Saturday, 15 January 2022

Toxic Debt, Credit Cards, and How to Get OUT of Debt | WEtv Episode 2

Toxic Debt, Credit Cards, and How to Get OUT of Debt | WEtv Episode 2
15 Sep

Welcome to this week's episode of WEtv Today we're talking toxic debt, the minefield that is credit cards and all of those bad debts, what's good debt and how you can get yourself out of debt if you need to

This is an area that is completely normalised by Gen Y but realistically is really misunderstood I'm kinda scared but let's dive in Absolutely I'm just ??? thinking about where, where my money has gone Oh where? Well, I was just saying earlier, I don't, I don't spend money on clothes

That's just not, it's not my thing I really enjoy looking after my skin Well you do have nice skin I know! And, and I've spent a lot of money looking after it and I know that in the last couple of years through a little bit of credit card use, I have spent a lot of, I reckon I've spent a couple of thousand dollars on microdermabrasions, and IPL, and have you done LED light treatments? Yes, it's so good I don't know why it's a hundred bucks though! Well it's awful, but it's so good

And, uh, vitamin C cream and E oil and all kinds of things Serums, they're like $100 more, or more, each A hundred dollars and you've got a- And apparently you need A, B, C, D! Yeah, a hundred dollars is a bargain! Like- You need all the serums Okay, so you got married, you spent all your money making your skin look nice which was potentially an investment in those photos Yep

But, how did you do it? You used your credit card didn't you? Yep A couple of years ago I found myself with just the credit card that was sitting in my back pocket and I wasn't using it very often and then I found that there was sort of these big lumpy expenditure, face!, that I was having to sort of budget around each week and I was struggling a little bit so I would put it on the credit card and I would pay it back, and I was like, Okay I've got four weeks to pay it off I'll pay a hundred dollars a week coz that's how much I was spending And, and that was fine, it was fine for like six months and then, then they'd sell me products and so it was like, it went from a couple of hundred dollars a session to like a couple hundred dollars plus the extra serum and the extra whatever and so, suddenly I was getting myself outside of my cycle and I couldn't pay it off in time, and I started paying interest And that was when you were avoiding me

That was, I was actively avoiding Sarah's calls because she was like, We need to have a coaching session, we need to have a coaching session, and I was like, Oh, but I just need to sort out my debt situation before I see her so that, and then, I was like, you won't look back, you won't look at the history, you won't notice that it was ever there in the first place No, and then we sat down and I was like, Where did this debt come from Yep We've been working together for quite some time and all of a sudden you have a credit card again! Yeah, and it was like, Where did this come from and why, why are you paying interest on this? Like I had, I had money And the other question you asked me was, What does Eric think about this? And I had to say, Um, I'm pretty sure he doesn't know about it

Oh my god The, I mean the card was in joint names so he could have found out if he really wanted to But, I, I knew he didn't know and I was not- He wasn't looking around for your sneaky debt- I was, yeah he was not assuming that I'm hiding things in the background, he's just noticing how fabulous my face looks everyday, and, and so I, it was so shit It was so shit talking to you and going, Yep, I've, my name is Rebecca and I have toxic debt And then I had to, you told me I had to pay it off and so I had to then tell Eric that I needed to take $2000 out of our, you know our buffer account to pay off this debt that I had been hiding

And it was, it was awful It still makes me feel sick when I think about that That was only, what? A year ago? Two years ago? Yep I mean, you're not alone and I think if it's hard for us and we're financial proffesh- blergh! Financial Professionals Yes, that's what we are, financial professionals and we fuck up with our credit cards so, if it's hard for us, it's hard for everybody, I mean, I haven't had a credit card for quite a long time but yeah back in my heyday, I totally racked up so much credit card debt and it was so bloody stressful

I remember reading in your book, before I joined the WE team and I was reading Get Rich Slow and when you were traveling? Yes, yes So I think, like, I went traveling when I was 18 and I got a credit card debt, a credit card sorry, I did get a credit card debt as well but I got a credit card, I started with a credit card, ended up with a credit card debt Got a credit card because you know, I'm going overseas and incase of an emergency and it's the safe thing to do and really I mean, having that access to credit I think meant that I didn't save as much for the trip and then while I was there, I did have like an extra $3000 or whatever it was so that I could spend more and, you know, it definitely wasn't emergencies let's just say shopping in Paris and eating out in London and yeah, they weren't emergencies though, and I came back to Australia with like $3000 worth of credit card debt, I was like 19 I remember lying awake in, I think I was in like, this camp ground out of Venice and I was just lying in my bed thinking, Oh my god, when I get back to Australia I'm gonna be like so sad I'm gonna have to look at this

