This. Is. Not. Your. Money.

The discovery that I had ‘received’ an increase in my credit card limit was a happy one at first. I now had $2,500 ‘to work with’.

Or perhaps I should say ‘to play with’, since shortly after I went online and ordered that new guitar with the paua shell inlay that I had been eyeing for months. Sure, I’d pay it off over time, I thought, whenever more money started coming in and I was in a better spot financially.

Your credit limit may have also reached new heights, thanks to your friendly lending institution. You too have more to ‘work with’, more to ‘play with’. You suddenly have options.

Maybe too many options. A credit increase is not a pay increase, and there are some serious strings that come attached to those funds. The interest and fees that can come with a line of credit can add to your balance very quickly, and that balance has a way of creeping its way upward. Before you know it your statement shows what was once a debt molehill has become a true mountain.

The bottom line is: the money’s not really yours. It belongs to an immense faceless international conglomerate somewhere, and you are actually just borrowing it to use. (Funny how that ‘available credit’ number can appear mighty similar to a bank account balance, though.) The more you remember it as money you’re borrowing, the more you will be able to manage your credit card wisely and avoid the dead weight of debt.

Just because it’s available to you doesn’t mean you should. A key question to ask is, can you really see yourself borrowing that much? Can you see yourself paying it back?

And if you did, how much would it end up costing you? The Aussies and North Americans have introduced credit card statements that show what happens when you only pay the minimum each month and how much longer it will take to pay off. Since these are a ways off here in New Zealand, unfortunately, Sorted’s debt calculator is the right tool to figure out how much interest you will pay on your debt and how much you can save by paying it off earlier.

Bank overdrafts work in a similar way to credit cards, although because these are more closely linked to your everyday bank balance, they may be an even easier debt hole to fall into. And the interest that you pay on them each month makes it that much more difficult to climb out.

Mortgages and revolving mortgages are no different. At one point one of my colleagues, after riding up the boom in housing prices, was told by a mortgage broker that she would be able to borrow enough to finance a house worth a cool million. She was cool to the idea and wisely walked away, thinking them crazy to lend her that much. And perhaps they were. Or perhaps they didn’t care that much at the time.

Then there are those purchases we make on finance (what used to be called hire purchase), which these days cleverly morph into credit cards. (Are there any real HPs left?) You might pay off that flat screen within the interest-free period and think you’re done doing business with the finance company, only to find that you’ve ended up with a credit card you never wanted in the first place. Unless you manage it carefully, you may end up using it just because it’s there.

Having more credit available to us is one of the things that can lead to ‘lifestyle inflation’ – when you gradually get used to more expensive things that you didn’t need before and really don’t need now but somehow can’t live without. Little by little whatever money plan you had gets washed away by these small increases in expenses and the higher interest rates you’re paying on your debt.

If you’re like me, you may find yourself asking, ‘Where did it all go?’

At least I know where that paua-shell guitar went – I sold it to a friend overseas. It took me years to pay off, and I’m still in enough denial that I actively avoid calculating how much that guitar actually cost me. (I’m sure it was far more than I sold it for.)

I’d rather not know.