How to get out of credit-card debt trap?

Business

15 Mar 2019

#FinancialBytes: Ways to get out of credit card debt trap

Credit cards have become an essential part of our lives today and are one of the widely-used payment methods for cashless transactions.

However, it is essential to use credit cards wisely; spending carelessly might push cardholders into a debt trap. If not handled well, credit cards can become a huge burden.

Here are a few ways to get out of credit card debt trap.

#1

Avoid defaulting on credit card bill payments

Avoid defaulting on credit card bill payments

To come out of the credit card debt trap, one must first avoid defaulting on credit card bill payments and pay before the due date.

One must not use credit cards for cash withdrawals as it attracts high-interest rates and fees.

They should avoid revolving debt or transferring outstanding balance to other cards as it only postpones the problem instead of solving it.

#2

Do not maintain too many credit cards

Credit cards are useful but having too many of them can be risky. Having more cards also means more expenditure and higher debt.

Maintaining too many cards could be a hassle and if not managed well, it affects the cardholder's credit score.

One could fall deeper into debt when they have multiple credit cards and miss out on the monthly payment for these cards.

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#3: Limit your credit card limit utilization

An effective solution to come out of the credit card debt trap is to limit or gradually decrease their credit card limit utilization to 30-50%. High usage of credit limit results in a high credit utilization ratio, which is also bad for the credit score.

#4

Pay more than the minimum due amount every month

Pay more than the minimum due amount every month

One must avoid paying only the minimum due amount every month. Paying the minimum due amount does not really decrease cardholders' debt or outstanding credit balance. Banks would continue to charge high interest on the entire outstanding amount.

So, instead of paying the minimum, one must clear as much of the outstanding amount as possible to get out of the credit card debt trap.

#5: Cut down on unnecessary expenditure

Some cardholders, especially those with bad spending habits, get into financial trouble with credit cards. They tend to spend more using credit cards than they usually would while paying with cash. Cutting down on unnecessary expenditure, which results in lower EMI, is another effective solution.

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Most asked questions

How can I save money using credit card?

What are some credit card options for someone with no income?

Why is high usage of credit limit bad?

What are some credit card mistakes to avoid?

More questions

How can I save money using credit card?

Asked 2019-03-15 21:56:48 by Saanvi Nair

Answered by NewsBytes

Credit cards can help you save money and earn rewards. Here's how: Avail discounts, deals, and cashback offers to save money using credit cards. Save on fuel purchases through fuel surcharge waivers or reward points. Avail travel offers, restaurant deals, and free movie tickets. Earn reward points for transactions and redeem them. Avail No-cost EMI and flexible EMI offers.

What are some credit card options for someone with no income?

Asked 2019-03-15 21:56:48 by Aanya Tambe

Answered by NewsBytes

In India, some banks issue credit cards to people with no income, even students, against fixed deposits and strong savings accounts. Some options include: Axis Bank Insta Easy Credit Card, SBI Card Unnati, ICICI Bank Instant Platinum Credit Card, and Kotak Mahindra Bank's Aqua Gold Credit Card.

Why is high usage of credit limit bad?

Asked 2019-03-15 21:56:48 by Rakesh Balasubramanium

Answered by NewsBytes

High usage of credit card limit results in high credit utilization ratio, which is bad for the cardholder's credit score. Credit utilization ratio is the percentage of the total available credit currently being used. Credit reporting agencies use this ratio while calculating an individual's credit score. Higher credit utilization ratio indicates the borrower's credit hungry behavior, which impacts the credit score.

What are some credit card mistakes to avoid?

Asked 2019-03-15 21:56:48 by Saanvi Patel

Answered by NewsBytes

If not used wisely, credit cards can be a huge burden. Here are some mistakes to avoid: Having too many credit cards; they increase expenditure. Paying only minimum due amount instead of focusing on clearing the outstanding balance. Defaulting on bill payment and high credit utilization. Withdrawing cash using credit card; it attracts very high interest. Ignoring monthly statement and blindly pay the bill.

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