Credit Cards are not a new term for any of us. We already know a lot about the credit card. In brief, I can say, It is that ‘debt instrument which is easy to get but hard to pay’. Let me ask one question, Do you remember when you got your first credit card? We were safe until we got our first credit card. Once we have the experience of using our first credit card and we successfully enjoy the interest-free credit limit then we all try to explore other companies’ product features. Due to this, every year we were approached by new companies and kept getting new cards. After 5 years down the line, your wallet gets filled with 5-6 plastic money. Some of us feel pride that we have 5 or 7 credit cards but what is the actual result of having 5-6 credit cards?
The result is ‘multiple credit card will increase your spending power’ and we all used to spend more and more in our day to day life and start purchasing those things which are least important in the betterment of our lives. Then the vicious circle started and we kept taking new cards either to clear the debt of the old card or for more shopping. So in this article, we see the major reasons for leading to credit card loans and the best ways to overcome your credit card loans.
credit cards are a fact of 21st-century life, and it only makes sense to understand how to use them wisely. Credit cards may be considered a boon if to be used wisely else will definitely prove to be a curse and leave you with all-time high credit card loans.
- Major reasons leading to credit card loans
- How to deal with credit card loans
Major reasons leading to credit card loans
Having multiple cards in your wallet gives an extra boost to your spending. And you tend to spend more on those items which are on your least priority list.
Lack of knowledge
If you do not have complete knowledge of your credit card, it also leads to credit card debt. You should be aware of the major facts about your credit card like its due date, grace period, interest rates, late payment fees, etc. keeping these points in mind before shopping will help you to effectively manage your debt.
High Rate of Interest
Credit Card is a kind of personal loan that has an interest rate of 36%-40% per annum. If you do not make the payment on the due date then lender charges interest from the date of the transaction which will further add to your outstanding amount. The high rate of interest charged by credit card companies is a major reason for the increase in credit card loans.
The boom in online shopping is further fueling the use of credit cards. All the major online companies accept credit card payments. And lucrative deals can lead to more spending on your credit card.
Cash Withdrawal Facility
Cash withdrawals from credit cards do not offer any credit-free period and start charging a high rate of interest from the date of transactions.
How to deal with credit card loans
Gain Information and Analysis of Monthly Bill
The most important factor in reducing your credit card debt is that you should have complete knowledge about your credit card. You should be aware of your due date, minimum amount due, interest rates, and bill generation date. You should analyze your monthly statement and check the nature of transactions done in the last month. This helps in analyzing your spending behavior. Check if transactions in your credit card statement are true and accurate and there is no doubling of transactions due to any system error.
Once you start analyzing your monthly bill statement, then you come to know about your high-value transactions. The credit card company gives you the option to convert your high-value transaction into EMI. Or you can directly talk to your credit card company to convert your total outstanding amount into EMI. Then your monthly bill will only charge the EMI amount instead of charging the full transaction amount. The credit card company will charge a conversion fee for converting your amount to EMI. Also, you can convert your high-value transactions into EMI mode, this will enhance your liquidity and you can easily pay off your dues.
Interest-Free Credit Period
Do you know your credit card bill generation date? If you don’t know, please ask your credit card company. Try to make high-value transactions after your ‘bill generation date’ in this way your transaction will count in your next bill cycle.
For example, if your bill generation date is the 15th of every month and your due date is the 30th of every month. Suppose you have made a purchase of one home appliance of Rs 20,000/- on the 14th of June then this transaction will be added to your current monthly bill and become due for payment on the 30th of June. In this case, you will not get the 45 days of interest-free credit period for this transaction. However, if you do make the same transaction on the 16th of June then this amount Rs 20,000/- will be due for payment on the 30th of July and you will fully enjoy the 45 day interest-free credit period.
Auto Debit Facility
Try to opt-in for the auto-debit facility for payment of credit card dues. In this option, a standing instruction is given to the credit card company for an automatic deduction of the credit card due amount from your savings account on the due date. With this option, you will never miss your credit card payment. One more tip is that you should change your credit card due date and keep it to be the next day of your salary credit date. This will help in paying your dues on time as soon as you get the salary.
Pay High-Interest Loan First
If you have the outstanding amount with 2 or 3 credit cards, then you should clear your bill for that credit card with a high outstanding amount. because if you missed the payment of credit card with a high outstanding amount, then the credit card company will charge interest from the date of the transaction which will continue adding up to your bill. By analyzing the credit card information, you should pay off your credit card which has a high-interest outflow.
Minimum Amount Due
Your credit card statement reflects two types of amounts: 1) minimum amount due and 2) total amount due. I suggest that your first priority is to clear your total outstanding amount but if you do not have that much amount then in any case you should clear your minimum amount due or any amount greater than the minimum amount due (as much as you can). In this case, your CIBIL will not be adversely affected.
Cancel Unused Credit Card
I always say that having multiple credit cards in your wallet gives an extra boost to your spending. And you tend to spend more on those items which are on your least priority list. So make a list of unused credit cards and get them canceled. This will put a check over your extra spending power and save you from getting into more debt.
If you have overdue amounts in various credit cards then you should try to consolidate all your debts. you can take out one personal loan for the total amount and pay off all your credit cards. In this way, you will consolidate all your credit card debt into one loan with one EMI which will help in better managing your finances.
Balance Transfer Facility
This option is also part of loan consolidation but I give the least preference to this option. The balance transfer option is the option in which one credit card is used to pay off the outstanding amount of your other credit card by giving some balance transfer fees. This option is a short-term solution that gives you an extra repayment period only.