x Abu Dhabi, UAESaturday 22 July 2017

Explosive combination

My financial mistake After racking up thousands of dollars on three credit cards, this airline pilot made drastic lifestyle changes to clear them - and literally blew up the debt.

Illustration by Rahul for The National
Illustration by Rahul for The National

Jeremy Cole cleared his credit card debt with a bang. Once he fully paid the US$13,000 (Dh47,746) debt on three cards, Mr Cole, who lived in the US state of Georgia, drove over to neighbouring Alabama and purchased firecrackers - they were illegal in Georgia. He strapped them to his Visa, Mastercard and Discover cards and watched the sparks and plastic fly.

"It was in my backyard and I watched them blow up. Boy, it felt good," says Mr Cole, who held this pyrotechnic display back in 2006. One year later, the airline pilot moved to the UAE with a commitment to keep his finances under control. Mr Cole, now 35, says his free-spending youth has taught him a great deal about living within his means. His financial troubles began in 2001, not long after he graduated with a degree in aviation technology from Le Tourneau University in Texas. Mr Cole felt flush with cash when he started his first airline job, with Delta Connection.

"I knew I'd make a good living as a qualified pilot, and when you're in your early 20s, you're not exactly the most financially astute person on the planet," he says. "I wish I'd spent less money instead." With what he describes as a "reasonably well-paying job", Mr Cole lived for the moment and spent little time thinking about the future. But five years into his job, he had built up $13,000 in credit card debt.

"I had $5,500 on one, U$3,500 on the second and $4,000 on the last one," he remembers. Mr Cole claims his outgoings weren't extravagant, but the debt kept increasing while his savings remained at the bare minimum.  "I mainly spent on food and on my car," Mr Cole says. "I used to eat out everyday and would easily spend about $900 a month on food. At one point I also had two cars. Basically, I was just living above my means and being careless with my money. I saved 5 per cent every month as part of the 401(k)," he says referring to the American pension plan that allows workers to save for retirement.

"But that was it." Although the debt was accumulated over a period of five years, he admits to feeling the burden of knowing it existed - and that it had to be paid off. The moment he decided to rid himself of his credit card debts came in 2005. "I just got fed up walking around knowing I owed thousands of dollars in debt," he recalls. "I thought to myself, 'This is it. Enough.'" Assistance came in the form of a friend, who introduced him to Dave Ramsey's The Total Money Makeover. The book, which Mr Cole still has in his possession, features a bald, bearded and bespectacled Mr Ramsey peering from a cover and promising financial redemption. 

Mr Cole was impressed with the author's promise and bought the book for $25. He read the 220 pages in a week.  Despite receiving allowances from his family as a teenager, Mr Cole says he was never properly introduced to investing essentials. His knowledge was limited to simple concepts such as saving, planning and spending. Step one, according to Mr Ramsey, was knowing where your money goes. Mr Cole begin his financial redemption by saving all his receipts. For two months he filed away every single receipt and organised them in categories such as food, entertainment, utilities, rent and car payments. He immediately realised the areas in which he could cut back on. The first casualty was dining out - he knew $900 a month was an untenable figure. 

Tabulating his daily expenses was an eye-opener, Mr Cole says, as he had never undertaken such an exercise. The next step was to stop using his credit cards. And at the time, of course, Mr Cole was using three of them. This set the stage for real action - melting the debt snowball, which is one of the main lessons in The Total Money Makeover. "Ramsey basically advises us to start paying the minimums on all debts," he explains. 

Mr Cole started by paying the minimums on his cards - $60 on Discovery, $55 on Visa and $65 on the Mastercard. Then, he took whatever was left in his budget- somewhere in the neighbourhood of $550 - and put it toward the card with the highest interest rate. With a new-found dedication to saving, Mr Cole managed to clear all of his credit card debt in just one year. And the next year, at the beginning of 2007, he decided to move to the UAE to take a job with a national airline.

With zero credit card debt, an emergency fund of several months' salary and his new job in the Emirates, Mr Cole says his explosive experience with plastic has changed his approach to spending. In hindsight, he says he doesn't know why he was maintaining balances on three different cards. Like many other individuals, he was swayed by effective marketing campaigns and the fact that the cards had no annual fee. And then he let his charging get out of control.

If you must use credit cards, he says, limit yourself to the bare minimum necessary, and use them for practical purchases only. In fact, following the fireworks display in 2006, three years passed before Mr Cole again used a credit card to buy something. He now has one piece of plastic, and he uses it sparingly. "The freedom you have in knowing you don't have a debt attached to you is something else," he says.

"I've learnt my lesson the hard way. Debt can be a real burden. The most important thing I've learnt is to live within a budget. Having credit cards does not exactly encourage that."