Welcome.

RFG is the place to find practical, real world information on personal finance, real estate, investing, stock options and more.

My $27,000 Credit Card Spending Problem

My $27,000 Credit Card Spending Problem

Last year, I spent $27,000 on things I didn't need. I actually spent a lot more than that, but I'm ignoring all of the reasonable expenses like insurance, commuting and dental work. I never share  my real numbers on this blog because I feel like it's unnecessary, but this number is so embarrassing that I needed to publicly shame myself. 

Now that I've accomplished that, I also wanted to explain the roots of this spending and outline my plan to improve and save during 2018. It would be hard for me to ask anyone to take my financial advice seriously with that enormous number hanging over my head. 

Here's the breakdown of 2017, if you're curious:

The seeds of my spending and credit card problem

Until relatively recently, I didn't have much money. I always had enough, and much more than many, but I had to carefully watch every dollar that came in, and every dollar that came out. When I didn't, I'd overdraft or my debit card would get denied. It was also a little embarrassing, hoping other people would pick up the bill at a restaurant, or worrying about staying at a hotel that would hold too much money on my debit card. These aren't hardships (like I said, I had enough money), but it did ANNOY me having to be careful all the time.

I wanted more money because I assumed when I had some, I would have earned the right to be a little more free and ignore the details of my day to day spending. 

When Tableau (my former employer) went public, suddenly my stock options were worth a fair chunk of change, and I did have some extra cash. It wasn't just stock either. After years of making almost nothing in base salary, my raises were starting to compound enough that I was making more than I needed to just get by. When it rains, it pours! Or, I guess the opposite of that.

The start of the hedonic treadmill

I knew I was incredibly fortunate for the windfall from the Tableau IPO, but I also felt like I had earned the money I was making and I deserved to be a little more free with my spending. I stopped worrying about how much my lunch was going to cost. $5, or $8... doesn't really matter, right? I traveled a little more, bought a car, and became more generous with my friends and family. Going out for drinks? Let me get that. Christmas time? Everyone should get a nice present or three. 

I have to admit, it gave me an enormous amount of pride to be able to do that after years of scraping by. I would even say that my spending at that time was fairly reasonable. I was still aware of what I was spending, still keeping my debts in check, and the money was coming in quickly enough that I was able to save a decent amount for emergencies as well. There's no doubt in my mind that these reasonable beginnings were the start of the hedonic treadmill for me.

When some fun splurges became too much off a good thing

I can't pinpoint a precise time when my spending got out of control, but there are a couple of extremely important milestones that contributed to the problem. 

In 2014, my credit score was in the low 700s, and thanks to CreditKarma I saw that the easiest way to fix that was to build up my history. So, I applied for a couple of travel rewards credit cards. I like to travel, and had begun traveling more for work, so it seemed to align well with my spending. 

I started with the Alaska Visa Signature Card, which came with an annual $100 companion fare and 3x miles on Alaska purchases. Then I got the SPG Amex, which gave me 3x on SPG hotel stays (with bonuses) and SPG Gold status (good for early check ins and late check outs). Eventually, I would add a Marriott Chase card with similar incentives. In my mind, it was a win, win win. 

But, getting these cards also added an insidiously motivating incentive for me to spend more. I loved seeing my SPG and Alaska balances go up, and imagining where the next destination would be. Truthfully, I liked watching my balances go up so much that I rarely used the points. Kinda crazy, right?

That was just the beginning. As I applied and received my cards, I added them to every single app and service I was paying for. Credit cards became my default mode for spending money. Why have them and not use them? Why spend money and not get the points?

It became so easy to spend money that I began to extrapolate beyond my "you earned it" ethos and think more in terms of "I will earn it". I spent larger amounts of money without considering the implications, or even knowing where the money would come from to pay for it. $350 for a fancy dinner group dinner? No problem, people will pay me back on Venmo. $1200 to fly to Hawaii (even though I had the points to go for free)? Sounds like a good experience!

