How overspending by a small amount on a regular basis spiralled into serious debt.

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Janet

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On another thread someone asked:
How could it possibly take 11 years to pay off that level of debt?
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in response to my post saying
About two years of being careless when I was younger led to eleven years of debt (and I'm not talking about having gone wild buying designer gear every week, more like spending an extra fifty quid in the supermarket every few weeks).
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Since my answer became somewhat long, I decided to split it into this new topic in order to not let that thread get too off-topic. Hope that's okay with everyone.

It's actually very easy. And obviously that's something of an oversimplification but it went something like this: starts off with just a few hundred on a credit card (being 'sensible' when I first got a credit card I set the limit at 500 pounds, which was about what I earned per fortnightly paycheck at that time) because you haven't really figured out the whole budgeting thing yet and since everyone is throwing money around like mad you must surely be able to at least go to the supermarket without having to worry about what anything costs. But then you can't pay it off so just make the minimum payments for a while and then the bank ups your limit (they were still allowed to do that at that time) and you think great, pressure is off. But you still can't/don't pay off the balance and over time it creeps up more and more.

So you think well, I'll get a loan to pay it off ('cos interest is lower and that's what 'sensible' people do but unlike said senisble people you don't chop up the card). So now you're paying a loan with payments that are too high but instead of doing a proper budget and cutting down on expenditure you're finding yourself using the credit card to buy all your groceries. No money left over at all for things like clothes so although you only buy them when absolutely necessary, you end up doing something like going shopping as soon as you get paid just so you can buy a new suit for a job interview and between that and making a loan repayment and making a maybe slightly more than minimum payment on the credit card as well as potentially having cleared any overdraft you might have run up on your current account, there's not a whole lot left over for the rest of the month. So credit card and overdraft come into play again. And then after a year or so of that you decide to consolidate your debts because that's what sensible people do.

So you get a big loan to cover remaining loan balance, credit card and overdraft and the bank says well why don't we round it up to [nearest thousand] so you have a bit of leeway and a chance to sort yourself out. So you do that, maybe go away for a week to relax but still don't cut up the credit card or cancel the overdraft facility and for a while everything's going according to plan but then you have to move house unexpectedly so there's the cost of deposit, double rent because you have to start paying for the new place before you've finished paying for the old one, hiring a van and buying a fridge because you've moved into an unfurnished place (with second hand furniture donated by a family member). So all of a sudden there's a couple of hundred on the credit card again. But your loan repayments are taking all your spare cash so now that you're also trying to pay off a credit card again you're struggling every month and end up dragging out the card or using the overdraft to pay for a bit here and a bit there. And you feel like you're constantly paying off debt but never getting anywhere. Don't forget that all the time interest is building up as well.

And then you decide it's all getting too stressful and it would be just better to get a bigger loan and have one payment so you again go to your nice helpful bank and consolidate your debts, again taking the slightly more than you need that's offered because it'll take the pressure off. And this time the loan is to be paid off over three years. And things go well for a while. But then something else happens and because you have no savings and the loan repayments are taking up most of your spare cash (because you still haven't quite gotten the budgeting thing down, although you're trying a bit at least) it's back to using your money as soon as you get paid and then having to use credit card and overdraft (neither of which have been cancelled) to pay for the basics.

So it was perhaps two years of careless spending, followed by three or four of trying to get out of debt but not really having a clue, still doing silly things and sort of thinking that it wasn't a big deal anyway because sure everyone else you know is in the same boat. And now six years of properly dealing with my debt and getting a handle on finances (but still by no means perfect).