Yeah, like I could pretend throughout the day that it wasn't there but as soon as I got, went to sleep and then I'd wake up in the middle of the night being like, so friggin stressed But I do think that because of how normal it is, like not everyone gets stressed No! Like, that's the weird thing for me I had this member that I was working with years ago who had heaps of credit card debt and every time we sat down and we would look at it all and we would like make this plan for her to like reduce it, and then we'd get back together the next time and like, if anything it had just gotten worse And I was like, this was before we could track

So we didn't, I couldn't see what she was doing when she wasn't with us Technology is way better now but, after like a year of working with her I just thought, I am like a failure as a financial advisor because she just keeps getting in more and more debt and we'd have these super serious conversations, so I ended up saying to her like, Okay, I think I'm failing, can you please tell me, like what can I do better to help you get out of debt? And she was like, well, the honest truth is the moment I leave your office I just don't care And I was like oh Because I'd been assuming that she was like me and she was lying awake at night stressing about it but she was like, nah, I literally, the only time I think about it, is when I'm in your office And I think that's because it's so normal these days, like everyone has credit cards, credit card debts, everyone is throwing down plastic to pay for dinner or whatever, so it just seems like that's the normal thing to do and I guess for her it was totally normal and she just really didn't care that much

Life was good, life was fine, she didn't have to worry And you know, you get, you get the opposite of it, of it now where you go out for dinner and someone says, I don't have a credit card, and everyone's like, What!? I know! What do you do? How do you live? I know! I had a, a member you know it's really common talking to me, you know they say, I've, Oh I've only got $25000 of credit card debt, or I've only got you know, a $15000 personal loan or- Oh my goodness, yeah I think I've heard, I've only got a $50000 car loan That's a big loan That's a big only

That's a big only, and probably the most I've seen is, I think it $150000 or, that person said they had a debt problem They got it Yeah But, but even then it was like, I've got a bit of a debt problem I mean, I just think it is tough

I think we all earn pretty good money and we're struggling with it, I can't even imagine what it's like for people who, you know, are living on lower incomes but it has just become totally normal and that's because of being like, 18 years old and getting that first credit card and you can finance everything these days, cars, whatever, boobs! Teeth My friends finance their boob jobs, like, it's insane And then you've got all the interest free, 48 months interest free for furniture and it's super tempting to just do it I also think there's a bit of a rhetoric around I can manage it, I can game the system for my benefit Oh yeah, I'm can buy this TV and I only have to pay $25 a week for the next two years

Yeah, and I'll be the one that won't, I won't like stuff it up and have to backpay all the interest, but, inevitably, you know- I, honestly I think I had a credit card for five years before I paid a single dollar of interest and I thought that I was so awesome Yep, but the real problem is that like- Until the point like, they just stick in there and they hang in there and eventually, eventually you trip up and you have to fork it out And I guess not only that but, you do spend more Like that's what I found When I was using credit cards, even though I was also, like once I got out of that first big round of debt I was like, Right, I'm never going there again

And then I started using my credit card 'properly' but you know, I was just spending more Like, you know, rather having my personal spending allocation of whatever it is every week and just having to stick to that, I was trying to use my credit card to like flow through the expenses and get all the points but I wasn't really able to stick to my budget, so even though I could still pay it off at the end of the month, I was spending like 30% more probably than what I would have been spending Well that's because your credit card doesn't tell you when you've hit your ceiling, saying Oh, Sarah, you've spent all your personal spending this week, don't spend any more I know, and even with tap and pay, like it's quite hard, but I'm just like addicted to checking my bank app to make sure that I'm still, but also like if I only have, like my personal spending is $250 a week, admittedly I do have more expenses that flow through the business because you know, some of my travel and things is covered there, but like because I only get that $250 and that's all I have, like the thing will actually just decline if I get to that point, which is a good thing Um, actually, like one of the other things that happened to me when I was overseas was, they used to allow you to overdraw your account, so when Visa debit and Mastercard debit used to, when they first came out, like you could overdraw, so I had my credit card that I racked up to $3000 and then once that was racked up I was like, Aw, and then like a Visa debit transaction just went through on my card and I think it was especially because I was overseas, like I don't know if that would've happened in the Australian system or whatever but, so I'd also got like $500 or $1000 of like overdrawn account and that was even worse because I had to pay a fee every time that I got it overdrawn, like a flat fee, like $10 or $30 or something like that, I can't remember and then I had to pay interest and they have like a really high rate of interest when you're overdrawn, so, I mean that was really, really annoying as well

