Are you drowning in credit card debt? Do you feel that no matter how many payments you make, the credit card bill never reduces? If you haven’t fully understood how a credit card works, or you didn’t use it wisely, you might have put yourself in a very difficult situation. It’s a tough spot to be in and the vicious cycle can continue for years. But fret not! There are debt solutions that can help you climb out of the dark hole. The sooner you start making the change, the sooner you will be free.
Understanding how a credit card works
Credit cards are not all that complicated. You spend money on the card, and when the bill is generated, you get around 15 days to pay it. You pay the bill in full and the bank charges you zero interest.
If in case you are unable to make the whole payment, only then does the bank starts charging you interest on your balance as well as fresh purchases. In case you miss a payment, you will be charged a late penalty and some banks also increase the rate of interest.
Then comes the concept of “minimum due”. Banks require you to pay at least 5% of the bill by the due date to avoid a late penalty. But this 5% is such a meagre amount, it would take years to clear the significant bill.
How to get out of the debt trap
Any problem one faces in life first needs acceptance and then solutions! So accept your debt, sit yourself down and work out the math. It’s time to face the music.
- Write down all your debts, EMIs, credit card bills and any money you might owe people. Although the total estimate might be intimidating, it’s the first step that needs to be taken. Remember, there are solutions to coming out of it.
- Try to work out a budget on your own so that you can make regular payments that would reduce your bill.
- Don’t pay just the minimum due on your credit card. The minimum due is just 5% of the total bill. The interest accumulated in the next month will bring your bill back up to where you were last month. Instead, make larger payments to reduce the principal amount.
- At first, you might not be able to stop spending on your credit card to meet your requirements. To help with this, you need to write out all the things you spend money on. By looking at the list, you will be able to eliminate things that are not completely necessary and can be put on hold for a while.
- Negotiate with your bank about your financial situation and see if you can come up with ways to pay back your loan with less stress. Many times, banks offer balance conversions that allow you to pay back the total bill in installments at a fixed rate of interest.
- Take out a personal loan to clear your credit card bill. In this case, you need to do a little math to figure out if the interest on the loan would be lesser than the interest on the credit card. More often than not, it will be lesser as it is a fixed rate of interest. You can then pay back your debt in an organised manner. EMI calculators that are available online can help you determine how much interest would be payable in total.
- There are Debt Doctors that can provide you with guidance and solutions. The fee you pay will be worth it considering the amount of interest you will save.
- Last but not the least, find ways to release stress without spending (too much) money.
The dos and don’ts of credit cards
If you want to apply for a credit card or you already own one, here are some golden rules to keep you out of debt.
- Read the terms and conditions. It might seem boring, but it’s important to understand the terms to which you agree when you use your credit card.
- Spend only what you can pay back in full. When you pay your credit card bill in full, you do not incur any interest.
- It’s important to note that when you roll your credit over to the next month, every subsequent purchase made will also accumulate interest.
- Big items can be purchased through EMI schemes offered. EMIs help just about anyone purchase expensive items and pay for it in easy instalments.
- Don’t be tempted by the “minimum due”. If you cannot afford to pay the entire bill, pay as much as you can to minimise the interest charged.
- Don’t miss a payment. Late penalties can include fines along with a higher rate of interest.
- Make sure you do not spend more than 30% to 40% of your credit card limit.
- When you are trying to get out of debt, don’t buy things you can’t afford.
- Don’t give into buying things simply because they are on discount. Ask yourself if you really need it.
- Don’t use your credit card for retail therapy when you can’t afford it.
- Taking on multiple credit cards is not advisable. If you do, be sure to keep a track of your expenses.
Take time to understand your debt and how a credit card works. Getting out of debt requires a few sacrifices, but it’s not an impossible task.
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