We’d like to remind Forumites to please avoid political debate on the Forum.
This is to keep it a safe and useful space for MoneySaving discussions. Threads that are – or become – political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
An Interesting Experiment....
jesster_2
Posts: 393 Forumite
As part of some research I was doing for work, I decided to carry out a wee experiment into how easily I could get into the situation where i just could not afford to repay my debts. All theoretical, of course.
Went through my wallet, found 4 credit cards. Only one has a balance on it, the others I used for their 0% intro periods, then BT'd and forgot to cancel them.
I then got out the trusty snowball calculator. Typed in the details, imagining I'd maxed out all 4 cards - which, let's face it, I could do in a day with no further permissions from the bank.
Then worked out all the minimum repayments, and whether I'd be able to keep them up.
Result: minimum repayments on the 4 cards add up to (for first month): £1,050 :eek:
Then took my take-home salary (£1,388 / month), subtracted from it the repayments i'm already making to pay off career development loan (£300 / month).
So I would have £1,088 after loan repayments. Take from that £1,050 to pay off the cards, and you get.... £38!
£38 to cover my: mortgage, bills, council tax, insurance, petrol, food... EVERYTHING!!
Obviously the credit card repayments would very gradually go down, but what shocked me was that within one day I could take the credit available to me in my purse, go out, and get myself into the situtation where I just couldn't pay it back. In one day!
I know I wouldn't do it, but it really gave me the feeling you get when you stand on a high ledge or building: you know you're NOT going to jump, but how scary that you could! Surely we need to put some kind of fence or warning sign up here!
Needless to say, with the prospect of possible doom sitting in my wallet, complete with a notional debt free date of 2017 (!), I have now cancelled the redundant cards.
Went through my wallet, found 4 credit cards. Only one has a balance on it, the others I used for their 0% intro periods, then BT'd and forgot to cancel them.
I then got out the trusty snowball calculator. Typed in the details, imagining I'd maxed out all 4 cards - which, let's face it, I could do in a day with no further permissions from the bank.
Then worked out all the minimum repayments, and whether I'd be able to keep them up.
Result: minimum repayments on the 4 cards add up to (for first month): £1,050 :eek:
Then took my take-home salary (£1,388 / month), subtracted from it the repayments i'm already making to pay off career development loan (£300 / month).
So I would have £1,088 after loan repayments. Take from that £1,050 to pay off the cards, and you get.... £38!
£38 to cover my: mortgage, bills, council tax, insurance, petrol, food... EVERYTHING!!
Obviously the credit card repayments would very gradually go down, but what shocked me was that within one day I could take the credit available to me in my purse, go out, and get myself into the situtation where I just couldn't pay it back. In one day!
I know I wouldn't do it, but it really gave me the feeling you get when you stand on a high ledge or building: you know you're NOT going to jump, but how scary that you could! Surely we need to put some kind of fence or warning sign up here!
Needless to say, with the prospect of possible doom sitting in my wallet, complete with a notional debt free date of 2017 (!), I have now cancelled the redundant cards.
Dec 2005 £8,500
April 2007 £0
Paid Off Since Lightbulb Moment £8,500
Debt Free Date: APRIL 16 2007
:j :j :j :j :j :j :j :j
0
Comments
-
Wow that is quite a scary calculation! I guess it's impossible for the companies to regulate things like this because once you've got the credit there's nothing to stop you hoarding it and then going on a big splurge!
Maybe there should be a maximum credit limit linked to current salary- say 20% of your annual salary. People might complain but it'd be for their own good in the long run- might force a few more people to think about their budget before reaching a debt crisis which would be no bad thing! Don't see it happening though..0 -
What got me was all the credit card companies knew about my salary and loan repayments when I took out the cards. But most of the cards originally started out with much lower credit limits, and then gradually the banks increased them. I've never asked for a limit increase in my life, but have probably twice the credit available to me because of rises that I had when each card started out. It was definitely scary!