Fail That was like a total GRS fail GRS fail! And I was like convincing myself, I remember, actually I found my diary a few years ago, my 19 year old diary, 18 year diary- Lots of insights? And I read it Lots of insights I was such a blamer of the world, like I read this diary entry and it was like, you know, I'm in so much debt because the bank, they let me overdraw my account and poor me, I was such a bloody victim

I was, it was sickening but I was only 18 I had to learn my lesson But yeah, I came back just blaming the world for my debt and I think, I guess it's easy to do and I do still now think that you know, marketing and credit card marketing and this total easy access to credit is setting us up for failure Oh, massively I mean the first step is definitely like ownership, like don't be a victim like I was and just frigging own it, cause I knew what I was doing, I just didn't want to admit it to myself, but we are living in a time where it's super easy to get into debt, like it's tough to avoid it I mean I don't know if I'm allow to say this but like the banks are assholes

Yeah They are really they going after you, there's like you said the system's set up you know to screw you over You know we get offered credit cards, I reckon I was 15 or 16 and I was depositing money from my first job at the bank and they were like, hey Rebecca you seem like you're a really good saver, would you like a credit card? But thank God I said no I guess Oh you said no, that's good

But they keep coming after you and they keep saying- Well, and the marketing makes you think that when you're grown up, an adult, that's what you do A successful person has a credit card A successful person has a black or a platinum or- Totally, all the marketing is like the Platinum card, the black card, bloody, they've got one's made of steel and people are like, look how fancy I am I've got my steel card, and it's like, Oh, look how fancy I am, I've got my own money I've just got my pile of cash that I'm just gonna pay for everything with Yeah, I mean maybe not cash, but like that's what I said – I remember I had this like super wealthy surgeon who was like oh I have to have credit card, like that's how I live, and he was making so much money but he was just spending it all and I'm like, how about if you just like actually had your own money? Wouldn't that be better than having a credit card? And he was like, oh yeah, that seems cooler

Have you ever had to try and break up with the bank though? Because I know I've done it and they did not go down without a fight It's tough, like they do everything to keep you there I remember I had canceled a card once and I'd moved house and I forgot to cancel one, I think it was like a gym membership and it was something that I wasn't really using or maybe I, yeah I think I wasn't using it but I didn't realise and they just re open your credit card So like a year later I got this letter from a debt collection agency who had tracked me down because like $300 has built up on my credit card over a year and I was like, I canceled this card, and I rang the bank and they're like, well if you have like automatic direct debits set up, it'll just, they reopen it to fund the thing, and I was like, this is an absolute joke like, I was so annoyed but it's fine like I should have been more diligent to get it paid off but I was just like, this is, like the system is designed for people to fail Well when I tried to cancel my Amex after my epiphany with you last year or the year before and, and I'd already chopped up my card because obviously I could not be trusted with it but I needed the card number to actually pay the credit, the, the BPAY

Yeah I needed it for BPAY And I called them and I spent like 15 minutes on the phone trying to identify myself and they refused to give him my card number over the phone and the only way they would give it to me was to send me a new card Yeah This is me calling Amex saying I cut up my card because I can't be trusted with it and they say, here, we'll send you a new one Well I mean yeah, It's so frustrating and it, I think people will have had relationship breakdowns that were easier than breaking up with a bank

I've had members and they tell me they go, oh Rebecca, I tried to cancel my card but after 10 minutes they just, they convinced me that they would do this and they put me on a lower interest rate now Yes And so I've decided I'm just gonna keep it and I'll see how it go for a little bit longer All the benefits and all that, but I think you know we have to be honest with ourselves that the credit card companies are making more money out of us otherwise they wouldn't have to make those enticing benefits like points and all the other different, you know access to these lounges and all these benefits that you get that's just crap I think even with balance transfers these days if the credit card companies can afford to give you two years interest-free, Yes and they're still in business like how much money are they making and how many people are not clearing their debt by the end of the balance transfer period? Well they know the game because once they get you in they've got two years to get you spending and I think that's a big trap people fall into as well actually is like, do the balance transfer but then don't cancel the old card

So you've gotta, if you are going to do it and like yeah, it can work for sure but it's like make sure you cancel the old cogs otherwise you've ended up with two and you've probably just doubled your potential debt Ended up with two Yeah that's a danger zone Oh god Should we talk about some good debt? Yes

