06 Jun 2019

#FinancialBytes: How to clear credit-card debt and avoid 'debt trap'?

Business

Written by

Ramya Patelkhana

Credit cards have become one of the widely-used cashless payment methods because of the convenience they offer.

Credit cards are a powerful financial tool that offers a ton of benefits if used responsibly. However, if not handled well, credit cards can also push cardholders into a debt trap.

Here are some ways to pay off credit card debt and avoid the debt trap.

#1

Transfer the dues from one credit card to another

Those having high credit card debt can transfer their dues from one card to another through the balance transfer facility.

Some banks or credit card companies might charge very high interest rates or fees/penalties compared to others. Going for balance transfer facility is a good option for customers in such cases. However, this feature may not be offered by all banks or card issuers.

#2

Try to get the outstanding balance converted into EMIs

Credit card holders who have a very high outstanding balance and are unable to repay can try to get the dues converted into EMIs.

They can approach the concerned bank and request for converting their outstanding amount into EMIs. However, the bank may charge a monthly interest, processing fee, and other charges for providing the EMI facility.

#3

Always try to pay more than the minimum amount due

Cardholders should also avoid paying only the minimum due amount every month. Paying just the minimum due amount doesn't really decrease their debt or outstanding credit balance.

Banks would continue to charge high interest on the entire outstanding amount. So, instead of paying the minimum due, one must clear as much of the outstanding amount as possible to manage their credit card debt effectively.

#4

Avoid too many credit cards, decrease credit limit utilization

Credit cards are useful but having too many of these can be risky as it means more expenditure and higher debt.

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

Individuals should also limit/decrease their credit limit utilization as high usage results in high credit utilization ratio, which is also bad for credit score.

Information

#5: Avoid defaulting on credit card bill payments

To avoid unnecessary additional charges and manage debt properly, cardholders must avoid defaulting on credit card bill payments and pay before the due date. Also, one must not use credit cards for cash withdrawals as it attracts high interest rates and fees.

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Trisha Rao

Asked on 6 June, 2019

What are some credit card mistakes to avoid?

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.

Devansh Kapoor

Asked on 6 June, 2019

How can I save money using credit card?

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.

Shreya Das

Asked on 6 June, 2019

What is high credit utilization ratio? Why is it bad?

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.

Arjun Kapoor

Asked on 6 June, 2019

What points should I consider before taking credit card?

Answered by

NewsBytes

Here are some factors to consider or things to analyze before taking credit cards: Analyze your shopping habits to find a suitable credit card. Know about the interest rate charged on the credit card. Which type of credit card is better for your - secured or unsecured. Credit limit offered to you by the bank. Calculation method for minimum amount for credit card transactions.

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