The vicious cycle of credit card debt and spending

Every 3-4 months, I'd look at my statements and panic. $5000?!?!?! Insane. I'd rush to sell Tableau stock, or transfer from savings, and pay off my exorbitant bill. Back down to $0... with a promise never to spend money on my credit card again. Whew. 

Of course, it continued on and on, because the incentives to spend on my credit cards were still there, even after I'd paid them off. I still got points. I still didn't have to check to see if I had enough money to pay for my purchase. I still could be generous on a whim. To top it all off, I still had this powerful urge to just do whatever I wanted to do. I paid my dues, I deserved it. 

Because I was constantly transferring from savings to pay off my debt, it was really difficult to meet my savings goals. Over the past three years, I have only been able to set aside $5000-$10000 total out of my income. When you compare that to a single year of spending you can see what an enormous problem and opportunity I have.

The thing I am most ashamed about in all of this is that it's all about me. Sure, I've been generous at times with friends and family, but what about the rest of the world? When have I given back? I can't remember the last time I gave to a cause. That's really lame. I guess I always figured I'd give back at the end of my life... but really that was just another excuse for my spending. 

The Great Reckoning of 2018

As I looked back on 2018 this week (with the help of a visualization you can find below), I saw that a lot of my assumptions about my spending were wrong. Even worse, my reasoning for putting all of my spending through my credit cards was even worse. Here's what I mean:

Assumptions|Reality

  1. I earned the money and I deserve to spend what I want. What I have deserved or earned is irrelevant. If I want to save and accomplish my goals, I have to budget and plan for my spending like everyone else. Bottom line: I need to spend less.

  2. I need credit cards to boost my credit score. I have significantly more credit history now, I don't need my credit cards for my credit score.

  3. Credit cards earn me enormous amounts of valuable travel. Eh, kinda. Last year, I earned around 30,000 SPG points from my Amex and 20,000 miles from my Alaska Visa. At a value of $.02 per SPG point and $.01 per Alaska mile (being generous), that equates to $600 and $200, respectively. I spent $27,000 to get $800 in rewards... rewards I didn't even use! Plus, I spent $500 on interest, and $200 on credit card fees, basically eliminating the value of my precious rewards. I’ll always have points because I earn plenty of butt in seat miles on Alaska and some points with SPG when I stay at their hotels. I don’t need the credit cards too.

  4. I should put everything on my credit cards to maximize the points I earn. Uh, dude, we just proved that you don't really get much back from the credit cards. Why would you try to rack up debt when you have to pay it off from savings?

  5. I should pick up the check so I get the points, and then have friends pay me back. It doesn't always work out like that. Even when I do get paid back, I rarely transfer to pay off the credit card I used.

  6. I need credit cards for business travel. Kinda. Sometimes I do rack up a couple thousand dollars worth of expenses... but then I let them sit on my card while I dilly dally on my expenses.

  7. I need a bunch of credit cards so I get rewards bonuses regardless of where I spend. This isn't false (in the sense that spending with an SPG credit card at an SPG resort will get you more points than using a different card), but again, even with bonuses, I don't get that many points!

  8. I need a bunch of credit cards in case of emergencies. I have an emergency fund that can be transferred anywhere at anytime. I can use my debit card. Not a valid point.

  9. My difficulty with money stems mostly from large purchases over $1000. Large purchases don't help, but I had over 400 transactions on credit cards in 2018. That's around $100 per purchase on average, with a median amount of about $60. The “small” cuts, in aggregate, hurt a lot.

Stupid. Stupid. Stupid. Stupid. Stupid. Stupid. Stupid. Stupid. 

My spending, and my method of spending, is keeping me from saving money and reaching my goals. It's stopping me from giving back. And, I'm fucking stressed out with all of these payoffs hanging over my head. 

Finding the incentives at play

It's easy to understand the assumptions that justified my spending and my credit cards, but simply changing my assumptions about spending isn't going to actually produce any change. I've changed my assumptions before without any affect. To turn this around, I need to understand the incentives at play in my mind and figure out a way to counteract them. For example:

  • If I want something, but I don't have to have the money to spend, it’s easy and painless to use a credit card. -> This is an incentive to spend more money than I have.