When I finally started to really get a handle on finances it was because I was also in a terrible job situation and badly depressed and decided, many years overdue, to go for counselling. That cost 70 euro per session and I needed to make sure I had the money every week - that was for the first few months, after that I changed to a different job with lower pay and could only go every second week but the key difference was that I knew that and made changes to what I was doing with my money based on what I was earning rather than trying to carry on doing the same things with less money. I had been using an excel spreadsheet to 'manage' my budget since the laser card had been introduced as I had ended up in trouble a few times because of transactions not appearing for a few days and me forgetting about them. But it was a really eye-opnener to sit down and start properly managing my money. My previous model had relied on checking my bank account to make sure there was enough money in it whenver a standing order was due to come out and hoping bills wouldn't be too high to pay when I receive them. Now I actually wrote down what my fixed expenses were, including things like rent, bus ticket, an amount for phone and esb and the 70 a week for counselling. And realised that once I'd done all that plus left a bit for making some payments to debt, I only really had, say fifty euro a week leftover to spend on everything else (food, going out, presents, clothes). Plenty to live on perhaps but if you're eating lunch out every day, you'd have already spent more than that, even if it's just a sandwich, packet of crisps and bottle of water. It took me a while but I finally got to the point where I consolidated for a final time and took out a loan for what was by then a very large amount of money, fixed rate this time and no delusions that I would pay it off earlier than the five year term. I never did cut up the credit card but reduced the limit to a small amount and paid it off in full every month.

All went well, and I even managed to finance a move to Germany. Unfortunately four thousand euro worth of dental work has left me a year behind with being debt free. My loan was cleared late last year and I expect to have cleared the final debt from the dental work by May.

And that is how spending a small amount more than you earn every week can spiral into more debt than you would have thought possible. A bit of carelessness, a pinch of stupid behaviour, a touch of depression, (not to mention a fervent desire, regardless of how irrational, that the millennium bug will wipe it all out) and, it must be admitted, a smidge of what can only be called an unjustified sense of entitlement (every else goes out to eat every week so I will too, etc.) and all of a sudden the girl who at fourteen was earning five pounds a week working for the family business and still always had money to loan her elder siblings is the one up to her eyes in debt.
 
Fair play to you for the honest appraisal of your situation. At least you admit where you went wrong. There are so many others who think it's everyone else's fault but their own.
 
Surely the lenders which allowed such a spiralling level of credit have much responsibility.
 
Note also my join date for AAM: March 2005 - it was a bit more than a year later than I took out my final loan and had things more or less under control. Realising that it wasn't weird to want to be in control of my finances helped a lot. Actually I always knew that wasn't weird, it was just the how of it which eluded me so perhaps it was more realising that some of the things you have to do to get control of your finances aren't weird. It's okay to not to certain things if you can't afford them etc.

I've also read and still do read a lot of blogs, especially simple living and personal finance blogs, since early 2006.
 
dewdrop said:
Surely the lenders which allowed such a spiralling level of credit have much responsibility.
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At that rate you could argue that my parents or my school are responsible for not teaching me how to budget properly. My dad died a couple of years before all this started and he would have been horrified if he had ever known. Neither a borrower nor a lender be and all that - yet that never made it as far as lessons in how to actually manage things. On a side note I have to admit I was tremendously impressed when doing Hamlet for the Leaving to realise that my dad had been quoting Shakespeare all those years.

It's good that banks can no longer up the limit on a credit card just because. But otherwise, well, I'm the one who kept spending the money. I did need someone to teach me the error of my ways, so to speak, but don't think anyone can really be held responsible for that task. One of my older sisters often says that if she hadn't met her husband, who's very good with money, then she'd have been the same as me.

And even when I did get some advice I didn't always feel it was relevant to me. For example, the first few years of my working life I worked for American companies in Dublin (call centre boom victim here :) ) and I remember once we were sent around a newsletter type thing with tips on how to manage finances, which included a tip that you should always have six months worth of salary in an emergency fund in case you lose your job. That just struck me as totally irrelevant and a bit 'American' (oh the innocence of me back then!). I couldn't imagine ever being out of work, despite growing up amid the multiple redundancies of the late 70's and 80's. And six month's salary seemed like such a hugely unrealistic amount to need for anything. Things look different in your early twenties.

