7 Simple Ways to Get Out of a Credit Card Debt Faster

January 20, 2022 Mutual Fund

Credit cards are a blessing for financial emergencies, and big purchases if used smartly. You can pay for anything with your credit card as they are a solution provider. With the plethora of credit cards offered by credit card issuers, people tend to hold more cards than what is required and use them recklessly, which makes them fall into a debt trap. This situation becomes impossible to come out of if you do not take necessary action before things worsen. If your credit card is adding up on your monthly bills and it is becoming challenging to pay your credit card bills in full, you need to take it as a warning sign and start working towards financial discipline.

There cannot be the same methods to be used to get out of your current credit card dues that you need to pay in the near future and long-term debts that you have created mainly by using the credit card EMI facility.

Here are 7 easy ways to quickly get out of a current credit card debt faster:

1. Prioritise Payments:

Whenever you are in a debt overhang, it is vital to prioritise your payments first. Assess your financial situation by listing all your dues, their due dates, Annual Percentage Rate (APR), and how much is available with you for the repayments. Individuals generally prioritise their repayments by sorting them with due dates. However, if the debt that has the nearest due date comes with a lower APR, it is not wise to pay it first. Therefore, it is advisable to first sort the debts with APR and pay the debt with the highest APR. This will ensure you pay the lowest possible interest. However, if most of your debts range in a similar APR, it is a good idea to sort them with the balance due and pay the least balance first.

2. Balance Transfer:

If you are caught up in a huge credit card debt that needs to be paid in the current billing cycle, using the balance transfer facility is advisable. If you have another credit card that offers this facility, transferring the due balance from one or more cards is a good option. The balance transfer card will provide you with an extra 45 to 90 days to clear your transferred dues, depending on the terms and conditions of the credit card issuer and your billing cycle. So, you get some more time to manage your finances and repay the dues. However, if you are unable to make the repayment even during this interest-free period, the credit card issuer will charge you with regular APR.

3. Convert Payment into EMIs:

Credit cards offer the benefit of converting your big purchases and monthly credit card bills into affordable EMIs. Suppose, you have purchased a smartphone worth Rs 50,000 or made multiple small purchases with a total of Rs 50,000 via your credit card. In that case, you can convert these purchases into EMIs, and instead of paying the entire Rs 50,000 at once, choose to pay it into affordable monthly instalments for up to 24 months. However, before availing of this facility, it is advisable to check the APR of your credit card. The credit card issuers generally charge interest from 12% p.a. to 36% p.a. for EMIs. Besides, there is a processing fee of up to 1% to 3% of the total outstanding amount.

4. Take a Loan:

Taking a personal loan to pay off your credit card dues/debts is not advisable unless it is the only option left, as it can make you fall into more debt. You should consider taking a personal loan if the interest on your credit card is considerably higher than that of a personal loan. However, you should opt for only the required amount and avoid the temptation to borrow the maximum amount. Moreover, it is crucial to pay your loan EMIs regularly, as not doing so can negatively impact your credit score. If you have any property or investment in securities, you can consider availing of a secured loan like Loan Against Property or Loan Against Securities. But, if your investments are not generating expected returns, you should consider liquidating them instead of availing of a loan against them.

5. Get Help from Friends and Family:

Borrowing money from friends and family is a great way to get money instantly. The major benefit of it is that you get the money instantly without having to pay high interest on it. Although you can repay it with flexible options, it is advisable to repay the borrowed money from your closed ones before the promised repayment date. Doing so will help in keeping the relationship healthy. However, if your family members or friends are unable to help you at this moment, it is equally necessary not to take it personally and let it damage your relationship.

6. Try to Negotiate With Your Credit Card Issuer:

If you are unable to do the repayment due to job loss or medical emergency or any other genuine reason, then it makes sense to talk to your credit card issuer and explain the situation. If you have good records with the bank, then it is possible that they will consider your request and might offer some relaxation in the interest rate.

7. Pay as Much as You Can:

When nothing works out, and borrowers are unable to arrange for the required funds to repay their credit card dues, they usually miss the entire repayment. However, it will create a mountain of debt with its high APR. Therefore, it is advisable to pay the maximum amount possible, instead of not paying at all or paying only the minimum amount required. This will ensure your next credit card bill will not be a burden as you have already paid the maximum amount.

