I’m excited to be starting 2017 debt free. It has been a rough ride with a car loan and being in credit card debt, that when I’m feeling mentally unwell, it felt like I was in an endless money sucking journey, one which constantly put me in a state of mind that I was poor and couldn’t afford a lot. Now that they’re all paid and done for, I’m free to focus on my bigger financial plans, make better financial decisions, manage any future debt better and afford necessities.
Most importantly, I wouldn’t have to put more focus on my debt.
The car loan took five years to pay off, and despite some hiccups here and there, I paid it off relatively in time. But I want to share with you what I went through with my credit card debt as it was an incredibly careless mistake on my part that I suspect many of us have made before (or not. I could be one of the few haha). Hopefully by sharing my experience, someone out there could benefit from it, especially since so many Malaysians are in debt.
My problem is specifically credit card debt though, so I will touch how I managed that.
Let me especially clarify that being in debt wasn’t the problem. There was nothing wrong with being in debt, seeing as I managed my car loan well. It was the fact that I didn’t manage my debt properly that kept me in a constant state of debt.
How I got into Credit Card debt
This was just pure stupidity on my part, but it’s the kind of carelessness that happens. It started with buying Christmas gifts for the family about two years back, particularly for my younger cousins. I thought hey, I could definitely afford to pay it back.
I didn’t budget, neither did I consider my salary and how much I would pay at the time. I thought my parents would pay me back for a part of it (as they requested I do it for the kids) and surely in a month or two it would be done and paid for. I really wanted to get into the Christmas spirit of giving, seeing as I never did do so in the past due to my meager salary. Sadly, I should have been more careful because my parents didn’t pay me back and I remember being told that I should be able to afford this and I should be indebted to my parents. I have been unable to buy people gifts ever since. I ended up using my credit card to pay for my travels as well, which I also didn’t have enough money for at the time, but I also thought I could pay off in a few months. BIG MISTAKE.
The naive mistake I was making
I was paying off my credit card within a (what I thought was) a good range and beyond my minimum requirement, but I noticed my debt never really decreased, and I was so confused because my credit card statement never mentions that my debt was increasing. I was paying beyond the minimum balance, so it should be okay, right?
Ah, how naive I was. I didn’t realise I was being hit with the 18% interest and was merely escaping a late fee of a mere RM10. Imagine being in debt of RM6000, and you pay RM1000 and believing you would be able to pay off your debt in 6 months time. That was the naive thinking I had. The truth is, with the remaining RM5000, you get an additional RM900, that means unless you can at least pay more than half of your debt, you would never see the end of the amount you owe them. Real bad debt management right there.
Those of you who know better would probably be shaking your head right now, especially seeing as I used to write for personal finance. The shame of making such a horrible mistake was what kept me from reaching out for help. I should have known better, and my mental illness made it harder for me to figure out how to tackle my debt.
When it came to a point that I reached my credit limit (I had to make some payments for my father as well who would pay me back) and had to make a call to the bank to confirm it, I knew I needed to do something because my usual way of just paying off the debt in the usual range was not working.
The solution: Balance Transfers
I learnt this during my job as a personal finance writer, but never thought about it until I saw an ad for it and instantly had an “Aha!” moment. I knew in time I could pay off my debt, but the constant 18% was making it impossible to do so because I could never pay more than half at this point. I considered getting a loan to deal with this, but the interest rate on those put me off. Balance transfers were ideal because the interest rate can really be as low as 0%.
There was the option of a 0% but it was for 3 months. I knew I needed more time than 3 months though so I opted for the 6 months with a 1% interest. A tiny interest is better than a high 18% interest. I had a deadline to pay off the debt before I would be hit with the 18% interest rate again.
The plan: Get the money and budget, budget, budget
It really was a challenge when I started budgeting and I was making a lot of the usual mistakes. I put my payments under general categories, which made it easy for me to dismiss my expenses as a necessity and harder to cut down where I should. I also gave myself unrealistic budgets, one where I would either overspend, or underspend. Check out these 17 Budgeting Mistakes You’re Making as I made some of them here.
For example: Eating out was the hardest to budget for and which I mistakenly focused too much on. Some months I could keep it under the budget I set, some go over either due to my line of work or having to meet friends more often that I thought. So I checked on other budgets such as transportation (parking, petrol, public transport) and grocery shopping, redid my categories and did my research on how much I spent in the past few months. I divided all of these categories further to make sure I know where my money was being spent on, and if there were ever any particular categories I was spending on more that I could create a proper budget.
I continued to pay off my credit card debt slowly while continuing to readjust my budget over and over again, trying to figure out where do I cut down and how do I earn more even with a full time job.
I also managed to get a small writing gig that paid. What especially helped though, was selling my car after I paid off my loan. Due to circumstances, I didn’t really need my car anymore and have been using public transport mostly and my mother’s car for everything else. I used a small part of that money to pay off the debt.
I made my final payment in December 2016. With no car loan to pay for anymore, and my credit card debt finally done and managed, I knew I was set to make 2017 a good year financially.
1) Do not underestimate your credit card!
I was told to always pay my credit card in full, but didn’t know how to do debt management when I made the mistake of paying only a part of it. Over a year of misery ensued as it didn’t help that I kept the problem to myself for so long due to shame and mental illness. I wrote for personal finance, dammit! How could I be this careless?
But it was a necessary lesson for someone like me, who took finances lightly, and I’m glad I found a way out of it eventually.
2) Opt for Balance Transfer as part of your debt management strategy
I’m really grateful for the balance transfer option. A loan usually has a higher interest rate than a balance transfer, which means I would be spending more in the end. Besides, while a loan may be able to make me pay off my debt instantly, it wouldn’t have the same better lesson as a balance transfer did. I had to budget in order to pay off my debt, a lesson I was grateful for because I knew it would help me in the long run.
3) Take charge in knowing your money
I really wish more financial lessons were available in Malaysia, and it was a compulsory lesson. So many of us are making mistakes with our money due to our naive carelessness, which is why so many of us are in debt. While being in debt isn’t bad, it’s a problem if it isn’t properly managed.
Budgeting was especially helpful and I hope to continue using it in the future. This time not to pay off debts, but to get more savings.
And there you have it. The story of what I went through to deal with my credit card debt. I hope this helps some of you, because God knows I needed this major lesson to help me understand my finances better. It was an expensive mistake, but a mistake that helped me learn nonetheless.
Have you ever had a bad debt management moment? How did you deal with it and are you struggling with it now?