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)