If handled in a smart way, a credit card can be the most useful financial tool but it can prove to be a source of multiple financial worries if used ruthlessly. One needs to understand that paying off credit card debts on time is very important as any failure or delay in paying the debts would cost you even more than you owe because the interest portion and late payment charges will also be included in the debt already accumulated. Carrying on this routine for a long time will put you in a debt trap and make it very difficult for you to come out of this trap.
Staying in such a situation for a long time will affect your credit score in a negative way. The credit score is the most important tool that allows financial institutions to analyze your credibility before providing you with any further loan. But on the other hand, staying in debt for long leaves you in the worst mental state which increases your stress levels, keeps you sleep-deprived, etc which affects not only your mental health but other aspects of your life as well.
Important Tips To Handle Credit Card Debt
Most importantly, you have to take care that you should not initiate any such step which in turn lands you in a debt trap. Habits such as overspending, no repayments, or just minimum payments, etc can put you in this trap. Hence, in this article, we will discuss a few points through which you will be able to a good amount of knowledge that how should you handle your credit card debt in such a way that you do not end up being in a trap.
Jot down all your debts in a single place
This might seem silly but it is important. By writing down all that you owe, you can have a clear picture of how much you have to repay to the card issuers. Because if you are a multiple credit cardholder, there might be a possibility that you might unintentionally skip the repayment of one of the multiple cards. Hence, jotting down all the amount due and also the due dates of each card will help you in managing your debt.
Plan and Strategise
Now you have to plan your repayment strategy. This requires you to analyze all the options available for repayment and then choose one that best suits you.
- The credit card bill can be converted into regular monthly installments which generally are provided at a low-interest rate.
- The other option is that you can apply for a personal loan. You can repay the credit card bill with the amount of personal loan disbursed in your account and then you can pay EMI for personal loan repayment. This is because a personal loan is granted at a lower interest rate as compared to the interest rate on credit card debt.
- There are 2 ways to repay your debt – either pay the bills from lower to higher amounts first or pay higher interest rates bill first. Paying through the first way will give you psychological satisfaction that your bill amount is reduced. But the second method will prove to be cheaper as high interest-bearing debts are paid off first.
Income and Expenses
Another point to be considered while debt repayment is that you should have a clear knowledge of your monthly income and expenses which includes house rent, monthly grocery, other EMI’s, and many other things. You should manage all your expenses in such a way that you are able to pay the credit card bill as well.
Just because you have a high limit bearing credit card does not mean that you will start spending blindly. You should spend on your credit card only when it is necessary. You should always be aware of the fact that in the end, it is only you who has to pay off your credit card bill.
Pay more than the minimum due amount
If you are of the notion that just by paying the minimum amount every month towards the credit card bill, you will be in a safe zone, you are wrong. Technically you should be paying the whole of the amount due towards the credit card but if you are not able to pay the full amount, you should pay something that falls around the full amount or is more than the minimum amount. This is because the interest rate on these credit cards is quite high and not paying the debt on time would leave you in unwanted circumstances.
Use Balance Transfer facility
You can always transfer the balance of the credit card of one bank to the credit card of the other bank which bears a low-interest rate. By doing this, all your credit card bills will be consolidated into one card and you will be repaying them at a much lower interest rate.
Also read: 4 Steps to Pay Off Credit Card Debt
Managing credit card debt takes proper planning and time but the good thing is that once you streamline this you can save a lot on your interest expenses. Also, you always will have to follow a structured plan to remain out of debt because it is easy to get into debt but handling it responsibly and getting out of it is quite a tough task. That is why you should always take care not to spend over and above your financial limits. Adding to this, you should always have a strategy in mind as to how will you repay your credit card debt. A balance transfer is a great facility offered by the banks these days that can help you in aligning your debt in an effective way. Staying out of debt will help you lead a stress-free life and you will be more aligned with your ambitions in life.