Because I actually, I mean I I like debt I think debt is awesome and I think debt is what has allowed me personally and I know it has for you, to actually grow my wealth relatively quickly Absolutely I mean I had, I bought two properties when I was in my late or mid 20s and obviously used debt to do that You mean you didn't just buy the property? No, I didn't believe it or not Yeah so it's really the only way to get into the property market before most people, especially in their 20s, but it was great like a you know I was able to leverage what savings I did have to be able to purchase a property

Interest rates on property I tend to be like a fair bit lower obviously than personal loans and stuff so you know it's quite a good way I have a margin loan now which you do as well Yeah I love it so much Yeah, I know It's such a fantastic thing and people often think of debt being associated with property but you can actually borrow to invest in shares as well which has again has allowed me to sort of rack, rack up that asset pool pretty quickly

Yeah and I think the main thing is like debt that is used to buy an asset versus debt that's just used for lifestyle, like that's the easiest way that I can decide whether I should or shouldn't take on debt is obviously what am I using the money for? Like if I'm using the money to go out to the bar on Friday night or you know to buy new shoes or clothes or whatever like that's a worst because- Bad debt Yeah that's bad debt But if I'm using it to buy a property, to leverage my share portfolio, or even in business, I mean like we, when I run the private wealth management firm we made an acquisition about two years in that was, allowed us to double our company size because we bought another business and merged it in I mean that was great, because we knew what we were buying, we had a contract in place with the person we bought it from that verified the, you know all of the clients and everything like that, and that worked out like super, super well but yeah if you're, if you're using debt to just fund your lifestyle, or even cars and things coz they're just gonna go down in value so So when I bought my car, which I love, I had the cash just to pay for it but I, I had said, Oh no, I want to hold on to my cash

Yeah So I took out I think it's like a ten thousand dollar car loan and then paid interest on that for, for three years Don't you think that just shows this psychology of like how our minds work in terms of- So normal You're and you're so much less likely to part with your cash because you had to work so hard to save it and get it there than you are to use credit even though credit is gonna cost you more, but somehow psychologically it just feels like it's not, you're not parting with your own money as much It's just, it's just easier

The other thing, that I mean it seems so silly with what I know now, is back then I thought I'm going to take out my car loan so that I can build my credit rating Yeah So that when I want to buy a house I can show you how awesome I am at repaying debt and so I thought I was working towards some, I thought this was a really good thing I thought taking on this car loan was a really fantastic thing And I think there is an element of building up a good credit rating but you can also do it through paying your bills on time, paying your rent on time

Repaying any sort of- Anything, yeah, it doesn't have to be specifically through the form of like a credit card debt or a car loan or what have you It's funny like I was so ready to go into that car loan a few years ago but when I finished paying it off it was just- The best feeling The best feeling Yeah I mean I would never like get a car loan again or any, I never had a car loan actually but yeah I just would never do that like- I'm gonna be driving that Suzuki Swift for another ten years Make, make it completely worthwhile

Until it's breaking down, why not? Yeah, might be soon All right so good debt we go, buying property, buying shares, maybe buying businesses You've got to be really careful on that one though because you've got to really know what you're buying so I'll just share like my absolute worst thing I ever did financially I think So I don't know if I've ever told you about these when I was around 25 I was working in my dad's company and this woman I met who was doing this startup in the financial services sector that I thought was really interesting and I started working with her on it and decided to buy into the company, become a shareholder And it was in the startup phase but we'd agreed to go 50/50, we'd agreed on all of these things and I got a personal loan out to buy in

Now, stupidly while we were drawing up the contracts and finalising all the details I started funding the business because she'd, she'd run out of money and I was funding it with the loan, with the debt yeah So I'm funding the business and it took ages, it took like three to six months or something for the contracts to come through and when they came through they were like all wrong Like different amount of shares, different share class, like I wouldn't have even had voting rights, like all this stuff that we hadn't discussed and I was just like- Alarm bells going off Oh yeah, it was such a, I remember that day I was just gut wrenched and I was like, I can't go into business with this woman, like all the trust that we had built up was just destroyed in that one contract It was like, were you ever going to have a conversation with me that we weren't gonna do the deal the way we said it or were you just expecting me to sign? How much money had you sunk in by then? So by that point I was just short of 50k in

Fucking idiot It's like how could you be so dumb? Anyway, needless to say I pulled out of the deal There was definitely a time where I was thinking I should stay in because I need, I should try to trade out of it like- Isn't that like when gamblers try chasing their debts? Totally, like I nearly did that and then I was like nah, no, fuck it, I'm not doing it One more horse race and I'll get my money back And she was like all disappointed and I'm like dude, what? Anyway, so I decided not to do the deal and I spent three years paying off $50,000 in personal loans

