The cuts that cleared a $41,000 credit card debt
The rewards of ending the unnecessary extravagances are more than financial, writes
Hamish Kyle can clearly remember the day he decided to get free of credit card debt and put his life on a solid financial footing.
He was trying to buy a clockradio, but experienced the shame of having each of his four credit cards declined.
Undeterred, he applied for store credit, and experienced his fifth decline of the day.
That was a decade and a half ago, and Kyle’s credit card debt had reached $41,000.
‘‘I thought ‘What am I doing?’ I was on a good income, living in Auckland. It was a real wake-up call.’’
He sat down that evening, and pulled out all his credit card statements, and worked out how out of control his spending had been.
‘‘I realised my income was about 70 per cent of my outgoings,’’ he said. ‘‘That meant I was never going to catch up.’’
It was an epiphany that was to change his life. He vowed to get debt-free as soon as he could.
A friend referred him to a budget adviser.
It took four years to clear the arrears, paying off the highestinterest debt first.
He had to make some big lifestyle changes, and swallow a few more shameful moments.
‘‘I had to have conversations with some of the credit card providers to say I couldn’t pay the minimum each month, but I would pay them $10,’’ he recalls. They all got their money back. To cut costs Kyle moved to a more modest neighbourhood where the rent was lower. He sold his car, and started using public transport. He stopped glamorous lunching, which cost him a few friends, or at least people he had thought were friends.
And he sold stuff he had bought on the cards, including some barely-used golf clubs.
‘‘I’m not a professional golfer. I didn’t need them. I didn’t play golf a lot.’’
The lifestyle downgrade didn’t make him miserable, though.
‘‘In fact, it made me realise those things were irrelevant. What was more important was where I was going.’’
Kyle was off the track of seeking ‘‘short-term enjoyment’’, and onto the track towards buying his own home, and starting a family, both of which he has now done.
He’s not just clear of his debt, his credit score is now in the top 9 per cent of adults, making him, in credit bureau parlance a ‘‘unicorn’’, a far cry from the credit donkey he once was.
He worked out his ranking using Credit Simple, a business owned by credit reporting bureau Dun & Bradstreet.
It collects debt and payments records on people, and compiles the data into credit reports, from which it works out credit scores.
Scores and records can be checked for free at CreditSimple.co.nz.
The company earns its money by then marketing special offers, including loans, to people who have registered to check their credit reports.
Offers to ‘‘unicorns’’ currently include Warehouse Money’s Purple Visa card, American Express’ Platinum card, and the Cooperative Bank’s Fair Rate credit card.
But it does have a lot of information on how many people are using their credit cards foolishly.
Credit Simple crunched the numbers in its database, and it found that 35 per cent of credit card users were not paying their balance in full each month.
As a result, they were paying high credit card interest.
Over the past 17 years, the weighted average credit card interest rate on interest-bearing balances has fluctuated between 17 per cent and 19.8 per cent. It ended August at 17.7 per cent.
‘‘Gone are the days when cash limited our disposable income spending,’’ says Hazel Phillips from CreditSimple.
‘‘Flashing the credit card has made it all too easy to keep swiping away.
‘‘All the little daily purchases add up and can easily push people’s monthly spending over the edge.’’
The New Zealand average monthly take-home pay is $3000 after tax, meaning even a small credit card debt could be damaging to the average household.
CreditSimple surveyed users about their credit card habits, Kyle included. The survey brought Kyle’s story to the surface, but it also revealed worrying levels of complacency around credit card debt.
‘‘It’s a worry that people are becoming so comfortable with credit card debt, as any outstanding payments not only attract interest and sometimes also penalties, but they can affect your credit score and therefore future credit applications,’’ Phillips said.
‘‘The banks’ best customers are the ones like I used to be, who have a high credit card debt,’’ Kyle says, pleased to no longer count himself among them.
He’s keeping more illustrious company.
‘‘A few years ago, I went to a conference and multi-millionaire jeweller Michael Hill was speaking. He said you can always tell people with money. They pay for everything in cash. People with no money put things on the credit card.’’
Kyle may not have yet reached Hill’s level of wealth, but he now saves for purchases, and pays in cash, like the jeweller.
It’s a pleasure to be able to set an example for his children, he says.
‘‘The banks’ best customers are the ones like I used to be, who have a high credit card debt.’’
Hamish Kyle