A Series of Unfortunate Credit Card Events

Govinda in “Kyunki Main Jhooth Nahi Bolta” and Jim Carrey in “Liar Liar” had a really really hard time because they always lied. Things just went from bad to worse for them. Rajiv had a similar experience with credit cards, all because of his love for spending.

Rajiv was employed in a multinational company and earned well. He was married and had a 5 year old son. Rajiv had 7 credit cards, obtained over his 10 years of corporate life, with different credit limits and benefits.

Apart from his big salary, he enjoyed good annual bonuses. He could manage to pay his credit card bills on time despite spending close to credit limits almost all the time. His spending habits led to the credit card companies offering to increase his credit limit, and he always agreed. By his 35^th birthday, Rajiv enjoyed a total credit limit of Rs. 10 lakhs across his 7 cards.

But his golden years didn’t last too long and small follies snowballed into big debt. Let’s see how Rajiv ended up landing in court. For simplicity’s sake, Rajiv’s credit cards have been numbered from 1-7 with the following credit limits:

1. In a particular month, Rajiv spent excessively on three of his cards – cards 1, 3 and 4. While Rajiv settled the bill amounts on cards 1 and 3, he could not do so for card 4. A total of Rs. 60,000 was overdue on card 4, for which Rajiv had to pay an interest amount of Rs. 1864 in his next bill. The interest rate was charged at 3.15% per annum over an overdue period of 30 days. In addition, Rajiv had to pay Rs. 1000 as late payment fees and Rs. 401 as service tax on the penalty amount. He paid a total excess of Rs. 3265 charged as penalty.
2. The following month, Rajiv did not spend on card 4, and settled the total of Rs. 63,265 before the due date. However, his lavish expenses continued and he could not settle his dues on card 6. A total of Rs. 2 lakhs was overdue on this card and Rajiv had to again shell out a huge amount as interest and penalty charges. An amount of Rs. 5753 was charged as interest (interest charged at 3.5% per annum, overdue for 25 days), Rs. 1500 as late payment fee and Rs. 1015 as service tax, taking the total to Rs. 8268. However, when the bill was due the next month, Rajiv still could not make the payment and was charged interest on this penalty as well in the coming month’s cycle.
3. In the meantime, Rajiv had spent Rs. 1 lakh on Card-5 and Rs. 1.5 lakh on Card-7. On the due date, Rajiv sought to transfer these amounts to a new card before the respective due dates, thus getting him 2 months time to settle the dues. He was expecting his bonus and hoped to make all the overdue payments. However, due to a bad business year, his employer could not pay any bonus during that year, and as a result, Rajiv was severely crunched for cash.
4. He next thought of taking a loan to pay off these dues. When he approached his bank for a loan, the bank officials discovered that Rajiv’s credit rating had dropped substantially due to the non-payment of credit card dues. The credit report also showed the 2 balance transfers, and bank officials knew that this was done primarily to buy more time to make payments. Hence, his personal loan application was rejected. At the same time, the same bank which had issued Cards 1 and 3 to Rajiv froze the use of these cards, safeguarding itself against any future default.
5. So in a matter of 4-5 months, almost all of Rajiv’s cards were in trouble – cards 1 and 3 were frozen, card 4 was overdue and cards 5 and 7 were transferred to another bank. Although Rajiv could technically use cards 5 and 7, he chose to use cards 2 and 6 instead. Very soon, Rajiv was in a position that he could not pay the dues of these two cards as well. He thus thought of transferring the balance of these two cards to a new card to avail a longer credit period. However, when he approached the bank, he discovered that no bank was willing to take the balance of the old cards and issue a new card, as his credit rating had fallen further. As a result, Rajiv was left with a high debt on cards 2 and 6, on which he eventually defaulted as well.
6. A hefty home loan EMI as well as high non discretionary expenses in the form of expensive rent, school fees and domestic expenses did not leave Rajiv with much cash to pay the mounting credit card debts. As he had defaulted on huge amounts on almost all his cards, no bank was willing to offer him a new credit card as his credit health was severely affected. He was like a mouse in a maze of his own making, with no way out.
7. In the meanwhile, Rajiv and his family started getting calls from the banks, demanding repayment of the mounting credit card balances. Remember that it doesn’t take long for the outstanding amount to balloon into a huge debt, as interest is charged on interest as well as the outstanding principal every successive month. Two banks had even filed charges against Rajiv and they landed him in court.
8. Eventually, Rajiv had to sell his property and some of his wife’s gold to make good on all the credit card dues. He was also refused a credit card from any bank in the future and had to lose hard earned money.

Unlike Rajiv’s story, both the movies end on a good note, as usual. Govinda and Jim Carrey promise never to lie again. We’re pretty sure Rajiv has learnt his lesson too and we hope you don’t find yourself in a similar trap if unfortunate events.