Here are 7 simple steps to get out of a long-term credit card debt and to avoid credit card debts in the future:

1. Create an Achievable Budget:

It is important to create a budget and set realistic financial goals, especially when you have huge debts to clear. This is the first step to financial discipline that will help you come out debt-free faster. It is necessary to understand your spending pattern in order to set achievable goals. You should control your extravagant expenses and set limits to your credit card spendings. Although it will be challenging to make lifestyle changes initially, in the end, it is worth coming out debt-free. However, if you are unable to control your spendings, you can decrease your credit card spending limit through internet banking or logging into your online credit card account. This way, any spendings above the set limit will be automatically declined. Apart from trimming your expenses, increasing your earnings by doing a side-hassle will help you repay your dues faster.

2. Always Pay in Full:

Many people fall into a trap and pay only the ‘minimum amount due’ of credit card bills. When you pay only the minimum amount, the credit card issuer does not consider it default but charges high interest on the unpaid amount, creating more debt in the next billing cycle. Therefore, it is advisable to always pay the credit card bills in full. However, if it is not possible for you to repay the full amount, you should pay the maximum amount you can, instead of paying the minimum amount due. This will ensure you pay the least possible interest.

3. Get a Credit Card with a Low APR:

With a plethora of credit cards available, choosing the right card for you can be a daunting task. When choosing a card, people usually focus on the credit card features, benefits, reward points, etc. But, if you do not have control over your spendings or you already own a credit card with high APR and frequently struggle to pay your monthly bills, you should opt for a credit card with low APR, which will help you to pay lower interest in case you are unable to make the repayments in full.

4. Opt for Auto-Pay Facility:

If you activate the auto-payment facility on your credit card, your bills will be automatically paid on the due date from your registered bank account. An auto-payment facility ensures you do not miss any credit card payments, thus saving you from the negative impacts of late payments. You can activate this facility by logging into your internet banking or online credit card account. It lets you set an Auto-Pay for the full amount due or the minimum amount due. Ideally, you should set an Auto-Pay for the full amount due.

5. Take Professional Help:

If the debt is huge and nothing seems working, it is advisable to take the help of the financial experts or consultants who will guide you to come out of the debt trap as soon as possible. If you cannot afford a financial consultant, take the help of the experts from the bank. Many people hesitate to seek professional help to take debt management advice, thinking that the consultant will judge them for their debt trap. In reality, they are like doctors who are keen on solving your issues without any judgements if you provide them with the correct information, without hiding anything.

6. Work on Your Financial Discipline:

Although people do not like to hear that they are not financially disciplined, if you are spending a major part of your earnings on luxuries or things that can easily be postponed and struggling to pay your monthly credit card bills, you need to work on your financial habits. As discussed earlier, having control over your spending urge is the key to financial discipline. If it is too hard for you, cut down your credit cards (literally!).

7. Set a Strategy for Repayment:

To clear off your debt, you should first understand the different methods to manage your debt and choose a suitable method for repayment. Consider consolidating all your debts (including credit card dues) under one roof, as it will be easy for you to manage all the debts, and you will not miss any EMIs. Moreover, you might get offered a lower interest rate for debt consolidation, which will help you save some amount on interest. Taking a ‘personal loan for debt consolidation’ or a secured loan like ‘loan against property’ or ‘home refinancing’ to pay your dues makes sense when you have multiple dues of small amounts that you are struggling to repay. A debt consolidation loan helps you manage your dues better by combining them together with a single EMI to pay at a comparatively lower rate of interest. It also offers a longer loan tenure to reduce the monthly EMI expense. However, it is advisable to repay the debt consolidation loan as early as possible to save on the interest amount. Also, the rate of interest of a ‘personal loan for debt consolidation’ is much higher than the secured loans. You should consider this option only if you are on the verge of falling into a debt trap and need to manage your dues better. Otherwise, if you do debt consolidation for a small amount of loans that do not offer much cost-benefit, you might end up paying more than what you were paying earlier.

There are different methods to repay your credit card debts you can choose from:

• The Avalanche Method: Under this method, you pay only the required amount on all your credit card bills and pay as much as you can on a credit card with the highest APR, and this will ensure you pay the least possible interest in case of delayed payments.

• The Snowball Method: Under this method, you pay only the required amount on all your credit card bills and pay the maximum amount on a credit card with the lowest debt. This will ensure you clear off your debts faster.

• The Blizzard Method: This method is a combination of the Avalanche method and Snowball method. This combines paying off the smallest debt first and then paying off the highest interest credit card due.

To Conclude:

These are some simple ways that can help you get out of your credit card debt faster. Not all of these ways will benefit you, but you should understand them and choose and implement those suitable to you. Remember that your financial goals should be achieved with your savings, not by recklessly borrowing money that leads to a debt trap.

This article first appeared on PersonalFN here