Free From Credit Card Debt

Yesterday was a very liberating day for me. It was 4 April 2010. 040410.

It was the day I paid in full my outstanding credit card debt. I am now a free man. I feel like I can take on anything that comes my way now.

But the story was not that rosy along the way. I am about to open a can of worms now.

I started using credit card in 2008. I got one right after I started my second job. Like any fresh graduate who feels like they need to mark their presence in the working world, I started using the card as if I don’t have to pay what I spend.

And I maxed out the credit limit. To make things worse, I did not have a budget for my income and expenses then. I can still recall what I used to think a few days before I got my salary.

It was “What are the things that I want to buy with my salary this month?”

And paying my the credit card instalment was one of the last priority. Well, you could not really call that a priority anymore in that case.

I realised something was wrong because I did not have any big financial commitment. No car loan. No house mortgage. But I did not have a lot of savings as well. And yet I earn as much as other friends of mine in my age group. And yet, I always avoid picking up the phone when the bank called to remind me of my outstanding instalment. The worst day of my life came when I got a call from the bank informing me that my card has been cancelled.

Yes, it is embarassing to let all of you know about my financial mistake but now I’m over it, I accept that I did a mistake. That acceptance empowered me to move forward instead of consistently being in a state of denial about my financial standing.

So what was wrong actually? I was looking all over the place for answers to my problem. I am an accounting graduate so managing money should not be a problem. I learned how to understand a company’s financial statement yet I was not even able to understand myown  financial condition. It was my blind spot.

At around the same time I got to know a superb personal finance blog by the name of thesimpledollar.com. I did a lot of reading from the articles on the website and the first rule I learned is “Managing Money is More of An Emotional Decision than A Logical One”.

That explains why logically as an accounting graduate I can understand financial statement but I could not emotionally manage my own finances.

And I have been breaking the first rule of becoming wealthy as well which is to spend less than you earn. I had been spending as much as I was earning! I decided to take control of my financial health condition and it was also at the same time I found a local personal finance blog by KC Lau and he published a book by the title of  Top Money Tips for Malaysian.

I bought his book and I read it. Because of his book, I did my net worth calculation. A lot of other personal finance book I read before that mention about the importance of calculating one’s net worth. But it was KC Lau’s book (or my situation and determination to fix things) that made me put pen to paper and God, it was an eye opening exercise!

It struck upon that of the few years I have been working, I should really have saved more money. Because then, my assets were mostly my cash in hand and my Employee Provident Fund(EPF) money. Plus, if I had paid my student loan and credit card loan much more diligently, I would have a much lower liabilities and my net worth should be much better if not positive. (Please note it is quite normal to have a negative net worth if you took a student loan when you were in college)

I also got to see that managing my personal finance has to do more than just figuring out what do I want to spend my hard earned money on when the paycheck comes. The end of every month was a spending fiesta for me then. And ironically it seems like I was spending money on things which should be useful,which are books and foods. I eat out most of the time.

TheSimpleDollar was my religion at that time. I got a lot of simple and yet profound insights on personal finance management from that blog. I further my quest by reading other books on personal finance as well. Among them were The Millionaire Next Door by by Stanley and Danko and also The Secrets of  The Millionaire Mind  by T Harv Eker.

TheSimpleDollar and The Millionaire Next Door helped to instill a lot of conservatism in spending money inside my head. The 30 Day Rule is now something which I observe and practise to control inpulse buying. Before that, I used to think that “you can always find money” so buy it now and you will have the time to find money next time around.

But now I value things and stuff in terms of how many hours of work do I need to put in order to buy that thing. So let’s assume hypothetically my rate per hour is RM15. Everytime I am about to buy a book at Borders that is gonna cost me around RM60, I know it’s gonna cost me around 4 hours of my time or four hours of my life energy(you can know more about the concept of life energy from the book Your Money or Your Life).

The Secrets of The Millionaire Mind helped me to reset my relationship about money. I learned that my spending habit of instant gratification was something I learned from my upbringing :-D. But of course, I should not blame any other individual because I am the captain of my own life. I also learn to identify my own financial blueprint and its shortcoming.

One word of caution though, there are a lot of upselling and promotions of  T Harv Eker’s program towards the end of the book (should you decide to read it). I don’t think it is really necessary to attend the courses to get more because the book is already complete as it is. And if you were to attend one of his course also, there is a big possibility you will sign up for another future course voluntarily even though it might cost you your mom!

(There a lot of “state pumping” done during seminars to get people to sign up for future seminars without even knowing the price before hand. Maybe I’ll write something on “state pumping” in the future. Enough said it is the high you usually feel after attending a motivational course. If you are in sales industry, be it insurance or financial product, I am sure you are very familiar with this feeling. Other than that, his book is good and legit and I personally recommend you to get the book )

To make the story short, I have been paying the outstanding amount consistently since then and today I am free from credit card debt.

Will I be using a credit card again? Of course I will. I have been planning to be a modern day nomad who earns his money from any location in the world and to automate my finances online, credit card is a must. But this time it’s gonna be like an obedient wife who is ready to serve his husband. Not like a mistress who satisfies a man’s cravings and at the same time drags that man deeper into the darkness.

A few key side lessons I learn one of it is that our system is actually rewarding people who borrows. Because when I got my card cancelled and started to pay and watch my spending, I have a lot of cash. At one point of time I even planned to not use a card and to not take any loan from any bank anymore.

But if I were to do so, I won’t have any credit record and it’s gonna affect me if I decided to get a house loan in the future (but now I don’t plan to own a house or a car, more on this in the future). The system will not be able to know that I have a lot of cash. What it can detect is whether I am a good paymaster or not.

Which brings us to another irony. If a person knows how to juggle his debt very well, he might have a very strong credit rating and yet, drowning in debt, and still be able to get more credit facilities from the bank.

Funny huh how the system works?

Now I always strive to understand the system and once I understand the system I will beat the system ;-D