And for the lenders, well, they were doing what they are in business to do. Making money. And they have made a lot of money out of me. I've always repaid what I owe on time (or early, in the case of loans that got consolidated into other debt) so, for celtic tiger Ireland at least, I was an ideal customer for them.
 
Janet said:
It's good that banks can no longer up the limit on a credit card just because.
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Yes. I had a credit card with a limit of 500 euro. In a 2 year period the bank increased it to over 5k. I phoned them (this is years ago) and asked them to reduce the limit. They said that I had to instruct them in writing. I was livid that they could go ahead and increase the limit and not even tell me, but to decrease it I had to sit down and write a letter to them. I know sending a letter is not a big deal but it seemed like hassle to write it, find out who to address it to, find out the address to send it to, go to the post office, get a stamp, post it - all for someone in the bank just pushing a button to increase my limit without telling me. Madness. To this day I have a credit card with a limit of over 7k that Ive never bother writing and taking the limit down on. As it happens I clear it each month and dont have an issue with getting into debt on it - but it would be so easy.
 
truthseeker said:
I phoned them (this is years ago) and asked them to reduce the limit. They said that I had to instruct them in writing.
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I know the feeling. Around 2004-2006 my credit card limit was raised from 1500 to 7,000. I phoned up and requested that it was brought back down to 1500, I was told that i'd have to write in and that if i needed an increase I could be refused in the future.

I found this astonishing that the CSR was trying to persuade me not to reduce the limit. I did get it back down to 1500 after the letter etc but ended up having to get it bumped up in 2009.

At present the limit is 2300 and every month i am at approx 2000. I pay about 1000 max off every month but cant seem to get it down. I'd love to get it down to 500-700 - thats the target.
 
Perhaps you should think about making sure that you have enough money to cover your expenses and then make a smaller payment to your credit card instead of putting all your money on the card and then needing to use your card to pay for things during the month. Because it's very easy to, for example, got to the supermarket and say to yourself, well I'm using the card anyway so I might as well stock up on x, y, or z that's on special offer. If you only have twenty euro in your wallet you might be less inclined to spend more of it than absolutely necessary.

When you get to the situation where you just don't seem to be able to get the balance down, despite making a big payment every month then you really need to change something. You shouldn't be using your card at all really.

Do you have a savings account that you can easily access the money from? Perhaps this month you could try making a smaller payment to the card (say, minimum payment plus 100 euro) and transferring the rest of what you'd normally pay off into your savings account. Then put the card away (cut it up if you can) and if you need money, take it from your savings account. If you don't need it, then you can use it to make an extra payment onto the card towards the end of the month. It is a vicious circle to break out of but something has to give. Making a big payment to the card will give you a good feeling for a few days of the month when the payment hits and you can see your balance going down close to 1,000 instead of 2,000 but if the balance is nearly the same at the end of the month as it was at the beginning it's just fooling yourself that you're getting anywhere. And that feeling of constantly paying off debt but never getting anywhere is incredibly depressing and, if you're susceptible to that kind of thing, could lead to overspending on things you don't need.
 
3rd Gen said:
Around 2004-2006 my credit card limit was raised from 1500 to 7,000. I phoned up and requested that it was brought back down to 1500, I was told that i'd have to write in and that if i needed an increase I could be refused in the future.
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According to this article it was sometime in mid-2006 that the rule was introduced that they can't increase your limit without your permission. I remember hearing that line about potential limits being set on increases in the future if I requested my limit to be put down at any stage. Very annoying.
 
That's an excellent post Janet on how people can go wrong, probably should be added into the key post on how one should avoid getting into debt, how it can spiral out of control and the dangers of credit cards.
 
Hi Janet
your post is excellent janet and so many people would relate to it.. ( love the way its written too :)
It was exactly the same way I got into debt esp the bit you said you would get all the special offers cos you were using your card anyway!!
well done for getting out of it. you can see the honestly and courage in your post.
You should send your article into journal.ie news website.. It would make a great opinion piece!!
 