The only card company which has ever limited me on the credit they offered me was co-op who would only give me a grand because I didn't earn enough. All the others: you want 3 grand? How about we give you 6 !
Dec 2005 £8,500
April 2007 £0
Paid Off Since Lightbulb Moment £8,500
Debt Free Date: APRIL 16 2007
:j :j :j :j :j :j :j :j0 -
i made this comment the other day in the Arms. They do this with mortgages dont they robK?I would have thought it would be fairly easy to manage *& execute...?:beer: Well aint funny how its the little things in life that mean the most? Not where you live, the car you drive or the price tag on your clothes.
Theres no dollar sign on piece of mind
This Ive come to know...
So if you agree have a drink with me, raise your glasses for a toast :beer:0 -
I know the banks are talking about 'sharing information' more now, but what bothers me is each creditor knew my other commitments anyway! So will it get any better?
Dec 2005 £8,500
April 2007 £0
Paid Off Since Lightbulb Moment £8,500
Debt Free Date: APRIL 16 2007
:j :j :j :j :j :j :j :j0 -
I have a lot of credit cards,the total credit available to me is £92,000,its a good job Im careful.One of my cards has a credit limit of £10,500.00,I think I will cancel some of them,even though I have a lot of cards they still keep letting me have more.I only owe money on 2 cards,the other ones I have ended up with are from doing balance transfers,then not closing the accounts.0
-
lordy - have you tried working out what your minimum payments would be if you maxed them out? it's frightening! do you see what i mean about the 'edge of cliff' feeling, even though you know you're not going to!
Dec 2005 £8,500
April 2007 £0
Paid Off Since Lightbulb Moment £8,500
Debt Free Date: APRIL 16 2007
:j :j :j :j :j :j :j :j0 -
jesster wrote:lordy - have you tried working out what your minimum payments would be if you maxed them out? it's frightening! do you see what i mean about the 'edge of cliff' feeling, even though you know you're not going to!
I have never worked out what the repayments would be,I always cut the cards up when they arrive,I am amazed they still keep letting me have new cards,I have just got a Barclay card,it arrived a few days after I applied online and it came with a £3,000 credit limit.I was amazed how fast the card arrived the same thing happened when I applied for a M&S card.I have never checked whats in my credit files,maybe I should have a look.0 -
I couldn't believe it the other day when I had my catalogue statement through and the credit limit was £5,500. I just thought how ridiculous it was, but it can be such an easy temptation. Once upon a time it would have been for me.
Peppa
x0 -
God,
How I wish I read your post 2 years ago....
BunnyEmpty pockets never held anyone back, only empty heads and empty hearts can do that -Peale0 -
Yep Peppa, it happened to me recently. I applied for the Amex Nectar Card -following Martin's excellent tip to use the card once to buy a packet of chewing gum (or a similar low priced item) pay off the balance immediately and pocket £30 in free Nectar points! Lo and behold, I was given a credit limit of £8,000! £8,000! - that's unbelievable, especially on my (hardly vast) income! It's so so easy to get into debt with this kind of temptation isn't it? I think they've got a nerve. Consumer revenge for me this time means: I'll eat the chewy's (mmm!), spend the points (whohoo!), cancel the card and then chop it into tiny weany pieces! :rotfl:Peppa_Pig wrote:I couldn't believe it the other day when I had my catalogue statement through and the credit limit was £5,500. I just thought how ridiculous it was, but it can be such an easy temptation. Once upon a time it would have been for me.
Peppa
x0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 352.2K Banking & Borrowing
- 253.6K Reduce Debt & Boost Income
- 454.3K Spending & Discounts
- 245.3K Work, Benefits & Business
- 600.9K Mortgages, Homes & Bills
- 177.5K Life & Family
- 259.1K Travel & Transport
- 1.5M Hobbies & Leisure
- 16K Discuss & Feedback
- 37.7K Read-Only Boards