This post is based on an interview we conducted with Eric in September 2018.
Real Money Talk is our series where we interview Australians from all walks of life about their personal finances. The views expressed are those of the interviewees, based on their experiences with money, and as such are not necessarily representative of Spaceship's views.
We have changed the name of the interviewee and some important identifiers for their privacy.
Eric has a heavy amount of debt. He’s been really honest and laid out for us how it came about.
How old are you?
27
What is your current net worth?
-$16,000
Do you have debt?
Yes. I have an $8,000 credit card debt, a $3,500 ATO debt and a $4,500 personal loan.
What are your assets?
I have $10,000 in superannuation and about $600 in cash.
What’s your annual income?
$75,000 a year.
Could you tell us how you got into this situation?
I think a lot about money at the moment. I have a lot of debt and have for a long time. It gets me down a lot. Especially when I see my friends buying houses and having babies and things. I have no idea how they did that.
It all started with a credit card debt when I was about 19. I took out a credit card to start this small business idea I had which was in protein shakes and fitness products. I basically signed up with this brand and went door to door selling these protein shakes. I also went into stores to see if I could get them sold in there. I needed to buy all the products and some marketing materials. I didn't really do enough research into the products themselves, nor the market that I was selling into.
It cost me about $5,000 at the start to get all the materials, like marketing brochures and merchandise and things. And then I spent a lot of money travelling around the city, on petrol and things. I never sold nearly as much as the business owner said I would. I quit that after like twelve months and figured I would forfeit that money basically.
But because of the interest rates and the fact I didn't really ever pay it off, the credit card got bigger and bigger.
I decided to go and use my forklift license and got a job at a Woolworths packing warehouse. I was earning around $30/hour there and got about 35 hours a week. When I was 21 I thought that was pretty good money. I hung out with some other guys who were truck drivers and bricklayers and things and they earned much more than me. I always figured I could pick up other trade work and didn't really worry about money.
At the time, I basically used my credit card for everything. I paid rent with it, I withdrew from the credit account when I was at the pub, I would pay back my friends with it. When money came in from my job, I didn’t really ever put it over onto my credit card and instead I would spend that new money and then when that ran out I would just shift to back to the credit card.
Sometimes I would try and pay it off a bit, but never too much. I don’t know why. It felt very far away and like the bank couldn’t really do anything about it. The numbers just changed in my bank account but nobody seemed worried about it or cut it off so I just kept using it.
Have you ever tried to pay it off?
I worked at Woolworths for about three years and tried to knuckle down and fix it up a few times. One friend told me about refinancing, which is where you take out a personal loan to cover your credit card debt. She said it was useful because they have much lower interest rates than credit cards.
It was really easy to do, even though I was worried that I wouldn’t have a good credit rating. I just told the bank I was refinancing the credit card and they gave me $7,000. I only had $6,000 debt at the time (I was around 25 then) and I immediately paid it off.
I can remember how good that felt! Even though I still had the loan, I felt really clean somehow.
But then my brother decided to get married in Indonesia and was going to have a huge couple of weeks over there. And I just took that same credit card that I’d sort of paid off and then bought flights and had a wild time in Bali.
I feel so stupid about that now. I feel like that was a really bad turning point and I never really got much better. It was like I let go of the side of the wall in a pool and started slowly drowning or something.
You mentioned you have an ATO debt too?
Yes, I have that from an incorrectly filled out PAYG sheet. My employer at one time split the businesses into two parts and gave us all two PAYG slips. I only filed one of them which meant I randomly got a huge payout from the ATO, about $5,000.
Which I was really happy about, but the next year the ATO told me about the mistake and that I needed to pay the money back. The good thing about that one, I suppose, is they don’t charge interest but I do have to pay them back $250 out of every pay packet I get until my ATO debt has been paid.
Tell us a bit about how you’re working to change your situation?
Well, I moved in with my brother who only charges me $100/week rent. And I got a truck driving license and now I do long-haul fruit and vegetable driving across Queensland.
The money is really good but I’m trying really hard to pay down my credit card debt. That’s the one I’m knocking down first. I’ve already paid off $3,000 of it from the first two months. I’ve got a chart on my wall at home with circles drawn for every $1,000.
Every time I pay off $1,000 I colour in a circle. I’ve got sixteen circles to go. I used to feel really sick about it and now I only feel moderately sick about it.
What are you going to do when you’re out of debt?
Party! No, that’s totally a joke.
I like the circle system, so I’m probably going to draw another twenty circles and save up for a house deposit. I feel like I’m a bit behind the 8-ball but I can probably manage it. I just want to concentrate on things that aren’t how much money I don’t have.
I’ve been reading about Spaceship’s stuff so I have been thinking that I can probably open a Spaceship customer account and invest some funds with a Spaceship Voyager managed fund to hopefully see my funds grow. My luck would be though, that I put my money into the share market and it goes down a lot. But I have a fair bit of time for it to come back up. I understand these things move around, and go up and down and that investment is subject to risk (which can result in financial loss, including losing everything you've invested). I’m not about to put a punt on one stock, even though some of my friends do that and have made money. I just don’t know what the hell I’m doing.
In the future I’d like to know a bit about share investing.
What advice do you have for other people?
The thing that’s weird is I have no idea what I spent all that credit card money on. (Apart from my brother’s wedding). I have nothing I can point to, and I don't own anything massive (apart from a car). I did a bit of travelling, but that’s it.
My advice is just have a goal, don’t just live aimlessly when it comes to money. I just didn’t care very much and I didn’t actually try and understand how it all worked. I just had this idea that at some point the bank would step in and stop me.
Just have a goal, draw some circles and begin working towards it. I’d also recommend to anybody that they should get a qualification to actually do something. So that if you do need to earn more money on the side, you can just drive trucks or paint houses or something.
Do you think about retirement?
Yes, I have a superannuation balance. But there’s not much in it. But I’ll get there, I’m only 27. I feel nervous another thing like my brother’s wedding will come up, and I’ll just chuck in the towel and go blow all my money again. But I don’t want that to happen so hopefully I will just keep on plodding along.
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