Debt is Bad, Debt is Addictive, Debt is Evil (Part 3)

sense of pride & credit:

Long before credit and money, there existed barter system.  It was all about buying what you NEED by trading what you have. People were proud of their produce (be it salt or wheat) and hard-work and used it to bargain what they needed, because it was THEIRS.

Later when money was invented, Indians always thrived on spending their own money. They saved and paid cash to build houses and even to buy Mercedes and Maybach in 2000's. Memorize this please "I Can Thrive Financially, by using MY MONEY ALONE".

But, the after effects of Globalization saw the marketing of credit card which associated a sense of pride on having and using credit card. This is bombarded on us daily via TV, billboards, newspapers, websites, direct marketing, postcards etc., A virtual feeling that when you flash your card, you'll be respected.

But in reality, there is no pride attached to using others money. As it was well hidden with rewards and what-not as I described in the previous post.

• Eastern culture shames you for using others money while western culture appreciates that.
• Eastern culture insists on saving while, western counterparts insist on spending. 
• Eastern culture punishes heavily on default, thereby creating a fear of debt while westerners find excuses for one default after another.

Did you notice the big difference? Changing from Cash to Debit to Credit is not a shift in personal value, it is a cultural shift. It is mostly about

• Impulses to the want for Instant Gratification. 
• Keeping up with Joneses
• If not now, then when?

With a credit card in hand, urge to satisfy (wants of) myself and my loved ones will be more than when I have my cash in my hand.  Let me give an example.

You go to a Coach store planning to spend $200 on a purse. But you find the lowest price of the purse you want is $321 including taxes, You can either choose to disappoint your loved one(s) and turn home empty handed (of course with the $200 intact) or use credit, the choice is yours. If you choose to buy, the extra $121 has to either come by cutting from some other spending you've already planned for or by borrowing money. More importantly this spending cut has to come from a want and not from a need. I personally cannot cut $121 standing right inside the Coach store. I can only do it calm and quiet after reaching home.


Pride and Shame has to be kept where they belonged to, not where Banks tell us to keep it. Hopefully you got my point in all these... It doesn't matter whether I pay cash, debit or credit, I would need to ensure that it is MY MONEY. To summarize,

• the advantage of cash is that there is only "My Money" available
• the advantage of debit is I can splurge, but only on my money
• With credit, it needs lot of planning & discipline to stay within my money because it will be hard to differentiate between MY MONEY and OPM.

I talk more about OPM because, this is the starting point if you are either starting to earn money or planning to come out of debt trap. If you are using Credit cards you most probably will have a polluted wallet. You need to clean it up. The cleaning solution is not to cut and throw away the credit card, but having a realization that you will use only "My Money" from the Credit card. Credit card should just be used as a tool to use "My Money" and earn rewards and benefits (More on that later).

I promise to stop my sermon on OPM with the next post where I'll give couple of pictorial illustrations and real life examples to make sure, readers are very well aware of this "Profitable Menace"

To be continued....

(Note: The fifth post will be the much awaited "Reason for this Blog, Why I started writing". For now, there will be one post every week. Please subscribe and share this with your friends, if you find this useful and(or) interesting)

Debt is Bad, Debt is Addictive, Debt is Evil (Part 2)

wants and needs

A need is something that you have to have. A want is something you would like to have.

Every human being will have desire for something that is beyond their means. After a while, when it becomes affordable, they splurge on it... Most of their splurging will be on wants... This is where the banks want to capitalize. (According to online Dictionary, Splurging means "To spend money freely, lavishly, wastefully with no remorse and very little consequence to your bank account".)

I had unfulfilled desires in college days which I couldn't afford then. The list goes like this...

• Casio G-Shock Watch
• Fastrack Sun glasses
• Woodland Shoes etc.,

Let's continue the story. The day arrived, with debit card in my hand I landed in Lifestyle (Begumpet) & Central Mall(Punjagutta) in Hyderabad.

I went on a Rs.3000 splurge which was nowhere in my budget. This is SPLURGING on Wants.
Remember, if I would've followed my "Pay with Cash" rule, I would need to go to a cash machine, use my ATM card and when cash comes out I "MAY" be a little hesitant to spend Rs.3000 in one shot. But with a swipe I didn't feel the pinch. Round 2 to the bank.

Gradually, I started to feel the convenience of debit cards and by now I've started using my debit card regularly for needs and wants like bill payments, restaurants, train tickets, airfares etc., That's when banks shot their next arrow at me, Credit Cards.

