My personal journey of clawing my way out of credit card debt

Assorted Coins and Debit/Credit Cards

My personal journey in the world of personal finance management was a long and painful journey but it's also a rather familiar one for a lot of people out there. It would first take me neck deep in debt (specifically credit card debt) before I am able to slowly claw my way out of indebtedness and learn from my mistakes. The whole process didn't make me an expert in the area, not by a long shot. I personally believe that financial maturity is something that's not gained in discrete levels but is rather continuously learned from our own experience and from the experience of others. I also don't believe that there are absolute lesson plans in life and my particular experiences may or may not give insights to others, but I do hope that at the very least somebody who reads this gets entertained.

Way back when I was a fresh engineering graduate from my University, I managed to get accepted at a decent enough company. The starting compensation and benefits package, although not exceptionally high, were competitive enough to be at the upper ranks of the industry (at least locally speaking). Experiencing that feeling of financial independence for the first time was intoxicating and I found myself finally being able not only to simply subsist from allowance to allowance (like I did previously when it was doled out by my parents on a monthly basis) but now have the purchasing power to finally buy not only those essential things that I need to survive but also those that I actually wanted.

I can still remember the first time my credit card application got approved. I have vowed never to live beyond my means and to pay off the balance of my credit without fail every month. That is easier said than done however given that my peers were at this point buying their first car, or moving into their own apartments. Still, I managed to resist temptation more or less, opting instead to live with my sister's family during the weekends (my job provided housing for employees) and purchasing their old car when they bought a new one (I didn't really need a car but I thought it would be a waste not to collect the transportation allowance - all I needed to do was provide proof of ownership of a car after all). I tried to live up to that initial promise of living a frugal lifestyle. I do allow myself to splurge on certain things however and there's the occasional dining out to have really nice food, buying books I really liked (whereas before I was content in buying trade paperbacks now I would buy hard covers and graphic novel compilations), getting the gadgets I have always wanted (this was before the time that smartphones were ubiquitous but I did have a growing interest in photography and I was building up my gear), and last but definitely not the least, I have started to appreciate travelling for leisure both locally and nearby international destinations. I was not by any means an impulsive buyer and I would normally agonize with each purchase debating with myself if I really need to spend on something.

I was still managing not to overspend the first few years but things started to go downhill so to speak when I was sent for a month-long training in the Netherlands. I saw it as a rare opportunity to see as much as I can of nearby places and have planned to go on various side trips across Germany, France, Belgium, Luxembourg and of course see the various sights in the Netherlands. It wasn't exactly a luxury trip and I planned to maximize the use of budget hostels, sleeper trains and did a lot of research on where to eat and which parts to stay during the weekends when I had free time to explore. I made use of a Benelux Eurail pass, when it was sensible to do so, and have even convinced some friends to let me crash in their flats to save on accommodation expenses. The point that I am trying to make is: it wasn't that I have not exhausted all the options to save money on the trip, but rather I didn't really care at that point that I couldn't afford what I have planned to begin with. I have fallen into that trap that a lot of people know of very well: my credit card's limit can take care of it and I will deal with the consequences later. Although this kind of trip might not seem too expensive to some people, this may already be considered as extravagant for a person getting a starting salary in the Philippines. That's not to say that I regretted doing it and have not enjoyed the side trips. There were a lot of memorable moments and it was good to reconnect with friends that I haven't seen in a long time. The whole trip also made me more confident in doing solo travel (something that I have rarely done before this time - I have always felt a certain level of anxiety whenever I am visiting a place that I have not visited before and doubly so if I don't know the language and couldn't read the street signs).

Reality caught up when I came back home. I couldn't afford to pay for the full amount due of my credit cards so I paid only whatever I can but ensuring that the amount I am paying is above the minimum amount due and that it was paid within the due date (to avoid additional late penalties). The interest charges started to come in and I found myself struggling to reduce the full outstanding balance. I knew that I had to do something to get out of this pit I have dug myself into. I needed to have an action plan!

The first thing I did was to step back and look very closely at my spending habits. One of my first responsibilities at work heavily involved data analysis, benchmarking and reporting performance metrics so it became second nature for me to apply that discipline to my personal finances. At the start, I would create these elaborate spreadsheets wherein I would record all of my expenses and would make a detailed month on month comparison on spending patterns. I would make pie charts showing which categories I am spending most, and spend time looking at assets and liabilities/net worth chart and tracking my progress to get out of the red zone. At a certain point, I have discovered the personal finance management application Quicken and it has transformed how I would track and manage my personal finances for the past 2 decades now.

The next thing I did was optimize my finances. At this point in time, I had forced savings in the form of salary deductions going to a company credit union, and some money in my savings account (both local and foreign currency accounts). I have realized that the interest gains I get from these investments and savings are insignificant compared to the interest payment I am being charged for my outstanding card balance. Diversification is a good thing when it comes to savings and investments but not when you are paying off a loan with high interest rates. Looking at the bigger picture, the way I am managing my personal finances just doesn't make a lot of sense. So I proceeded to shuffle my finances and prioritize the higher interest-bearing loans first.

It took some time but eventually, I did manage to get out of indebtedness. It was a hard but valuable lesson for me for sure and something that I will not forget so easily. I would like to think that the whole experience contributed to my personal financial maturity journey.