You could have run up a high credit card debt in the pandemic. Well, you are not alone. There are many others too, who might have done so, because of lay-offs, job losses, increasing hospital and medical costs, among others.
Since credit card debt attracts heavy charges and penalties, you could be feeling a heavy burden on your shoulders. It’s a fact that unpaid dues, along with fresh transactions made through credit card would continue to attract heavy charges, of around 40 per cent, until the time you repay the entire outstanding amount along with the charges and penalties.
Also, a credit card debt could impact your credit score, as well, which in turn would affect your eligibility for a loan in future.
Hence, it’s best to avoid a situation, where your credit card debt spirals out of control. However, in case you are facing such a crisis, here are four ways to address this issue:
Live with one credit card only: When you are deep in credit card debt, try to live with only one credit card. You could, at most, keep two credit cards with you. If you keep multiple cards, it would only add to your worries. “In situations where you are deep in credit card debt, consolidation of your credit cards is the key. You must immediately cut the extra number of cards. Try to live with only card. Try to discontinue to other cards by paying the dues and informing your bank that you would not require them anymore. It would make your life simpler,” says Hemant Beniwal, certified financial planner and director at Ark Primary Advisors, a financial planning firm. You must have the discipline in how you use your credit cards, resist temptation on spending on useless things, and save money to pay back your dues as early as possible.
Transfer outstanding balance into EMIs: A lot of credit card companies offer the facility of converting your pending dues into equated monthly instalments (EMIs). In this way, you can repay the total amount in smaller chunks over a longer tenure, as per your convenience. The interest rate on EMIs in this case would be much lower than the finance charges on your unpaid dues. The interest rate varies as per the tenure you choose to repay the outstanding amounts through EMIs. Try to choose the shortest tenure to reduce your interest outgo.
Go for a personal loan with a lower interest rate: You could also go for a personal loan to pay off your credit card dues. This is usually helpful to people burdened with a high debt. In most cases, credit card providers charge an interest rate of around 40 per cent per annum, whereas you can get a personal loan starting from an interest rate of around 11 per cent, and which can be repaid at a maximum of five years. Taking a personal loan for debt consolidation will help you manage your finances more efficiently. You would be paying off your credit card debt in easy EMIs.
Balance transfer to another credit card provider: This is yet another smart way to avoid high interest payment. You could transfer your balance to credit card issued by another provider or bank who charges a lower rate of interest. An important point to note about credit card balance transfer to another bank card is that you can only transfer that amount to your new credit card which is within its credit limit. The best way to use the credit card balance transfer is to pay all your dues within the free or nominal interest rate period. But while deciding on another credit card, you need to be very careful about its features that should serve your purpose. Otherwise, there’s always a risk of getting into another debt trap.