One fine morning, I received a call from a lady to my work phone letting me know that I've qualified for their credit card for responsible use of my account.

• Me : I was hesitant and told NO. 
• She: Instead of spending on your debit card, You can use credit card and for every Rupee you spend, you'll get a point. Later you can redeem these points for various items. 
• Me : I was still hesitant. 
• She:  Sir there is also No Annual Fee - So there is nothing for you to lose, only gain points on your spending. All you need to do is to shift your spending from Debit to Credit card. 
• Me : I asked her can she call me later. 
• She: If you sign right away, you'll get 1000 points immediately.
• Me : I FELL INTO THE TRAP and told her "Yes, Please sign me up".

While convincing me to sign up, she hid a very important truth. "I'll be spending money that I do not own" and more importantly "I'll be spending other peoples money (OPM)". (Note: Please take note of OPM, we will be using this more commonly in the upcoming posts)

I had a credit limit of Rs.40,000 which was double my monthly salary before taxes.  I would've never taken a personal loan if it was more than the norm, which was 13% at that time. But with a call they signed me up for 38% which was not disclosed at this point.

"From Cash Only to Debit & No Credit to Credit is okay". But in order to justify my action,  I decided that I'll pay the statement balance every month and will make sure that I do not pay any Interest or Annual Fee at any cost. I felt good about this decision. Round 3 to the bank.

• With Cash, you'll gladly pay for needs and hesitantly pay for wants with restriction and prioritization.
• With Debit, you'll gladly pay for needs and pay for wants
• With Credit, Apart from paying for needs and wants, you'll also do Impulse Spending on your unfulfilled desires, likes cravings etc., and start using banks money, because you ran out of your money. (See 2nd Paragraph, This is exactly where banks want to capitalize)

But when you realize all this, it'll be too late and it will need discipline and accountability to come back on track, which will be painfully slow. This is where I was then and I am right now.

To be continued....

(Note: There is a reason, why I write this blog and started this series. I'll reveal after the introductory parts get over. For now, there will be one post every week. Please subscribe and share this with your friends, if you find this useful and(or) interesting)

Debt is Bad, Debt is Addictive, Debt is Evil (Part 1)

the borrower is slave to the lender (Proverbs 22:7)

I've read this enough times and understand this to avoid this. But still, in over a period of 8 years, I've accumulated over $20K in credit card debt alone. For the past three years, I'm trying various ways to cut down my debt, but all those steps have only helped me to avoid accumulating more debt, but did not help me reduce.

There are several lies and myths around debt. I think when lies are repeated again and again with a louder voice it sounds to be true. I think the three biggest lie(s) among all this is

• Debt is Good (Good Debt vs Bad Debt)
• Debt is a modern instrument to prosperity.
• You cannot live without Debt.

A little background on how my strong aversion towards debt was sidelined, how I got addicted to debt and how I accumulated debt.

Up until 2000, cards were allowed only to the elite class and the only card available until then was credit cards, it was kind of a Luxury item. It was in 2003, when cards were making entry into India in a big scale. ATM and(or) Debit cards to almost everyone who had a bank account and Credit Card to almost everyone who had a Job.

Growing up seeing my dad pay cash for everything, I decided I'll pay cash for everything when I got my first job back in 2003. This is where banks started playing their first game. "Your Salary will be direct deposited and you can access your money thought the ATM card or withdraw cash at bank. This is more secure and you can access your money everywhere." Great. Got the ATM card. Used it exactly as I planned, withdraw cash as needed and PAID in CASH.

When I got into my next Job in 2004 with Wipro, banks stepped up their game and came with the next weapon. "Your Salary will be direct deposited and you can access your money thought the Debit card or withdraw cash at bank. Also you do not need to withdraw cash for purchase who accept VISA. This is more secure and you can access your money everywhere." Great. Got the Debit card. I tried to use it exactly as I planned, but it started to make me spend a little more than I planned for.

Earlier I used to withdraw Rs.500 before I go to a shop and I end up shopping only for Rs.500 or less. If I shop more, I used to prioritize and pay for those which I could buy within that Rs.500. I had to leave the rest right at the shop and walkaway. I might plan to buy them later but not right then.

But with a debit card, if the bill comes to Rs.635, I would go ahead and swipe it. I WENT OVER MY BUDGET BY Rs.135. This is the humble beginning.

To be continued....

(Note: There is a reason, why I write this blog and started this series. I'll reveal after the introductory parts get over. For now, there will be one post every week. Please subscribe and share this with your friends, if you find this useful and(or) interesting)