It’s pretty simple and pretty complex at the same time. To bring it down to the most basic concept – I spent more than I brought in. Well, sort of.
More accurate is: I spent money on my credit card, I brought in money on my checking account. I failed to pay the credit card balance in full until my available extra funds decreased drastically due to: home purchase, taxes and pay cut.
At the time I purchased my condo, I had about $10k on my credit card, but I had a positive cash flow net worth – I had the money in cash or cds, easily accessible. I asked my mortgage broker if I should pay off the debt to have a lower credit utilization ratio, but he said it wouldn’t make a difference.
So I didn’t pay it off.
And then I just continued living my life as normal once I bought the condo. Big huge mistake. I didn’t cut back on my spending significantly, I didn’t really have a budget. So the debt added up.
However – I’m not actually a very big spender. I didn’t buy a lot of clothes, I don’t have any expensive hobbies…just regular, everyday spending – with one exception. My company requires me to float my expenses, and I have a lot of them – I travel at least twice a month. The good thing is that they pay out expenses twice a month as well – but there still is the delay involved. So, I would put my company travel expenses on my credit card, get reimbursed – and not pay it off. This added to my ever-growing credit card balance.
Then I got hit with a huge tax bill, which wiped out my savings.
That’s where I am now. As soon as I have paid off my credit cards in full, I am going to designate one for my company expenses and ONLY my company expenses. That’s the huge mistake I made – mixing those accounts and not paying them off in full each month.
