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INTERESTING EXPERIMENT... try it, scare yourself!
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jesster_2
Posts: 393 Forumite
in Credit cards
I'm usually more of a DFW but thought you credit card peeps may be interested in hearing about a little experiment I carried out.
As part of some research I was doing for work, I decided to test 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
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.
As part of some research I was doing for work, I decided to test 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
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
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Comments
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Your suggestion to "try it" probably happens every day around the country with people actually spending the money. Bit of a sad situation really. I know someone who is £70k in debt because she is never satisfied with what she has.0
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It certainly does. It sounds obvious, but maybe if more people did the experiment calculations first it might shock them into not actually doing it! Especially when you set out with a low-ish credit limit and then the card company gradually increases it and you don't mentally recalculate what you can and can't afford...
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 -
...and while you're out maxing those cards see how many times you are offered instant credit as you walk into shop after shop.0
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This is the whole problem with cards isn't it...you just don't realise just how much you are spending and then the more you spend the more the damn banks want to throw at you :mad: so the more you spend and debt escalates until its totally out of control :eek:
So you get ' a snowball of credit thrown at you' and then you have to 'snowball your hard earnt cash back at it'. Just one big 'snowball' fight I guess :rotfl: :rotfl:Official DFW Nerd - Member no. 045
Total debts ???***
Well I think they are going down, only time, a divorce, selling up & moving on will tell !!
Forever optomistic.... Positive thinking.0 -
Hang omn a minute - each time I sit in my car and drive off I could if I wanted to drive straight into a tree, but I choose not too and I don't see anyone asking for big warnings to be put on the sterring wheel advising against such behaviour. Why do I need extra warnings not to run up a huge debt? If that is what I want to do then it is up to me.I think....0
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True,
But you have been taught how to drive and that driving into a tree would not be good for you or the car! Nobody gets taught personal finances today. But that may change in 10 years, as there is a GCSE starting up at certain schools aimed at teaching personal finance.
JitsuguyDebts (As of 10th September):
Original - £7938.11, Now - £0
Matched Betting Profits (From 05/11/06): £1026.45 (of which £214.20 is cashback)0 -
It is very true. Credit card limits dont run up huge debt. People do.0
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Simple answer is just don't have any credit cards. I can only spend what I have this way
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If your outgo exceedes your income, your upkeep will be yout downfall0
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This is all very true - people run up the debts, not the cards themselves.
To continue the driving analogy: when drivers kill people because they're speeding it's the driver who's responsible for his/her actions, not the car. But that doesn't mean we shouldn't have speed limits!
I just thought it was an interesting experiment.
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
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