  • If I don't want to look at my checking balance to see if I can buy something, I know I can use my credit card with a high limit. -> This is an incentive to spend more money than I have.

  • If I want points, using my credit card on everything will earn me a lot over time. -> This is an incentive to spend more money.

  • Since I added my credit card on Amazon, Uber, Alaska Airlines, etc, its a frictionless experience to buy whatever I want. And, I don't have to know if I have the money or not! -> This is an incentive to spend more money.

How do I get out of credit card debt?

It's clear that a change is in the off... but what? I need a set of expectations, and then I need to set the right incentives to reach those expectations.

Spending Expectations

  • I will only spend money I have already earned

  • I will save at least $800 a month (increasing with inflation)

  • I will give back

  • I will be fair when splitting things with people

  • My default response to the question "Should I get this" will be no. Every purchase must be justified.

  • I will evaluate my spending every year, in the same way I have this year

You'll notice I didn't say "no credit cards". I don't think credit cards are inherently evil, or without their uses, but they certainly aren't working for me right now.  

Changes: How I am going to stop using credit cards and spending so much money

Let's start with the easy stuff. I have four credit cards, and I obviously don't need all of them to achieve my goals. Since the single vendor I spend the most money with is Alaska Airlines (much of it for work), I will keep my Alaska Visa Signature as my single credit card. This will also be useful when I spend $3-4k on business trips.

For the recurring charges I have on my credit cards, if I can I will have them deduct from my checking account directly. If not, I will switch them to my Alaska Visa. These are mostly small charges anyway, so I believe I will be able to be responsible with them. 

To reduce my tendency to spend with my credit cards, I need to make them harder to use. I need to add friction! I am taking ALL of my credit cards out of my wallet, and removing them from all of my apps and accounts. If I can't use my debit card for some reason... I will have to figure it out! Maybe I will start carrying a little cash for emergencies, but I'm generally not concerned. It's not embarrassing to have my card rejected nowadays - I know I am good for it.

I am also going to do something a little counterintuitive. I'm going to increase the amount of money I transfer to my checking account every week for "free" spending. Why? Well, obviously I am already spending so much more money than I have to spend that adding a little bit to my spending account will decrease my apprehension at "not having enough money" and will significantly reduce my incentive to use a credit card. If I know I have enough cash in my checking, I'll use it. 

I am also making a new budget that will automatically transfer my savings money into an account that is more difficult to reach, outside of Bank of America (where my credit card and checking account reside). I believe this will make it harder to pillage my savings like I have in the past. If I do use my credit card, I'll need to pay it off through my "spending money" over time. 

To make sure I set aside money for charity, I am giving it away now. What better way to start the new year? It's not enough, or even much, but it's something. 

Conclusion

I believe these changes will produce the right incentives (and reduce the negative incentives) for me to reach my goals. But there's so much more I need to do to succeed. Mentally, I need to increase my awareness of what things cost and what I'm buying. Already I found 3 subscriptions worth close to $1000 a year that I have cancelled. I also need to be frugal with my decisions, especially the small ones. A $50 purchase matters... especially if you make 4 of them in a day. Most of all, I need to try to be happy with what I have. It's the people and experiences that have made my life worth living... spending more won't change that.

Extra credit

Want to take a gander at what I spend all that money on? Check out the viz below. I would highly recommend visualizing your expenses if you are trying to reduce your spending like me. Some tidbits the viz showed me that the numbers didn't:

  • Christmas is rough! I spend a lot on eating and travel and stuff

  • Travel is my biggest line item by a long shot, and the biggest opportunity for me to save. I have 300,000 Alaska miles. Maybe this is my year of free travel?

  • Eating out... ouch.

How to prepare for a recession

How to prepare for a recession

Seattle vs San Francisco

Seattle vs San Francisco