It is extremely easy to spend when there is no immediate cash outgo, but a promise to pay back later. Even the best Credit cards have played well on this sentiment as they often entice people to make the purchase which they can’t afford immediately. Many people accuse that credit card issuers set high credit limits so that the users are encouraged to spend more. Many users, especially first-time credit card users, often tend to max-out their credit card limit and when they are not able to repay till the due date, they enter the vicious circle of credit card debt. This debt increases exponentially which each passing month as issuers apply a high rate of interest on them.
Many credit cards also allow balance transfer facilities, but this in most of the cases only worsen the problem as your debt is shifted from one credit card to another. Over a long period, this can cause your serious financial trouble. So what should you do? First, make a strategy to get out of credit card debt as soon as possible.
Debt Snowball:
Here you pay the minimum balance in all the debt accounts. However, the extra money goes to pay the debt in credit card with the lowest balance. This way, you will get a faster win, but you will pay the much higher debt.
Debt avalanche: It is the opposite of Debt Snowball. People who are using debt avalanche method, will have to make minimum balance payment to all the credit cards and the extra money shall be put in the card which is charging the highest interest rate, this will continue until the cards debt is completely paid off. Post this; you shall move on the card which has the next highest interest rate. This method is hugely beneficial as you tend to save a lot on many on interest rates as you are paying off the card with the highest interest rate first.
However, most of the people find these two ways extremely unrealistic; if you too want a quicker solution, then we advise you to take a personal loan. However, take a personal loan only if you are in a position repay it. Otherwise, you are just going to make things messier.
Take a personal loan:
Lower Interest Expenses – Credit cards charge anything between 2.5% to 4% per month as interest on dues. Any payment made is first adjusted towards the interest component and other charges. Shifting credit card debt to a personal loan allows you to replace your high-cost loan to a lower cost loan. Banks usually charge interest in the realm of 12-15% per annum, which means personal loans cost only around 1% – 1.25% per month. This means that your interest costs will become lower, that will help you accelerate the debt repayment process.
Better Debt Management – As you transfer your credit card debt to a personal loan, you show your intention to reduce your costs and repay your debts as soon as possible. This depicts you as a credit-responsible person. You furthermore save on monthly finance charges that are levied by credit cards issuers besides the interest when you proceed to avail credit from them. Moreover, by fixing EMIs, you also get an opportunity to pay off your debt in a systematic manner.
Favorable impact on CIBIL scores – Although the alteration of credit card debt to a personal loan itself will not affect your credit score, as it will be considered as transferring debt from one pocket into another. Nevertheless, when you would systematically repay your debt credit history and credit score would rise steadily.
Debt Consolidation Many people also choose to take a personal loan as they are unable to handle the varied due dates in credit cards. Taking a personal loan will consolidate your debt and bring it under a single basket.
Although taking a personal loan make sense; however, you should be careful about the tenure of the loan, and the EMIs should be manageable. Otherwise, all this could adversely impact your credit score.
Credit card is a great financial tool but only benefits us till the time we use it wisely. http://pointsbycard.com/ is a credit card intelligence provider that will help you to use your best credit card optimally.