND CUT MY CREDIT CARD UP INTO TINY FRAGMENTS AND THREW THEM INTO THE TRASH! I realized I was not ready for a credit card.
Now as I mentioned above, for some individuals or families debt may seem unavoidable and necessary at times. I think many people are responsible in the way the take on debt and pay it off. Others live their life like they are in a casino – businessmen and property owners who seem to like staking huge amounts on the economy – in which there are always winners and losers. They seem addicted to juggling debts hoping their fortunes will land them a windfall.
For some young adults like me, it is when we first get access to credit, often in the form of a credit card or bank overdraft that we go a little crazy and learn a hard lesson. My personal advice is this: that little line at the top of the statement: MINIMUM PAYMENT DUE – it is not a friend, it can turn into a sinister enemy.
If you possibly can – get out of debt as soon as possible. Debt can be like a heavy chain around your neck. It is a form of slavery. Try to break free from that “slavitude” as soon as you can. Paying off debt can be like climbing a steep mountain. If you keep paying the minimum payments it is as if every few metres that mountain becomes taller and taller.
People can be pushed to breaking point by burdensome debts. Suicides are often linked to unmanageable debt. You may have little choice about taking on debt for essential bills. But avoid debt wherever possible. Never go into debt for things that are not necessary – a vacation, designer clothes, parties or socialising. If you have to tell your friends that you cannot afford to keep up with the lifestyle they perhaps want you to adopt. If they are genuine friends they will understand. If they are snooty because you admit you need to be more modest about your expenditure – find new friends!
Paying off debts and being debt free is a wonderful sense of freedom. People who succeeded in paying off their debts will understand the enormous relief of finally being debt free. At the end of the day reducing stress can help you lead a much happier life.