2 Nov 2014

I Paid Off My Credit Card!

This article is dedicated to a friend who recently paid off his credit card. Let us say his name is John.  We are really proud of John!

John had over Rs.40,000 accumulated as credit card debt.
He lent money to friends, bought them expensive gifts, booked flights every time he visited family and spent lavishly on near and dear ones. He wanted every one in his home town to know that he is a good guy and will help them out when they are in need. He also wanted everyone to know that he has a good job and has achieved success. The outcome of all this is that he accumulated massive amounts of credit card debt and ended paying interest on interest.

When I met John, he started browsing through my blog and asked lot of questions. My first suggestion was simple, pay off the credit card. He said his target was to pay it off by 1st January 2015. I wanted him to pay it off by 1st November 2014. After much persuasion from a lot of friends, John paid off over Rs.40,000 on his credit card and he has a zero balance left. He is very tight on money this month since he used almost all of his salary towards paying off the card. He has been spending every penny he earns and obviously does not have an emergency fund or any savings.

Moving on, John has promised to do the following:

1. Spend less on eating out especially fine wining and dining.
2. Open two recurring deposits beginning 1st December 2014.
3. Pack lunch from home every day.
4. Not to lend money to friends and family since he does not have enough to loan.

What bothers me about John is this:
He still thinks it is okay to use the credit card as an emergency fund. This is the worst thing possible. A credit card is NOT an emergency fund and is only to be used if you can pay off the balance before the due date. The interest rates on credit cards are soaring high (between 22 to 34%) and due to compouding the effective interest rate keeps increasing.

I have tried to reason with John and persuaded him to start an emergency fund and go on an all cash diet. Some of him wants to listen and some of him just wants to go back to his old ways. He has also ordered a new credit card which he refuses to cancel. I want to help John but am not sure that he wants to be helped.

I am curious to see how this story turns out. We are proud of John but he still has a long way to go.  To make a change in your life is always difficult. I hope John is able to break free of the shackles of the worst kind of debt.

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