Shafey Danish

My friend ran up a credit card debt of 7 lacs. He is now hopping around to find another bank that would give him enough credit to pay off this debt. Of course that would still leave the debt, but he would get some time.

Eventually he would not be able to run and the credit card companies would follow him wherever he decides to hide. What would happen? Well, one alternative was suggested by my friend himself.

He would take out a huge loan on the strength of his excellent credit history, pay off his old credit card debts, and elope with his girlfriend. His future plans include a nice car, and a three bedroom apartment. I dissuaded him from this course by asking that scary question: ‘what if” in as many different contexts as I could think of.

I could not digest a situation where he would have everything I desire, while I would still be doing a 4pm to 1am shift at my job. And how would I be able to relate with an easy conscience all those stories of hard work, dedication, etcetera, etcetera, being rewarded if this came to pass?

That was scenario one, and if push comes to shove it may still materialize. But here is scenario 2.

The poor chap is unable to pay off his debts and either desists from committing the fraud or gets caught doing it. In both cases he ends up behind the slammer.

In which case you are looking at a life cut off in the prime of its youth. Its ambitions frustrated, its dreams shattered. He and his ebullience would be left to wilt behind the bars of a prison house.

The scary thing is many more of us than we realize may end up in similar circumstances. How? Consider how my friend got into his regrettable circumstance.

He borrowed a small amount of money on one of his credit cards, then before the time given for payment could expire, he paid it back with credit borrowed on another card.

In this way, he discovered, if he had but cards enough, he could indefinitely defer his payments. He was able to do this successfully for thousands of rupees. Success made him bold and he tried the same thing for lacs of rupees.

At this level the payments had to be broken into instalments, with which came interest payments, which were usuriously high even in these recessionary times. The few lacs, over a period of a few years, nearly doubled, and all of a sudden he found himself staring into a dead end.

You see, credit card debt eats into your finances so creepily, so slowly, that by the time you realize what hit you, you are already on the way to the floor.

This malaise has been made all the more fatal by the predatory practices of credit card companies; they would give you a certain amount of money as promotional money, and then after you have used it, want it back. (This actually happened with me). They advertise a 50 day no interest period and it turns out that is the maximum limit. Usually you would get no interest credit for about 19 days or slightly more depending on your billing cycle.

Through such practices, (more on the details in my next blog) the companies have been reaping windfall profits. I am told that while banks would pursue you and hound you and send you to jail if you perpetrated a fraud of a few crore rupee, they would do everything they can to keep you solvent if you perpetrated a fraud of a few thousand crore rupees. You see, banks completely understand the concept of being ‘too big to fail.’

Some of it may be self interest, but some of it at least, is empathy. They recognize one of their own kind!

But let’s imagine you neither have the guts nor the creativity of an investment banker, the best course for you would be to save, irrespective of whether the days are rainy or sunny and to live well within your means.