My credit card was a money leak

Credit cards are great right? When you see something you need, you can have it. No need to wait – if you don’t have the cash that’s fine!

Buy now, pay later. Except some of us don’t pay later. And that’s when a credit card can turn into a major money leak.

For many years I had an embarrassing secret. I had an unpaid balance on my credit card, and I was paying interest on it. Every year, the unpaid balance would get a little bit larger – and eventually I had multiple credit cards, with multiple unpaid balances rolling over, earning interest, month to month.

I hadn’t accumulated the debt because I was broke – in fact I had a reasonably high salary, working in IT. But this actually made things WORSE. Because I knew that I could become debt free in a relatively short period of time, the debt never worried me too much.

I can now see that reason I had this credit card debt was because I had really poor financial habits. I was a spender, not a saver. I liked to ‘live in the now’ and was quite impulsive with my spending decisions.

These are the mistakes I made that caused my credit card to become a major money leak:

I had a budget, but it was too basic

Sure, I’d plan for the basics – the rent and bills would always get paid – but my spending on non-essential items wasn’t budgeted. It was totally unplanned, so this was when the credit card would be used.

I wasn’t in the habit of saving

I had never really learned how to save money – or learned what happened to money when you saved it. Compound interest was a concept I didn’t learn about until I was almost 40! I know…

I had never bothered to educate myself about money

I could easily sit here and blame my parents – wasn’t it their responsibility to teach me how to manage my money? Or I could blame my teachers – isn’t school supposed to teach you everything you need to know about life – including money?

Sure, that would have helped. But I’ve been an adult for ah, a few years now, and I had a choice to educate myself, in the absence of a decent financial education. For many years I chose not to – it was ‘too hard’ or ‘did my head in’. Silly excuses that costed me in the end.

I framed credit cards wrongly from the beginning

This is the worst one. I thought that having a credit card was a badge of adulthood. A gold card was even better! Ah, such a status symbol! Again, I know…

Thankfully – yes, there is a happy ending here! – I’ve since turned the tables on this money leak. A few years back I chose to cut up all of my credit cards and store cards. I consolidated their balances onto a personal loan, which is the only debt I have now, and it’s shrinking quickly.

But I also put a number of strategies in place to help me stay credit-card free. Here are just a few:

• Keeping a comprehensive budget that forecasts more than a year into the future
• Tracking my actual spending until I truly understood where my money was going
• Implementing a ‘clutter to cash’ cycle (which even helped me to start a business)
• Having short-term savings, long-term savings, an emergency fund and investments – oh how things have changed!
• Reading personal finance books, blogs and websites… and I enjoy them!
• Getting schooled on consumerism. Once I understood what it was, and how it was driving my spending decisions and habits, it was immensely easier to make better decisions.

This spender is now a saver!

If you’re struggling with credit card debt, Sorted has some excellent guides to get you started:

• Credit cards - credit card debt & management
• Debt consolidation - benefits of consolidating debt
• Get out of debt fast - how to reduce debt

Peti Morgan is a mum of one from Wellington, who runs the blog The Leveraged Mama, where she shares tips and strategies to earn more and spend less in motherhood-friendly ways. Peti is passionate about helping mums and families struggling with debt to find financial freedom without having to work full time.