One Step Forwards, Two Steps Back: I Have Credit Card Debt Again!

I started the year exactly how I didn’t want to! With a new credit card debt.

I am not someone who has ever had to rely on credit cards to get from payday to payday. I always had such well paying jobs that I had plenty of money left over each month to spend on… whatever I wanted. And enough to be able to save for any big purchases.

Then after selling my first home in 2003 I had so much equity that I paid for a £16,000 ‘holiday of a lifetime’ (to New Zealand) for my husband & I, our wedding, as well as a move to the other side of the world….

I never had to worry about something going wrong because if it did, I earned enough to cover it.

I never had to worry about money.

Until I separated from my husband.

And started paying a mortgage on one income – a very small income at that (at the time we separated I was making about $25,000 a year from my business)

Even then I only resorted to a credit card to pay for my carpets and I got it on 0% finance for 2 years.

I never used it to buy anything else, even though money was tight.

(I have good self-control…. except when it comes to chocolate!)

And I proudly paid that credit card balance off in the month I would have started to incur interest 😊

(although foolishly only by extending my mortgage to pay for it – face plant)

So how come I find myself with credit card debt again now?

Just when I thought I was done with credit cards!

And after everything I have read over the last year about how bad (and foolish) consumer debt is?

I thought I was on the path to financial independence….

I spent 2023 cutting my costs, building an emergency fund and starting on my investing journey.

I thought I was doing everything right…

I even saved enough to have my first holiday in 10 years!

But perhaps that money would have been more wisely spent on replacing my 10 year old laptop.

Because in January when it took over an hour and a half to do a simple update, I realised the sinking fund I had started was too late!

It was the same every week when it came time to Skype my parents – it always needed an update, the update would inevitably take foreeeeeeeeeeeever!

And I realised that the speed at which it did EVERYTHING was stopping me from wanting to use it. Which meant I had done next to nothing on my business for almost 2 months.

I actually had enough money (more than enough) to buy a laptop, saved in my Emergency Fund.

But my new found frugal mind set wouldn’t allow me to class a new laptop as an emergency because my old laptop still worked (had it died completely it would have fallen into that category… but a slow death and driving me mad wasn’t enough for me to allow myself to use any of my emergency fund)

So I grudgingly turned to a 0% interest credit card again and bought a high spec, ex-display, laptop (an HP Pavilion 15-EG2047TX Core i7-1255U 1TB) in the sale. And here it is….

It was probably higher spec and more money than I needed to spend at $2,198, but my Dad always says buy cheap buy twice! So I stretched myself and am hopeful that this laptop will last me 10 years like my old one. And, I hate to be all girly about this financial decision but… she is super swanky! I love her.

(and she also has an Nvidia sticker on her ☺)

I’m paying it off as quickly as possible…

I have 2 years to pay it off until I start to incur interest. So I know it could have been worse.

And yet I feel such shame at having credit card debt again (now that I am on my path to FI)

I want to have it paid off as quickly as possible – I am working to have it paid off in 10 months. That means all gone by October 2024.

Financially this isn’t the wisest decision.

Mathematics says that if I invested the money I am using to pay it off each month into stocks and shares (or even a high interest PIE Term Deposit) that my money would be better off earning me money, as it isn’t costing me money (yet). But psychologically I wouldn’t be.

Psychologically I feel better seeing the balance go down each month, than I would do seeing my investment or savings grow each month, all the while knowing that I have credit card debt. I owe money.

Plus what if I did invest it, got a 10% return for the 2 years and then just as I was about to pay it off the stock markets crashed and I lost my money? What if it came to the end of 2 years and I didn’t have the money to pay it off?

Then I would start to incur interest at a whopping 28.99% – yep, you read that right 28.99%!

We are all complaining about the banks charging us mortgage interest of over 7%. Whilst this credit card company charges 28.99%!

But of course, that’s not what they advertise! In fact, you have to go looking for it in the small print. What they advertise instead is all the ‘partners’ that they offer 0% interest on for purchases from (because they understand the psychology of money too)

Money decisions aren’t about maths…

I always thought money habits were about common sense, knowledge, experience, and maths, but the more I learn the more I realise that the majority of money decisions and habits are deeply rooted in psychology, not common sense or maths.

Even though I know I have enough will power and self restraint not to be tempted by this credit card, I still cut it up the moment it arrived – never even activating it.

Even though I know the maths say that financially the right thing to do is invest the money, I am choosing to pay off the debt and get rid of it as quickly as possible.

Because I am naturally risk averse. I like to play things safe.

And I am a rule follower – so once you tell me something is bad, like credit card debt….

I also have a great imagination for how bad things could get (if there was a gold medal for catastrophising I would be wearing it!)

So even though I am not someone that has ever relied on credit cards to get myself from paycheck to paycheck, I know it would be an easy trap to fall into.

I think lots of people tell themselves they have the better of money and credit cards, that they use credit cards and not the other way round… but if that were true credit cards wouldn’t exist.

There might be some people that have the money to pay balances off each month, reaping whatever pitiful rewards Kiwi credit cards offer (nothing like as good as their US counterparts), never paying interest on their purchases… until that one month when they do.

If lenders weren’t making money from credit cards they wouldn’t offer them.

And that’s what scares me.

The thought that I could start to be that person. And once you start to incur 28% interest… how do you ever pay that debt off??

It’s the same with AfterPay and all of those buy now pay later companies. We think we’re using them, because we make the payments and never pay interest… until that one time we’re not able to make a payment.

As soon as I realised they were enabling me to do something I had never done – buy something I couldn’t afford to! (because if I could, I wouldn’t need them) I realised that I was on a slippery slope and closed ALL of my buy now pay later accounts (I had 2 at the start of 2022)

Instead I save in advance. Which is kind of the same as using those services: each payday I put $50 or $100 aside, and when I have enough I buy whatever I was going to buying using Buy Now Pay Later. The difference being if one payday I don’t have enough to put that money aside, I don’t incur fees or interest!

Better still, after 4, 6 or 8 weeks, I often no longer want whatever item of clothing or pair of shoes or cute handbag I had my eye on anyway! Then I can put that money into my holiday account, investments or emergency fund instead.

I am going to start adding my credit card balance to my monthly reviews, to show it slowly coming down (hopefully)

And in the meantime I am going to try not to be so hard on myself.

Taking a Financial independence detour…

I started this post by saying I should have spent the money I spent on my holiday on my laptop instead. I think that was a little harsh. It was my first holiday in 10 years, it will pay me memory dividends (a term I learned from Bill Perkins the author of Die with Zero – a must read) for the rest of my life, and I had already managed to cut my expenses by almost $24k.

And I only started on my personal finance journey at the start of 2023.

Getting from financial dungeon (the word that seemed most fitting to the opposite of financial freedom) to financial freedom IS a journey and journeys are rarely (if ever) a direct line from your starting point to your destination. There are inevitably twists and turns, detours and sometimes even wrong turns. But keeping your eye on the final destination is what matters. And making corrections when you do find yourself off course.

So I am going to see my credit card debt as a detour.

I am going to learn from my mistake and think ahead for any big purchases I might need to make, that way I can start a sinking fund and start putting money aside, earlier instead of too late.

(in the last year I have replaced my tv and my laptop, so I figure the next thing will probably be my phone)

Then once I have paid off this credit card, I am going to close the account and forget about it.

I am still on my journey to financial independence.

I still have the knowledge I have learned over the last 14 months.

I still have my goal of being mortgage free by 50 and ‘retired’ by 52 (that’s 7 years)

This is just a teeny tiny detour.

Amy

XO$