Tt was probably at the time had an interest rate about 13% so that was like a super good lesson and for someone who is trained in finance it's not my finest moment but it was, you know taught me a lot about business and a lot about debt and I would never do anything like that again, of course Yeah well this is, well I mean we see it so often cuz we deal with people who are intelligent, they're earning good money, a lot of them have a financial background but we're shit with this Yeah well we're not taught how to, you know,if it's hard for us, it's hard for everyone else, like we're not taught at school how to manage money Basically just follow our parents or whatever and they weren't taught either so it's tough like the system is definitely set up for us to get into all of that easy debt, it's so easy to get into debt and so much harder to get out of it but yeah, that's the world we live in And you know we were saying before around how having crappy debt can really impact your ability to get good debt so if you do want to take on those projects to grow your assets, Yes The bank, you know even if you thought we were doing all these things to get a great credit rating the bank's like, um, Well yeah it's credit limit, not just- You've got three credit cards and they've each got $20,000 limits on them

Yep, so if you were wanting to borrow 500,000 you might only be able to borrow 440 because you've already got 60k, yes, so I mean there's those considerations as well Every single facility that you have is judged by the limit not the balance that you have owing on it so So, how do we, how do we stay out of this mess? No credit cards No Cancel them

I have not had one for, you were naughty, but you've been really, you haven't had one for a long time but you just got, you did one naughty, sneaky one Oh and it's just, it really it crept up on me and it still takes me by surprise how how it happened Yeah cuz you, yeah I mean I guess since you joined WE you didn't have one, except for that one naughty one, and then I haven't had one for seven, eight years and that's, that's the only way forward Like don't worry about being cool and having a fancy credit card and getting all the benefits and all of that I mean I think if you're in business, you can potentially make it work for you like I do have a credit card in the business, but it's quite different and you don't have the impulse spending that you have from a personal side, you know we just put all of the regular expenses that we have anyway on the business, but yeah, generally no credit cards personally at all

None of those debts that are for lifestyle type items that are not going to go up in value and use debt for good like leverage Not evil Yeah, not evil Use debt for good But yeah leverage, use debt to help you build wealth, not destroy your wealth

Okay I just remembered, I do actually have one credit card No just, it's fine No it's not fine! It's, so I have a travel card Oh yeah Right, and this is what I think a lot of people like but I need one for travel

So I have a travel card because it allows me to withdraw from all the different currencies, it lives with my passport Yes And before I travel I prepay it with cash Okay So I've never used it as a credit facility

Yes okay I'll let you off the hook on that as long as you don't get sneaky or one of your trips and, The alternative is taking a shitload of cash when I travel Yeah which is not great It's not great You could lose at all

Yeah exactly, so, but I again understanding my behaviours, understanding the lessons of the past, lives with my passport in the filing cabinet All right How do you not spend over it when you're away though? Funnily enough I'm actually really good with budgeting when I travel and, and we actually go super conservative and almost leave like five hundred to a thousand dollars of headroom in case we go a little smidgen, smidgen over and you sort of budget around each day, I'm so much better at it with traveling now I think about it than I am- In your day to day In normal life Yeah

You're probably more considerate with your money when you're away cuz you know that you've got that, you've set that limit for the trip or whatever Yeah and and you want to be able to spend and relax with it but it is, it is good to still be mindful of that Yeah I don't even use the travel cards, I just use my- But I am so happy to be proven wrong If someone can tell me that there's a better card rather that's not an actual credit Yeah it's tough

With different currencies it's just challenging That's it I promise no more cares The other thing I do see a bit and I felt in the past is around like direct debits that need a card attached to them Yeah, but you can use Visa debit or MasterCard debit these days so there's really no- Yep, so we're just calling bullshit, just call bullshit on that There is really no excuse, like you can set everything up now, I think like the normal bank accounts are now Visa debits and Mastercard debits aren't they? Like all my cards are like that

So you can still tap and go to your heart's content Yeah So that was a pretty heavy topic but I feel like I've kind of like cleansed myself of all my terrible past situations with debt Next week we have a much more exciting topic, we're talking about wealth creation in the form of what is your number, what is your financial freedom number so join us and we will explain what that means next week Now if you want more information on anything we've discussed today click in the show notes below

We go through all of the information as well as some really good action items to get yourself out of debt if you're feeling it right now So no excuses, move your ass

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