And here's another update just in case anyone is interested. In February last year I was all set to be debt free by about May. I also gave in to my sister's prompting/complaining (that none of her family bothered to visit when her husband's family had done so multiple times) to organise a trip to Australia to see her. I booked a ticket because with debt gone by summer I'd have plenty of time, not to mention an expected bonus at the end of November, to save and pay for my December holiday, wouldn't I? With the way the bank holidays fell last year, it was the optimal time to do it as just over three weeks holidays would get me just over four weeks off (bank holidays in Germany don't automatically transfer to Mondays, so on years where christmas falls on a weekend, you don't get any time off).

Then, at the beginning of April my uncle (and godfather) died unexpectedly. Two aunts had died the year before and although I had contemplated going home for the funerals I knew it was just too expensive, difficult to arrange time off work and didn't do it. This uncle was, however, a different case and I didn't care how much it was going to cost, I just wanted to be there. So between flights, a hotel for one night (stayed with friends the other), buses and taxis as well as meals etc., I was close to 700 down. Somewhat upset about the loss as well as the financial setback but determined that a couple more months wasn't going to throw me off stride.

Four days later I got a text that my brother-in-law, who I was very close to, had died unexpectedly. This death hit me very hard. And again, I had short-notice flights, hotels, meals, transport - another 700 or so down.

If I had had an emergency fund in place, most of that cost could have been covered - Dave Ramsey recommends that the first thing to do when trying to get out of debt is to save 1,000 in an emergency fund. I never quite got the logic behind saving that much when you have debt to pay off but it certainly would have made a difference to me last year.

I had already had a long weekend home booked for the end of April, so a couple of weeks later I was back in Ireland but my planned very limited budget was blown out of the water. There was far more meeting up with family groups, eating out and just general spending than had originally been planned. I just didn't care and it took me a month or so to get back on track with properly managing my money and getting back to focusing on paying off my debt. I went through a very bad period of depression during 2009 and 2010 and had only really started to come out of it properly when all this happened so I was struggling with that as well.

I spent a lot of time thinking that I should just cancel my trip to Australia but in the end decided not to. It was the first time in sixteen years that I was going to have longer than two weeks off work and getting some sun in winter also seemed like it would be more advantageous than being in debt a while longer would be disadvantageous. To a certain extent, I just didn't care anymore either. I think that is a very real danger when you're in debt: it seems neverending and so you cease to care whether your actions are contributing to the neverending or not. I know that has definitely set me back more than once.

So, debt repayment slowed to crawl (more than minimum payments but not much more) while I prioritised paying for my ticket to Australia. My spending money was mostly provided for by virtue of the bonus I was paid in November, just before I left although I did find Australia far more expensive than expected and used my credit card a few times also. I also managed to catch the worst cold I've had for a long time so although I had a good holiday and it was great to have a bit of sun (especially given how long and miserable our winter was this year), spending the last week snuffling and then another couple of weeks missing work did put a bit of a damper on things. My depression was finally properly lifting though and although this seems to be my year for being sick (that cold, 2 serious bouts of bronchitis, 1 episode of contact dermatitis and 1 not very pleasant week of stomach bug so far), I am feeling positive and focused and have kept going with paying down my debt.

My hopefully final setback came in March when a close family member asked for help in clearing ESB arrears as they were about to be cut off. Arrears turned out to be over 1,000 and although many would say I'm a fool for doing it, I paid. I don't expect to get the money back, certainly not any time soon, but at least I was able to make sure appointments with MABS were set up and proper budgets put in place etc. It's not the first time I have helped this person and probably won't be the last but I'm hoping this time was a serious enough wake-up call that they'll get their act together and what I have seen since has done nothing to diminish that hope. I'm not by any means advocating that people use credit to help their families out - everyone should really be responsible for their own financial issues - but in this case, I know I will always do anything I can to help. There are a myriad of reasons and a complicated background so although in general I would be among the first to advise people to be extremely careful in helping family out, and especially would always advise against going into debt to do so, it's one of those situations where I'll never take my own advice and more fool me for it.

