Most of the urban household in India use credit cards. Credit cards come with host of benefits like ease of paying and rewards like cash back and points. But what happens if you fail to use your credit card properly. Many a time we get carried away while using credit cards, since we are not paying up hard cash, we might tend to overuse the credit available to us, and this might, in the end, lead to a huge credit card debt on which you a liable to pay huge interest.
Credit cards only benefit when are building a good credit history and receiving rewards — but not if you are paying interest. The moment you carry a balance beyond the due date, the cards only benefit issuers. If you find yourself stuck in a similar situation, don’t stress about debt — we shall help you out.
First, put all your credit cards. Put your best credit cards away be it shopping credit card or best travel credit card. If you can control your impulse, it is best to put them away, at least till the time you don’t repay your entire debt. Credit card usage and huge unpaid debt can hurt your credit score, which means in future your chances of getting a loan or finance may be hugely affected.
People who overspend and miss payments, hurt their score, but once they start keeping balances low and start making payments on time, the score increase over time. So your first step is putting all your cards away, and now you have to start strategizing of how can you repay your credit card debt. The two most popular methods include Debt Snowball and Debt Avalanche.
For these two methods, you would have to calculate how much debt you have. Also, calculate what APR is being charged by the card issuer. Note them down on a piece of paper and keep it handy.
TIP: Break up your debt in manageable portions that you could pay every month. By breaking down debt in small and manageable chunks, you’ll stay motivated and be on track or debt payment.
Popular ways of debt repayment:
Debt avalanche: People who are using debt avalanche method, will have to make minimum balance payment to all the credit cards and the extra remaining amount left 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, this method is not suitable for people who get easily demotivated as results take a longer time to show up.
Debt Snowball:
The debt snowball is the opposite of debt avalanche. Here you pay the minimum balance in all the accounts. However, the extra income goes to paying 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.
Whichever method you choose to stick to it, and you will get through it.
Now that you have cleared your debt don’t fall in trap overspending again:
Stay away from payment holidays: Many credit cards offer payment holidays, which means that you don’t need to pay your bill during this stipulated time. However, once the holiday is over, it becomes very difficult to pay back the entire amount at one time.
Stay away from EMIs: We tend to buy white goods and expensive items on EMI, but in this volatile job market, this might not be the wisest decision. EMIs can let you lose focus on the limit amount.
Don’t fall in traps: Sign up bonus, rewards of making some spending may lead you to overspend. It is best that you don’t fall into such traps.
Credit cards are a great financial tool if you use it wisely. A debt-free credit card can let you enjoy loads of benefits. So enjoy your best credit card by lowering your spending or maybe by increasing your income.