What Happened to your Credit?

You say your loan was declined or even worse you cringe everytime the phone rings in case it is another one of those pesky collection agencies.  While take some comfort in knowing that you are not alone.  First off how did we get into this mess and how do we get out and lastly ensure that it never happens again.

What happened to our credit, while what happened was in simple terms we spent more than we earn.  If that sounds too simple it is there is more to it than that.  Most people calculate what they spend based on their immediate cash needs, for example in just one month a couple of years ago I purchased a new couch for $791 but for a $35 admin fee I had no payments and no interest for 12 months.  I also bought one of those steamer mops for 4 easy payments of $35 plus $30 shipping and handling.  Lastly I bought an alarm system it was no charge but it is a monthly payment of $32 per month for the next 3 years.

Now if you are like me and a lot of other people you mentally add up that my obligation or what I spent that month was $35 + $35 + $30 + $32 a total of  $132.  Given my current employment no sweat right, I calculate that I should have $600 in discretionary spending or in simple terms cash that is not yet spoken for each month, my spending of only $132 this month means I can go out more without any worries right?

Actually that is wrong what I really spent that month was couch ($791 + $35), steamer mop ($170) and an alarm for $1152 (36 months at $32) for a whooping grand total of $2148.  So what happened to my credit was this, I mentally determined my obligations based on the cash I needed that month or in the short term but I was digging myself into a hole by obligating myself to future payments.  In one month with just 3 purchases I spent over 3.5 months of my discretionary income but since the cash requirements were delayed it did not feel like I had spent nearly that much.

Of course payments happen or the obligation did not go away, by the time my couch payment comes due I’m sitting there scratching my head wondering how all of these people that are asking me for money think I can possibly pay them all at once.  No sweat says the couch people they have some nice people in the background who will let me make payments on the couch of course they are charging me almost 20% interest on the purchase now and that just deepens the hole I’m in.  The next problem I experience is employment, what happened to my credit could also be called what happened to my job!?   Actually I am one of the lucky ones thus far I am still working for a great company but all overtime has been virtually eliminated and this years Christmas bonus was a ham instead of a check.  My point is by the time I really need that discretionary money it has shrunk and since I’ve already pre-spent it, I am in trouble.

So now what?  Well for me I just finished credit counselling they contacted my creditors and arranged more favourable terms and interest rates.  I’m giving this a try if it doesn’t work I will be forced to file for bankruptcy.  What happened to my credit was my own undoing, no one to blame except the guy in the mirror.  I never thought I would even consider bankruptcy as I view that as some kind of lame ass failure but I’m getting used to the idea as time goes on.  I will try to work my way out of the hole I’m in but so far I do not see any light at the end of the tunnel.  What happened to my credit was that the people I was late paying told all the other companies even the ones I was paying on time and before you know it everyone is calling concerned about their money.

I can tell you one thing, what happened to my credit it will only happen to me once in my lifetime.  I will never again have bad credit happening.  From now on everything I purchase is paid in full by the end of the month.  I don’t want any deferred payments I would rather get a discount today and pay for the whole thing now.  If I go back to my one month actual example I would have been miles ahead if I had purchased my couch for around $600 cash paid in full at the time of purchase.  I would have been broke for the rest of the month but at least I would have owned my couch and probably would have stopped spending for the month.  As it is I am making payment on my couch and before it is paid for I will likely have paid $600 in interest and penalties alone.

What happened to my credit will hopefully never happen to you, remember every purchase you make is the sum of you total obligations and not what you are fishing out of your wallet today.  If my story sounds familiar and this has already happened to your credit I hope we can claw our way back together.  If you have any ideas or comments for me drop me a line at credit@having.ca