Overspent on The Credit Card During Diwali Sale? Here’s How You Can Reduce Your Debt…

November 8, 2021 Mutual Fund

Diwali is not just a festival, but a special occasion that brings new hopes and beginnings. This year, Diwali sale has broken all the past records as India celebrated Diwali after a long lockdown and restrictions. People had new expectations, hopes and were very excited and enthusiastic. The festive season had arrived with ‘do not miss’ discounts and lucrative offers that were tempting enough to buy things that could be difficult to afford otherwise. Many of us waited for the festive season to time our big purchases to get the maximum discounts and loan options from the bank, Non-Banking Financial Companies (NBFCs), and credit card offers. However, it is possible that many of us went out of budget to get the benefit of the limited period discounts and offers and overspent on our credit cards. This article will elucidate how you can reduce your debt burden.

Impulsive spendings through credit cards can push you into a debt trap. To avoid falling into a debt trap, it is necessary to be financially disciplined and control your credit spendings. However, if you have shopped more than your repayment capacity during this Diwali sale then here are few tips to reduce your financial burden.

1. Redeem Your Reward Points:

Most credit cards offer reward points or cash-back points on all the purchases made through them. If you are using your credit card for quite a long time, you must have accumulated some reward points on it. Instead of using them to shop further, you can convert them into cash and it will reflect a credit entry of the same amount in your next credit card bill. This way you will be able to lower some portion of your dues. However, if you recently started using the card, you might have to wait for a month or two to redeem your reward points, depending on the terms and conditions of your credit card.

2. Convert Purchases into EMIs:

The biggest advantage of having a credit card is its flexible repayment options. You can convert a particular high-value transaction or an entire bill amount into EMIs. So, instead of paying the huge amount at once, credit card EMIs let you pay it over a period in small instalments. If you do not afford to pay the entire amount at once, converting your high value transactions into EMIs can be a convenient way to repay. However, you should know that the rate of interest charged on credit card EMIs is very high. It can range anywhere from 12% p.a. to 30% p.a., depending on the credit card terms and conditions. Furthermore, there would be a small processing fee, whereas delayed payment of EMIs or defaulting the repayment will attract high late payment fees. It can also negatively impact your credit score.

3. Balance Transfer:

If you are using multiple credit cards then the balance transfer feature can help you delay the repayment by a few more days. You can transfer your credit card dues to another credit card that has a balance transfer facility. You can either repay the entire transferred balance in full before the due date or convert it into EMIs. If you have to convert your purchases into credit card EMIs, in that case you should compare the rate of interest and processing fee of all the credit cards you hold and then do a balance transfer to take advantage of the EMI option at the best rate. It is advisable to repay as much as you can before transferring the balance as it will lower your future financial burden. For instance, if you have shopped for Rs 1,00,000 and in a position to pay only the minimum amount before the due date, which is Rs 40,000 then it is advisable to pay Rs 40,000 and transfer the remaining amount of Rs 60,000 to another card. Now, you can pay the transferred amount with your next month’s income. But, if it is not manageable, you can convert it into EMIs.

4. Debt Consolidation:

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. It can also be helpful for those who do not hold multiple credit cards or if their credit card does not provide the facility of a balance transfer. A debt consolidation loan helps you to 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, to save on the interest amount, it is advisable to repay the debt consolidation loan as early as possible. Also, the rate of interest of a ‘personal loan for debt consolidation’ is much higher than secured loans. You should consider this option only if you are on a verge of falling into a debt trap or are already in a debt trap and need to manage your dues better. Otherwise, if you do debt consolidation for a small amount of loans that are not offering much cost-benefit, you might end up paying more than what you were paying earlier.

5. Investments or Loan Against Investments:

If you have sufficient savings that give average returns, you can consider liquidating them to pay your debts. However, if your investments are giving higher returns and you do not want to interrupt them, then you should consider availing of a loan against investments. Loan against investments include loan against shares, loan against mutual funds, loan against fixed deposits, loan against a life insurance policy, etc. Since these loans are backed by your investments, the rate of interest is relatively lower when compared to unsecured loans. However, you need to keep in mind that the lender holds the right to liquidate your investments if you consistently delay the EMIs or fail to repay the loan.

6. Emergency Funds:

Financial experts generally do not advise using your emergency funds to repay your credit card dues. However, if you have a sufficient amount lying in your emergency funds that you might not require immediately, you can use a small portion of it to repay your debts. You need to ensure that you will be able to redeposit the funds in your emergency funds at the earliest. If you think there is a possibility that you might require these funds in a near future or you might not be able to redeposit the used emergency funds immediately, it might not be a good idea to take out money from the emergency funds.

7. Help from closed-ones:

Borrowing money from friends and family is a great way to instantly get some money. 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 be helpful in keeping the relationship healthy. However, if your family member or friend is unable to help you at this moment, it is equally necessary to not take it personally or damage your relationship.

8. Fintech Companies:

Many fintech players in India have started offering app-based small amount loans. Such app-based loans have gained a lot of popularity, especially among millennials and Gen Z, as availing of these loans is very quick and easy. However, it is not advisable to avail of app-based loans to clear your credit card dues because the rate of interest and late payment fees on these loans are very high compared to credit cards. Moreover, these loans are quite tempting as you can avail of them with just a few taps on your mobile screen. With binge lending through fintech apps, you can fall into a debt trap before even realising it.

9. Extra Income:

It is possible that you have spent too much and now the debt is much higher that you are unsure if the EMIs are going to be affordable for you or not. In such a case, you should use any extra income that you get to repay your debt. For example, you should keep aside your bonuses, dividend income, income earned from your hobby or side-hassle, rental income, etc. to repay your debts. Apart from this, if your spouse is a homemaker, then you both can together discuss the possible income opportunities for both and can share some load.

10. Professional Help:

If the debt is huge and nothing seems to be 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 you have your account in. Many people hesitate to seek professional help to take the advice of debt management, thinking that the consultant will judge them for their debt trap. Whereas, in reality, they are like financial doctors who are keen on solving your issues without any judgements if you provide them with the correct information, without hiding anything.

To Conclude:

It is advisable to carefully read all the tips mentioned above that can help reduce your credit card repayment burden and choose the ones that are suitable for you. If you have overspent than what you can repay, then it can be difficult to come out debt-free instantly. But, if you follow financial discipline and do not create more debts, you will easily come out of it sooner rather than later.

This article first appeared on PersonalFN here