5 lessons I learned about credit card debt after going bankrupt at 32

Just admit it, you clicked on this article so you could smile thinking that this kind of thing will never happen to you. Well, it’s an article written by someone who used to read articles like these thinking that this kind of thing would never happen to him.

But first, a little background.

I am UiHua, the current editor of Cilisos. Back to the year 2009 BC (Bbefore VSilisos), I got myself a credit card at the mall because the free travel luggage set looked really nice. He came with a credit limit of RM14,000.

One is broke, the other is beruk. You decide which is which.

I maximized it in the space of 5 years, I spent another 2 years paying a credit card bill that automatically rolled over at the end of the month, and almost another year secretly eating nasi bujang because I had nothing else to afford. My savings were gone, my paycheck was gobbled up before the month even started.

By all accounts, I was technically “bankrupt”. The correct term is insolventbut tell my relatives and they will say “pokai means pokai lah”.

When our friends from PIDM asked us for an article on managing finances, it triggered a whole bunch of emotions because What many debt articles don’t tell you is that being in debt is NOT the worst thing. I found that the worst was the toll on my mental health and my personal relationships. But that’s for later. For now, let me tell you how I started my journey in Debtor Town.

If you can only afford to pay the minimum, you’re in trouble

On each credit card payment statement, you will see three amounts you can pay:

  • Statement balance – The amount due when the credit card statement was prepared by the bank
  • Outstanding balance – The total amount you owe the bank
  • Minimum payout – The bare minimum you need to pay (5% of your balance or RM50, whichever is greater)

You should always aim to pay off the outstanding balance, and paying off the statement balance is (for the most part) pretty safe too. But what you really don’t want to do is pay the minimum.

This is because paying the minimum only means you are paying enough to stay in good standing with the bank (i.e. they won’t be blacklisted or send debt collectors after you) , but it also means that you will be charged interest on the balance. We will not go into the details of its calculation (you can find out more here) but the interest rates are between 15% and 18% per annum (year). This means that the monthly interest is 1.25% – 1.5%.

When I was a writer in Cilisos, my net salary at the peak of my “bankruptcy” was RM3,600 and my debt was RM14,000. Taking on all my other commitments, I could pay a maximum of RM800 per month. This meant that:

  • Interest on the remaining RM13,200 = RM198 (at 1.5%)
  • The debt I am repaying is RM602

And yeah, that probably triggered a whole bunch of finance experts, because I know the math isn’t quite right…it’s probably a lot higher. But the fact is this: when you only pay the minimum, there will be a tipping point where a a significant portion actually pays your interest rather than your actual debt.

Easy payment plans keep you in debt

Of course paying RM602 and not spending on the card means I could have paid it off within 2 years which is fine if not for two factors that kept me like a backpacker trapped on the Mount Tingdebt. The discovery of Easy Payment Plans (EPP), or otherwise known as Installment Plans.

Sounded like a great idea… I pay a small amount every month for 12 months to get something cool AND get points or cash back for it! Well, EPPs and direct debit payments seem like small, manageable amounts, but not when you have 8 or 10.

RM120 per month for a Playstation 3? I can afford it. RM350 per month for insurance ? Sure why not. Add a few more such decisions and, as the saying goes, sikit-sikit lama-lama jadi bukit tak beruntung.

I was not joking with the Playstation. It is now in the office of Cilisos

Even when I stopped using the card, these automatic deductions have not ceased. Worse still, the amounts exceeded my limit, so payments were not made, resulting in additional interest and forcing me to use whatever savings I had just to pay them back.

Shame keeps you from getting help

If you’re wondering why I don’t have statements or proof of this debt, it’s because at the bottom of the great pyramid of debt flows the river of denial. After a few months, I actively avoided looking at my bank statements and ignored calls from my insurance agent asking why my payments hadn’t gone through. I even blocked text messages from the bank informing me that I had again reached the ceiling of my credit limit.

Original image by HowToFinanceMoney

I didn’t want to recognize the hole I dug myself in, and the refusal made things worse.

When I first received the card, my father gave me a speech that I will paraphrase: “With great purchasing power comes great responsibility.” And of course my (internal) reaction was Pfft. I am not 12 years old. I’m a strong, independent man who doesn’t need dad to tell me what to do..

So while I could have asked him for a loan to settle the debt, I didn’t because I didn’t want to admit to him – but especially myself – that he was right. I also kept it secret for my friends, finding excuses not to go to meetings or movies because I couldn’t afford it. I could only afford gas to get to and from the office.

Even when I was hospitalized with dengue, part of my feverish brain was syukur-ing because I didn’t have to worry about money for two weeks (yay for the insurance I paid with a credit card!)

Regaining control is an important first step

I tried several times to get out of it, but I kept giving up because I didn’t understand interest rates and all those complicated financial calculations I was reading. Finally, in 2016, it occurred to me that I didn’t need to know how the system worked.

I just needed to find a system that I could understand. In short, I:

  • I took a piece of paper and wrote down all my expenses, deleting the unnecessary ones.
  • Worked out a daily budget of RM15 per day for myself, and only carry that amount with me each day
  • Put the unspent amount in a jar for gasoline
  • I used cash so I could keep physical track of the money – I didn’t even trust myself to use a debit card.

It was a slow process, but having that sense of awareness and control has done wonders for my mental well-being. In 2017, I was offered the position of editor-in-chief at asklegal who came with a pay raise; but the real savior who got me out of debt was…. the bank itself.

Different banks have different names for it, but the lady who called me offered me a loan for the remaining debt of RM10k+ with a lower interest rate. Essentially, the bank pays off the debt, charges you a small interest, and you repay the amount over a period of 6, 12, or 18 months. But you CANNOT miss a payment.

Alternately, you can also contact AKPKa Bank Negara branch that can also help you restructure your finances.

There are mistakes that can never be corrected

They say hindsight is 20/20 and after paying it I canceled my original card as the terms were heavily against me. So if you are looking to get a credit card, please do some research beforehand because different banks (and cards) have different interest rate structures, terms and conditions, and annual fees. Always look at the fine print and NOT the iPad or the free luggage bag they offer.

But I’m still learning even from 2022, where I discovered that some banks were charging foreign transaction fees for credit cards, so I had to switch to a bank that didn’t.

I made the last payment in mid-2018, but the PTSD is still there. My brain always calculates my bank balance every time I buy something and I have never been able to enjoy nasi bujang since. Here’s how I currently manage my finances… it’s simple but hey, it works for me:

  • 2 credit cards to separate my personal and professional expenses
  • Prefer cash and debit card
  • Pay the outstanding even if I will have less money for the month
  • Put part of my salary in my savings before anything else

But what can’t be fixed is that i lost almost 10 years of financial opportunity. At 38, I’m not looking to invest or get rich… I’m just rebuilding my savings so I can deal with an unexpected hospital bill or pay my bills for 3 months if I ever lose my job.

In a ironic way, I make PIDM’s life easier because I’m far from the RM250,000 that PIDM insures automatically when you open an account with a member bank. But that’s not the point – PIDM is sponsoring this article because much of their work involves financial education, so that every Malaysian is financially prepared for a rainy day.

In other words, don’t do what I did.