Lesson #1: if you have no cash to pay for it, do not use plastic

the year was 2004.

i have been working at my first job for about three years.  i was already earning thrice the salary they offered me when i joined the company, largely due to a series of promotions (which would have been nonexistent if i did not have effective mentors who guided me along the way).  i was at the last trimester of my graduate school years.  my father has been bragging non-stop about his eldest daughter working in this billion dollar multinational company and is about to finish her MBA degree  and my mother has been the envy of her contemporaries for having such a successful daughter (never mind the fact that most of them never got the name of my company right).

i also have about eight credit cards with a combined limit equal to my annual salary, all maxed out. i could barely keep up with the minimum payments.  i have rude collectors calling all day, hurling threats of landing to jail for non-payment (if i knew then what i know now, i could have sued them and won). i can barely feel the impact of my paycheck; i would buy canned goods and groceries from a Caltex shop for consumption, using my gas card.

obviously, i was living beyond my means.

looking back at it now, i am not quite sure when it started. i do know i just did not wake up one day and max out all my credit cards. i am pretty sure the overspending happened gradually.  but i was in denial of reality and was living under the assumption that i still got everything under control.  i am an accountant, for fuck sake, i would know when i would have a negative net worth (that was my arrogance talking).

it was a (post breakup) statement made by an intoxicated ex-boyfriend (who still happen to be a very good friend of mine up to this day; no unresolved issues there) about having to financially bail me out too often that snap me out straight to reality.  the statement was true and it was embarrassing and it hurt me.  i did (and do) not want to be that person.  i did a financial check up on myself the morning after and found out what i was worth financially.

i was not worth that much on financial paper. in fact, i had a negative net worth. and those credit card debts were raking interest charges every single second i am not paying the principal down.  i also did not know anybody who can loan me that much money to pay them all off. i had no asset to my name.  my future income could barely support my current lifestyle.  in short, i was financially screwed.

i knew the debts will not go away on its own. i had to make a plan. so, i drawn up one.

scale down your lifestyle

at first, it was a bit difficult to identify cost savings because it was not like i am shopping addict nor i spend a lot when i am at bar with friends.   i had to look hard to connect the dots and found out it was the little stuff that added up.  it was grabbing a taxi to and from work and school because i hated commuting (and that was about 10% of my pay).  it was eating out in restaurants once or twice a week and that easily took another 10% of my pay.  and contrary to what i initially thought, the money i spent on going to bars at least once a week was another 15% of my pay.

your monthly expenses now may also be higher than the net pay you bring home every month.  but you may be a family man and has long cease going to bars.  you commute to and from work. you do not eat out that often.  but the fact that you still find your ATM account zeroed out long before the next paycheck hit your bank, you are living beyond your means. add up the money you spent on those starbuck lattes or those boxes of cigarettes.  or that once a week trip to the mall with your wife and kids.  or your postpaid bill. or that amount you spent on rent (what? it is 30% of your net pay? seriously?) because you like a condominium address.  or those charges from crazy, bottom rock prices on group-buying deals (do you really use them?). or the zero-interest deals on a new Samsung TV or the latest gadgets.

there is no use spending on convenience if you cannot afford it on the first place.  i learned that the hard way.

own up to your debts and demand for a repayment schedule you can afford. 

i stopped evading collection calls and started talking to credit card collectors and owned up to the reality that i am broke and unless they are willing to meet me halfway, i will not be able to pay them anything at all.  all of them were willing to negotiate for a payment arrangement.  i agreed to the ones i believe i can afford and signed a restructuring agreement.  then, i made sure i never missed a single payment.

collection agencies are paid as a percentage of what they can collect.  if you demand for a payment arrangement you can commit, no collector will reject that and opt for a “full or no payment” from you.  it is important that you own up to your debts and you tell them exactly what you can afford (there is no use window dressing your financial capacity at this point).  they would rather get staggered payments from you than none at all.

it is also at this point that i will tell you that there is no good thing that will come out running away from your debt. contrary to popular belief, it will not be wiped out in five years. there will always be a trail; i know that for a fact. i still have my name in the bad credit card debt database (even though there is a note there that the debt has long been paid and settled); i know that because my banker tells me.  it will not disappear.  and every time a financial institution will do a credit check on you, it will show up.  it could cost you that future loan you desperately need approved.

continuously aim to increase your market value

at this point, i was determined to cut back on my spending habits but there were stuff that i thought were emotionally important in preserving my self worth and to keep me from being more miserable than i already am. i wanted to be able to enjoy a little bit of splurging every now and then.  (for family people out there, compare this to the feeling of being able to buy your kid a toy they really like or that romantic holiday your wife would really appreciate).  i was not looking forward to about two years of struggling to pay off my debts if i have a choice.

and i had a choice.  i could earn more.

at that point, my only cash cow was my own labor capacity.  i had no other income source beyond my own paycheck.   fortunately for me, i had seek career guidance with few effective mentors (and worked with difficult or indifferent bosses who taught me a thing or two about management) and they have helped me focus on areas i need to develop (unfortunately, personal finance was not identified).  in between training, mentoring and my drive to become a much better version of my corporate self, i was able to increase my market value in the labor workforce.

i started looking for my next employer. about the same time, a Finance Director who interviewed me a year before for a supervisory position (whom i turned down) came back to me for a managerial role.  i liked the job. i like her. and the role pays twice as my current salary.

i took it.

luck definitely had something to do with it. i was lucky the financial windfall happened when there was an option to earn more (others won’t be so lucky).  i was lucky that i switched from a job i like to another job that was even better, and got paid twice as much for it.

but luck would have been useless if i didn’t work on my market value, if i did not recognize the integral role a good training and exposure has in a career development.

it pays to be be ready when luck knocks on your door.  it helps to have an option when things get rough.  if you are employed right now, continue honing your skills.  take advantage of the opportunity to improve on your efficiency and productivity.  get a mentor.  consider further studies or finish that degree.  find a job you love doing so it will never have to be an effort to perform.

if you have no cash to pay for it, don’t use plastic

i never had to apply for a credit card.  they all came pre-approved (perks of being a regular employee of a huge multinational company).  i never turned them down, either. i felt it was handy when emergency strikes and i have no cash to spare.  it was not long after i started using cards for non emergency reasons.  it was not long until i started charging all sort of things to my card and not having the cash to pay for it.  and gradually, even the minimum due from all the credit cards were too high for me to pay off every month.

plastic, i have learned a few years later, provides a powerful purchasing power if you manage it well.  if you do not charge a purchase you cannot afford on it.  if you pay it in full when the statement is due.  it provides access to purchases otherwise not possible without it.  it provides temporary funding on purchases when you have no immediate access to your cash.  some plastic provides rebates, discounts and miles (you can convert to free flights for that much needed vacation).

but never use your credit card as a means for buying things you cannot afford.  your credit limit does not increase your capacity as a payor.

if you cannot afford it by paying cash, do not swipe the plastic.

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