So, as things stand, more than a year after I expected to be debt-free, I'm still not. For reasons that many will consider ridiculous and unnecessary but mostly I'm writing this not for those who will think that, but for those who do equally ridiculous and unnecessary things. If even one person, seeing it all laid out in black and white, can relate any of this back to their own behaviour and see where they're going wrong, then laying out my own folly for the world to see is worth it. And I think one of the most important things to remember is that life happens, everyone has their own "damage", their own issues to deal with - doing so, even if it means not always doing what you know is the sensible thing, is fine so long as you don't lose sight of the goal and make sure to get back on track as soon as possible.

In the meantime, I have gotten much better at trying to build up savings so that this year, I fairly consistently managed to maintain a small balance at all times. This was wiped out in August when all of my normal annual bills fell due and what has surprised me and shown me how far I have come, is how uncomfortable I felt for the month of August until I was able to make another deposit into my savings account at the end of the month. Although those expenses were expected and the money had been saved to pay for them, not having that 500 euro always sitting there really, really disturbed me. I'm going to hold on to that feeling and remember it every time in the future that it seems like a good idea to dip into savings for something I don't really need (as has happened too often in the past).

Hopefully, I will be back in another couple of months with a "debt-free, yippee" post rather than another catalogue of misery!
 
Janet - I have no doubt you will be back here debt free! I have followed your story with interest, and you write so well. I know you have inspired many who needed a kick-up the behind. Dont knock yourself for not being there yet, sometimes life throws you a curve ball or two, but the fact that you are still on the right path is amazing! well done


I find myself mulling over how similar 'spending money you dont have' sounds like other addictions.. the denial, the hiding, the effects on other areas of your life. Do you think people can have a spending addiction?
 
stephnyc said:
I find myself mulling over how similar 'spending money you dont have' sounds like other addictions.. the denial, the hiding, the effects on other areas of your life. Do you think people can have a spending addiction?
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Retail therapy gone wrong basically. Yes, there is such a thing and I'm sure it has been well documented. I do, however, think there is some difference between the serious issue of compulsive spending (quite well illustrated in the Stephen Fry documentary about his bipolar, actually) and the kind of negativity, including excessive/unaffordable spending, that debt can bring. There's a difference between spending what you don't have to feed your kids and since you're putting it all on a card thinking to hell with it and getting steak instead of fish fingers for example, and spending what you don't have because you only wear designer socks and don't feel like the two hundred pairs you already have are enough. I'm not a psychologist so can't really say at what point you've moved past that point into compulsive behaviour that really requires help.
 
The best laid schemes o' mice an' men gang aft a-gley

I think Janet, the fact that you got yourself back on an even keel after a year with a lot of unanticipated calls on your pocket is a testament to what you have learnt.
 
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Hi Janet

I am looking forward to reading you're post titled 'debt-free, yipee'. I also lent money to someone close a few years ago. Still haven't got it back, i know now i never will. Real problem is i borrowed the money from my son's saving for college account. I know, it wasn't my money to lend. Lesson learnt. I aim to have it paid back by next spring at the latest. My motto now is never a lender or a borrower be. Saying that, i know if a family member came to me for help with a serious problem i probably would help, if i could. It's very hard for me to say no. I once even took money from my credit card to lend to my sister. Stupid i know. I paid cash advance fee and interest just to give her money because i couldn't say no.

I will be stronger in the future. I hope.

Good luck Janet. I know it won't take you long to finish paying of your debt. A lot of people can learn from your experience.
 
Well, the best laid plans and all that. I just got the call that one of my sisters has killed herself. Somewhat in shock (probably why I'm posting here) and also definitely going to have unplanned for expenses this month so any debt free update won't be until next year at this rate.
 
Sympathy for your loss Janet.

I was reading your opening post before i saw your last post and you are most inspiring.
 
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