The use of credit card
has increased drastically. If you ask people from older generations about their
credit card usage; you will realize that they probably didn't even own a credit
card, or even if they did, then used it only for emergencies. But that was then
- in the past. Among the many customs and trends that have undergone a change
over the last few years in the country, credit card usage probably ranks very
high. Swayed by the consumerism in the country, many individuals own multiple
credit cards and swipe them rampantly. The urge of owning things on credit and
enjoying a lavish life style, has got many under a credit card debt. As soon as the minimum amount or a part of the
amount is defrayed, users get exposed to a stupendously high interest rate.
People don't realize when their "little" purchases become too many,
and get them into a debt.
So coming to the rescue of such individuals, we have mentioned some points
which can enable you to reduce your credit card debt wisely-
1.
Assess all your dues: The first step towards elimination of your credit card debt is to
evaluate all your obligations. Hence you must make note of all the credit cards
you own, analyze your online accounts and paper bills and the interest rates
applicable on each card etc. This will help you to determine the total amount
you owe and the cards that bear the highest rate of interest. Once you have
obtained this figure, you must start paying off all the high rate dues with low
interest loans. This will help you save money on interest payments. Create a
plan to repay your dues and classify the ones you will need to clear first.
This will give you a clear picture of your future course of action.
2.
Renegotiate interest rates: You can try to reduce the interest rate you are paying on your
credit card by interacting with each credit card company. Even if you manage to
reduce the rate by a small percentage, it can help you save a huge amount on
interest payments. The companies may or may not renegotiate interest rates, but
you must ask them as there is no harm in trying.
3.
Create a budget to pay off credit card dues: Track all your monthly inflows and outflows. If
your outflows leave you with very little to save and repay your credit card
dues, then it is high time you started monitoring your spending habits.
Establish a monthly budget for all your expenses and be determined to follow
it. Curtail all the unnecessary expenditures and save wherever you can. This
might mean reducing all the outings and even rationalizing on the necessities
such as electricity and telephone bills etc. It goes without saying; don't add
on to your debt by shopping more on credit cards etc. Having extra credit can
sometimes create a feeling of having access to large sums of money and can lead
us to buy things that we really can't afford. Keep track of every small
expense, as it is these small expenses that often amount to big bills. In order
to boost your monthly inflows and pay off your credit card dues faster, you may
also consider finding an additional source of income. This could be done by
working part time or encouraging your spouse to find a job or a source of
income. Moreover, any windfall gains such as lottery winnings, lawsuit
judgments, large inheritances, divorce settlements etc. must be deployed
towards reducing your dues.
4.
Implement your strategy: Once you have determined a method to budget your expenses and pay
off your dues, you must start implementing the same. Do not delay or
procrastinate these payments as the debt amount keeps increasing. It is also
prudent to keep a track of your progress. You must revisit your finances in a
disciplined manner to ensure that you have not deviated from the planned course
of action.
By adopting the above mentioned
steps you can get rid of sleepless nights and live a stress-free life.
For those who don't own a credit card as yet but are thinking of gaining
possession of one, remember that rather than making fences later it is prudent
to be cautious right from the beginning. Keep the following points in mind
before using a credit card:
·
Terms and conditions: Read all the terms and conditions carefully before you opt for a
credit card. If you find anything in the terms and conditions of the credit
card that was not conveyed to you or is contrary to what was conveyed to you,
then seek a clarification from the bank. If you are not satisfied with the
clarification, cancel the card.
·
Annual Fees: It is important to be
aware of the amount of annual fees that the company is going to charge you each
year. Some companies also issue 'life time free cards' i.e. no annual fees are
charged. However, its best to double-check with the company what the executive
has promised you about all annual fees being waived off.
·
Minimum payment due: This is the minimum amount that you must pay for the purchases
done in that month so as to not attract a penalty for default on payment of
card dues. We would recommend that you pay the entire sum as carrying forward
your payment to the next monthly cycle; will lead to a higher amount due on
account of high interest rates plus taxes levied on the credit card.
·
Payment by EMI: On the same lines, whenever you make a large purchase (usually
over Rs 10,000, although the amount varies across banks) you may get an offer
from the bank to opt for the EMI facility to make the
payment. Again pay the EMI amount in the credit card bill in full, along with
the other things you've shopped for or paid for. So to simply put, pay your
credit card bill in totality before the due date in one go. Also ideally, give
the EMI facility a miss as the interest on the EMI can be exorbitant.
·
Borrowing cash is expensive: Credit cards can be used for making purchases on credit as also
for borrowing cash. While making purchases on your credit card (so long as you
pay on time) is okay, borrowing cash on your credit card is a very expensive
affair and hence must be avoided.
·
Insurance benefit: Many credit cards are known to offer an insurance cover. We
recommend that you ignore this benefit and go for the core offering - credit
card. This insurance cover is unlikely to be sufficient for you and more often
than not is linked with quite many terms and conditions and may be difficult to
claim.