Plastic money, smart card, gold card – credit cards are now known by many names for their ability to upgrade the standards of living and solve financial dilemmas. With the right credit score, anyone can avail a loan, buy an expensive gadget, go for an exotic vacation and do so much more with these credit cards. Apart from proving quick cash or credit, a suitable credit card helps one improve their credit score, repay the loan as per their convenience, and earn reward points as well.
While credit cards are a necessity in today’s time, they come with their own set of challenges. If not paid on time, your monthly EMIs can accumulate, along with extra interest, sabotaging your monthly budget and credit score. Even for regular payers, credit card debt is a serious issue, especially for individuals with limited means of income. Many people fall into credit debt, which usually originates from a credit card. If you are a credit card user, and you too have fallen behind on your EMIs, worry not, not all has been lost. There are ways to pay off your credit card debt quickly.
What is Credit Card Debt?
The financial obligation that you owe to the credit card issuer(s), as a result of outstanding payments, is known as credit card debt. In simpler words, you will accrue credit card debt, if you fail to pay EMIs and interest by the due date, after making purchases or advances using your credit card. Credit card issuers do not demand any collateral; hence, they keep interest rates and late payment fees higher than other types of credit.
Lack of collateral keeps banks and financial institutions from seizing or recovering the loan amount using your assets; however, falling back on EMIs could seriously damage your credit score. Apart from the accumulation of a hefty amount, there are many other repercussions to not paying your credit card debt in time. First and foremost, you lose your credibility, reducing your chances of getting another card or loan in the future. Secondly, you gain more debt and lose more funds with each missed payment. Finally, it leads to a lot of stress and tension over how to repay the debt.
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How Accruing High Credit Card Debt could Disrupt Your Life
Credit card debt is known as bad debt for multiple reasons. Regardless of how legitimate your reasons behind not paying your debt are, you may be charged with a hefty late fee and an increased rate of interest in case of missed payments. In some cases, you may also face a lawsuit or get a visit from recovery agents working at a debt collection agency too. Let’s see how accruing credit card debt over time could change the financial situation in your life.
- Revolving debt – Credit card debt is a revolving debt. In most cases, you are obliged to pay a regular EMI, plus interest, as soon as you get your credit card statement. But, with each missed payment, the amount to be repaid also keeps increasing. As a result, a high amount of debt can accumulate quickly.
- Lower credit score – Your spending habits and payment history are essential components that determine your credit score. A higher credit card debt could lower your credit score significantly. This will make it harder for you to apply for credit cards and loans in the future.
- Prolonged repayment period – The issuers of credit cards keep the minimum payment quite low, so that you stick around for longer; thus, paying more money over time. Hence, the more payments you miss, the longer it will take for you to pay the entire amount; plus, you will be charged an increased interest rate too.
- Legal action – Due to the lack of collateral, credit cards are one of the riskiest products for banks and financial institutions to offer. Thus, they regularly approach the judiciary to recover their dues and file cases against defaulters. In case of multiple failed payments over a period of time, the issuer could also try to recover the loan through collection and recovery agents.
- Mental stress and agony – An ongoing credit card debt can lead to severe mental stress and agony. In addition to the uncertainty over repaying the debt, the borrower also usually experiences humiliation and shame over being a defaulter.
How to Pay off Your Credit Card Debt
Unplanned shopping sprees, luxurious spa sessions, unplanned vacations, unforeseen medical expenses – there are several way in which you may end up incurring a credit card bill that you are not equipped to repay. But, lack of caution while using credit cards and failure to repay the debt could land you into a spiralling world of ever-increasing debt.
In case you have outstanding credit card debt and are worried about your plummeting credit score, here are some crucial strategies to change your financial situation in a short span of time:.
- Keep track of your spending and payments
To stay off debt or pay off your debt quicker, you need to focus on your spending habits and payment patterns. Whether or not you own multiple cards, focus on creating a budget, and keeping track of payments that are due from the get-go. By being consciously aware of how you handle your finances, you can avoid the creation of more debt, while paying your existing debt in time.
- Pay more than the minimum monthly payment
Every issuer expects you to pay a minimum amount each month; however, if you want to pay off your debt faster, try this: while creating your monthly budget, ensure that you keep aside more than the minimum payment. That way, each month, you will pay more and end up clearing your debt faster.
- Limit the use of credit cards
The more you use a card, the more money you’re expected to pay off by the end of each month. Be Thus, limit the use of your credit card(s) to avoid adding more debt to your finances. Focus on why you got a credit card and use it for that particular purpose only. In essence, stop creating more debt through credit cards to pay.
- Limit miscellaneous expenses
Indulging in spending sprees or recklessly spending money in the pretence of treating themselves has become a lifestyle choice in today’s time. But, in order to pay off your debt, you might have to limit your purchases, at least, for a while. This would be an effective strategy, especially if you signed up for a credit card for a particular purpose.. The money saved from these unnecessary expenses can be used for paying the debt quicker.
