In 2008, I went to the US — shopped and toured by myself. I was almost broke when I got back.
In 2009, I decided to loan a house and lot with little to almost nothing at all in my bank account. What I had, though, was a handful of credit cards. Like 14 of them from different banks.
The loan I got from the office was not sufficient for my house specs/requirements so I resorted to credit card loans. The payments for the office loan are netted out before my salary even got credited to my account. My net salary each pay period was 4 digits – just enough for other essentials. The payments for credit card dues came from other credit cards, fresh loans (i.e. Insurance policy loans), office bonuses (which were kind of few and far between). In short, I was just plugging one debt with another debt. I was drowning.
What did I do to reach the shore? In a nutshell, I made smart choices.
1. Create an excel file and start taking stock of all your debts, all your assets, bonuses (if any) as well as dues on a monthly basis for the next N years. Make assumptions, if necessary, like in the case of merit increases, bonuses and their timing. Update this regularly.
- Insert a worksheet or have a notebook where you can keep track of your daily expenses.
2. Do not add more debt unless necessary. For a while, my new house had nothing but the cheap furniture basics. My new debts were to pay for debts coming due. Remember, I had no cash. Just pay partial or enough not to prompt the credit company to call your debt and consider you in default. Bad.
- I didn’t even purchase a car eventhough I was already entitled to 3-4 years ago because the car payments would affect my credit card payments. My 10-year old car is doing just fine anyway. But I have to review this given the upcoming excise tax on vehicles.
3. All windfall (e.g. bonuses) go to prepayments and preterminations of loans. No excuses. Non-negotiable.
4. Pay the loans with the lowest interest last. The insurance loans I made remained unpaid for 5 years. These were the loans with the lowest interests.
5. Cut paid credit cards. Maintain only those which are reliable and internationally accepted. Interests across cards are almost always the same so the deciding factors don’t include that. (I will write about my favorite credit cards in the future.)
5. Keep at it. Realize that it is a long and painful process. The important thing is you are starting somewhere.
8 years later, I am debt free except for the house and lot which will run for 12 more years. I still use credit cards but only to earn points. I don’t do revolving credit anymore. It has been my goal to pay my purchases as they fall due.
I did it. So can you.