We maxed out two credit cards and took 3 years to repay: our lessons

Last Updated on January 11, 2021 at 10:52 am

In this article, Pranav gives an account of his lesson from repaying credit card debt. Regular credit card users who excel in reward point accumulation or those who do not like debt, in general, might ridicule such accounts with a, “isn’t it obvious one must pay all dues in full, before the due date”. We will have to accept the reality that this is another side of the coin, and Pranav is certainly not alone here.

Note: We are all victims of our own bad or good experiences. Those who suffer credit card debt will tend to view them and their benefits very differently from those who accumulate reward points without debt. Either way, reward points cannot make you rich. All they do is add more fuel to the spending machine. Even if we may not agree with all the opinions expressed, there can be no disagreement that credit card debt is terrible.

In Pranav’s own words, “It’s not a rag to riches kind of thing, but it might be a light read for your readers, and I think some will relate to it”. You may be an expert credit card user, but many continue to make the mistakes mentioned in this article. Do share this article with them. Now over to Pranav.

Let me preface this by saying, you will perceive this story differently depending on your age. Readers just starting work might see this as a cautionary tale. Readers in their 30s might chuckle and think ‘yes I did that too’ and older readers might think ‘of course! What did you expect will happen?’

Whatever phase in your financial journey you are, I hope you enjoy reading our story, about how two low earners can get kicked down again and again (financially) because “life got in the way”.

My wife and I met in the workplace. We were both IT engineers starting. My parents were financially independent. However, my wife supports her parents financially.

It was mid-2015, and love was in the air, we went to every movie released and ate at every happening restaurant in the city. On most weekends we would eat three meals a day outside with a movie thrown in. And what better way to finance such irresponsibility than with our credit cards?

Within six months we reached a stage where we maxed out two credit cards and half an overdraft account (damn you Citibank for just handing them out!). Now let me tell you the funny part, the total outstanding was only 1.3 lakhs (of which we owed 1.1 lakhs on the credit cards).

The day we saw the bill, we were shocked, but our childish minds still did not grasp what that meant. Our monthly salaries combined (minus mandatory expenses) didn’t even come close to this amount. So we continued spending by part paying the bills and using the newly available limit to max out again. This went on for six whole months.

In mid-2016, We both changed jobs and did not have any income for two whole months during our notice period. We didn’t have an emergency fund to keep us afloat. My wife borrowed from friends and I borrowed from my parents.

Once we started earning higher salaries, ideally we should have buckled down and closed the worst kind of debt known to humanity, right? Wrong! We were making more! Of course, we should spend more and give second priority to the credit card bills.

Around this time, my wife took out a small personal loan to help her parents remodel their ancestral home and had the idea that we extend that personal loan by 1 lakh more and close the credit cards. It seemed like a great idea at the time. We closed off our credit cards, but now she was stuck with a 5-year loan. See how the bad debt never went away? It just transformed into a personal loan.

Fast forward to 2018 when we got married, my wife had to extend her personal loan again to meet the wedding expenses. I had a little savings of my own, which was fully withdrawn for the wedding. So now, after getting a house on rent and spending on furnishing the home with stuff and a small honeymoon, we were broke again with a solid 7 lakh rupees personal loan. Also, see how the bad debt never went away?

Over the next year and a half, we slowly grew in our careers, and we were finally able to save up an emergency fund of 6 six months worth of expenses and covered our basics (term and health insurance).  The next step was to close our loan, we pooled in money and managed to pull that off. All this while welcoming our son into our lives.

Finally, in June 2020, we closed out the loan. The sigh of relief we had when we walked out of the HDFC office was unforgettable.

Some lessons we learnt along the way

1. Just because you earn well doesn’t make you financially secure: Saving what you earn is what matters.

2. Credit cards – don’t use it if you cannot control your spending. There are only two good reasons to pay using a credit card. That’s for international transactions and maybe as an additional emergency fund (not a replacement to your actual emergency fund). Like Pattu Sir would say – points and cashback are nonsense.

• Do you know why I bought my “Citibank Indian Oil card”? Because it seemed like I’d get free petrol. But the truth is, none of the Indian oil pumps near my house accepts points payment!

3. Save for an emergency fund as soon as you start earning. It’s a real lifesaver. I can’t tell you how many times I think we would have been in a much better situation if we would have had an emergency fund when we needed it most.

4. Like snowball effect in debt, there is a snowball effect in savings: you automatically start saving money when you don’t have bad debt.

5. Money attracts money: I can’t explain how this happens, but even if you have 10000 rupees saved up, you will dream of making it 100000 and subconsciously work towards it.

6. Upskilling at work: this is not related to my article, but one straightforward way to lead a better life is to make more money (duh). But there are different ways to do it.
(a) working in bursts: a lot of people do this in IT. They get frustrated with their current job and suddenly work hard for six months and earn some certifications and move to higher-paying positions. It works, but it is not fun.
(b) constant Upskilling: you set a goal for the whole year and slowly work towards it. Even one hour a day would do. But it will be more structured, and it will show your current employer you’re willing to put in the effort.
(c ) passive income streams: freefincal has some great literature on how to get started and do it right. I’m learning it as well. Have a great 2021.