- Look for ways to increase your income
Finding a side job or an extra means of income to earn more could solve a lot of your money related constraints. To pay off your credit card debt faster, create methods to make more money. Look for ways to freelance, turn your hobbies into viable services that you could charge for, rent out the free space in your property to earn easy money. The means are endless; you need to start exploring more and think out of the box.
- Ask for a lowered rate of interest
Credit card issuers aim to charge the highest possible interest rate, but oftentimes they are open to offering a reduced rate of interest too, particularly when there is a risk of the entire loan turning bad. Thus, do ask for a lower interest rate if you are struggling to repay the debt and your bank might just oblige. You can also explore various payment plans before finalising the one that suits you the best.
- Pay on time
Late payment fees for credit cards are rather steep and contribute to the increasing debt. Thus, no matter what happens, make your payments before the due date. This is undoubtedly not an ingenious strategy but can make a massive difference in the long run, without affecting your budget.
- Track your progress and update your budget
Nothing can help you stay motivated to make timely payments than a well-planned budget and keeping track of your progress. There are various apps and online tools that offer customized ways to keep track of your fees, expenses, and debt payment patterns. Use them to keep a record of how you are progressing with your debt payment. Put reminders and compare your progress to ensure that you are on track
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Essential Rules to Keep in Mind while Using a Credit Card
You will pay off your credit card debt faster by developing an action plan to make timely payments from the get-go and sticking to it. But, every credit card user should be wary of how to use a credit card so as to ensure that they do not incur credit card debt in the first place:
- Sign up only when necessary
Do not mistake owning a credit card as a status symbol, as an unnecessary card might send your finances for a toss. Do not sign up for a credit card if you cannot figure out the means of repayment. Remember, you will have to pay a recurring fee, even if you refrain from using your card. Also, if not needed, don’t sign up for multiple cards.
- Do not miss the payment deadline
Set up a reminder, enable auto-debit or write it in your diary – do whatever you have to do to ensure that you are not late in your payment. Even if you are late by a single day, you will be subjected to high fines and penalties.
- Double-check your statements
Credit card statements are infamous for being erroneous. Make sure you keep track of each and every transaction and then double-check the statement before making your payment. In case of doubts or errors, contact the concerned customer service team promptly and get clarification.
- Avoid withdrawing cash from a credit card
Credit card companies offer the facility of withdrawing cash anytime with your card but you must avoid the same. Apart from paying a higher-than-usual ATM fee, you’ll also have to pay high-interest rate on the cash withdrawn as well.
- Don’t chase rewards
Credit card companies lure you to swipe your card more often by offering reward points on all your lifestyle activities, including dining, booking movie tickets and plane tickets, shopping, etc. The temptation to earn more reward points could make you use your card often. However, such behaviours usually result in spending money on unnecessary products and services. Thus, refrain from chasing rewards and accept whatever rewards you are eligible for as a bonus saving or gift.
- Rework your payment plan
Your financial situation can change throughout the year. During such times, you may contact the lender and revise your payment plan. If you cannot pay a higher sum in due time, you can work around creating a plan where you could pay a smaller amount and still achieve your repayment goals. It might take you time to get out of the debt entirely, but this won’t hamper your credit score as much as defaulting on EMIs.
Banks and credit card companies come up with innovative marketing tactics that could lure customers to sign up for them. If used with caution and managed with discipline, credit cards are undoubtedly a great credit instrument that gets us instant loans in no time. Apart from keeping up with your payment schedule, you can focus on reducing your luxury expenses so that you have extra funds to pay off your credit card debt faster. However, if you are stuck with a credit card, it is best to clear it off as soon as possible to prevent a detrimental impact on your credit score. Remember to negotiate, break down the payment into smaller parts, do not miss the due date and think of new ways to earn more.
If you have accumulated a high amount of credit card debt from multiple cards, you may also consider taking an instant personal loan from PaySense to consolidate the same. This will help you manage the different loans much more easily and also keep the interest rates uniform. PaySense offers loans up to Rs. 5,00,000 without any collateral or a high credit score. You can check your eligibility and credit line using the PaySense mobile app and apply for a loan instantly as well. To know more about personal loans from PaySense, please write to us on [email protected]
Shivam is a passionate content writer with Masters in journalism. A mutiple-award-winning writer, he brings over a decade of experience as a BFSI writer. In fact, he himself is known in his circle for sound financial advice. A writer by day and a reader by night, Shivam enjoys researching and writing on various financial topics, including credit, stock market, crypto, taxes etc. When he is not spending his time penning down an informative article or opinion, he can be found playing with his kids or collecting stamps.
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