After more than a year of paying for late payment charges, interest and for my outstanding balance, I am finally free from Credit Card debt! I’m finally out of the deep financial hole I got myself into, and I certainly don’t want to go back there again. It was a very tricky situation, and at some point I felt like it was going to set me back by at least 10 years! Fortunately for me, I had the opportunity to attend several talks on Personal Finance, including debt management that equipped me with the knowledge, and helped me to develop a better mindset and behavior when it came to managing my finances. I also didn’t have a lot of credit cards which helped, A LOT. In fact, I only had 2, and I only used 1. The other one was sort of “mandatory” after securing a loan from one of the lending banks here for a major expenditure back home that I needed to settle immediately.
How it started
I never had a credit card before. I never got approved for one. And for good reason, clearly. Had I been approved for a credit card back in the Philippines I probably would have ended up still paying for those until now. Fast forward to 2014 after joining my UAE based employer here in Dubai, I signed my bank documents for my salary transfer, and a few days later- VOILA! My new Debit card, and Credit Card. I didn’t want to use it at first. In fact, I was afraid of it. I thought to myself, I don’t want to end up in jail like a lot of other Filipinos here in the UAE because of unpaid debt. I knew for a fact that I was lousy with managing money, and most probably- credit. So to avoid using my credit card, I usually left it at home. It didn’t take long for me to feel that I “needed” to use it. As mentioned earlier I was lousy with handling money, and my budget so a few days before the next payday I was already out of cash. I needed money to buy myself food for the next few days. I also happened to pass by a nice restaurant where they served some nice steaks. Drool. And so, just like any other weak-willed first-time credit card holder I went straight home, took out my credit card and had a nice steak dinner. I was thinking to myself, “This isn’t a very expensive meal so I should be able to pay for this easily when my next salary arrives”. And so began my happy swiping habit. I never used it for shopping though, but every time I ran out of cash for my monthly groceries and wanted to eat out, or watch a movie- Charge! Didn’t take long for my expenses to pile up and it took months for me to realize that I’ve made a lot of holes in my ship with all those “discretionary” expenses, and that I was slowly sinking deeper into credit card debt.
Mid 2015, my credit card usage was already getting out of control. I was no longer in control. I was paying upwards of AED 200-400 a month from the deferred payment charges alone on top of my outstanding balance of at least AED 2000-5000! I even managed to completely max it out at one time. I knew for certain that I was going to be in trouble if I didn’t do something about it. I was using up all of my commissions to pay for my credit card bill instead of being able to save and invest it for my future. I used to say to myself that I would never be in any financial distress when I grow old, yet there I was owing the bank at least AED 8000-10000. By the end of 2015, after I got my biggest commission for the year, I managed to fully pay for my credit card. What a relief! Finally, I can start saving and investing more. That however, was a short lived victory. Old habits die hard, and it didn’t take long for me to get back into the bad habit of mismanaging my money and using my credit card again. I was back to square one, and back to owing 5 digit credit card debt! I was earning twice my monthly salary due to commissions, but all of that extra money just went to paying my bills. It was ridiculous! It was so depressing because I felt that I was it a situation that I could never get out of.
It had to stop. I had to stop. I had to take control, and do something. I started reading more about managing debt, and doing my research to find ways and means to change my money and spending habits. I attended an event organized by Investhusiasts on Budgeting as well as other events and seminars on Personal Money Management. A lot of the topics hit home. It made me realize how much I have mismanaged my money, and abused my credit card. I heard other stories as well of how some of the other attendees struggled with their own situation and how they overcame it by sticking to a strict budget, and of course having the financial discipline. As soon as I got home after each event I used the important pointers to assess my current situation, and work out a plan to get out of debt. One of the methods discussed was the Snowball Method.
Here’s how it works according to Dave Ramsey.
The debt snowball method is a debt reduction strategy where you pay off debts in order of smallest to largest, gaining momentum as each balance is paid off. When the smallest debt is paid in full, you roll the money you were paying on that debt into the next smallest balance.
It looks something like this:
Step 1: List your debts from smallest to largest.
Step 2: Make minimum payments on all your debts except the smallest.
Step 3: Pay as much as possible on your smallest debt.
Step 4: Repeat until each debt is paid in full.
Since I only had 1 Credit Card bill to pay for, and a loan which I pay for every month using Auto-Debit I was able to easily set up a payment plan for my credit card.
Using this process, each time I had a commission, I would use all of it to pay for my credit card debt. Needless to say I had to make sure that I didn’t incur any other debts during this time. Any method you employ to pay off your debts will be futile if you still keep adding more debts.
It was a very painful and difficult process. But a necessary one. Otherwise no matter how hard or long I worked in the UAE or any other country I would still end up as one of the 8 out of 10 Filipinos who worked abroad for years and went home broke.
I spent a good part of 2017 paying off my credit card debts. Three quarters in fact. But as of this writing, I am proud to say that I am now Credit Card debt free, and that I have become more responsible with my finances. I still have my loan that I am paying for, but in time I will also be able to pay that in full.
You don’t have to pay all your credit card debts at once especially if you don’t have the capacity, but you can do it with baby steps. It may take you a while to get out of debt, but if you stay the course you will eventually be able to pay it off. Find a method that works for you, and stick to it. It all starts with the first step, and you will need to have the discipline to make sure you DO NOT incur any more debts.
If you need help in settling your credit card debts, talk to your bank. Arrange a meeting with them and explain your situation and be honest about it. They would appreciate it more if you try to negotiate terms to pay off your debts, instead of just running away. They would rather receive smaller payments for a longer time period, than no payment at all. If you need professional help in managing your finances, talk to a reputable financial advisor or financial planner.