Thanks for being lax with your credit card spends. All your savings, which were earlier kept aside either for a grand vacation or for your dream motorcycle, is being used up to clear the credit card debt. You are definitely not the only one going through this. Not getting sucked into credit card debt demands one to be diligent & disciplined. At times, we are unable to overcome the financial challenges we come across. Credit card, even after being very convenient & easy to use, is a type of unsecured loan. Though you don’t have to think twice before keying in your card number and hitting ‘BUY NOW’ for a pair of Franco Leone’s or that glittering Rado watch; you have to remember that if not used wisely, a credit card can seriously hamper your financial credit history.
If you are someone who likes to spend incessantly and crosses the credit limit every month – without feeling guilty, then you have to keep in mind that you are not only damaging your credit bureau report but also subjecting yourself to a potential financial risk. To clear off the debt you will need to find another avenue to not only clear the debt but also manage your monthly expenses. It is therefore important to understand what credit card debt is, what its effects are and how you can pay it off.
What is Credit Card Debt?
Credit cards are synonymous with ease of payment and instant transactions. Whether paying for products online or at a POS terminal at mega stores; credit cards offer convenience and act as a great digital payment option. You don’t need to roam with a bundle of mint Rs.2000 notes. A credit card can easily be used to pay for most of your expenses. A power like Credit Card, also comes with a lot of responsibilities.
As an example of unsecured consumer debt, a credit card debt results when you make purchases using your card and fail to make complete card payment on time. Even when you pay a little and carry forward the balance to the next month, you are penalized and an interest is levied by the card issuing company or the bank.
When the defaults pile up, you are obviously unable to pay back either due to lack of savings or low income. Credit bureaus maintain your credit information which they collect from banks and card issuing companies. In case you have been marked as a defaulter in your credit bureau report, chances are slim for you to avail credit from any financial institution. The credit bureau report indicates how prompt you have been in your credit card bill payments and in case of debt, what steps you took to improve your situation.
When applying for a credit card you sign up and agree to comply with the bank’s credit card policy. You agree to pay the monthly credit card bill against the expenses based on your stipulated credit limit. You agree to be levied a penalty fee in case of delayed payments. Knowing the reasons and effects of credit card debt, can possibly make you more responsible (not that you need such an inspiration though).
Reasons for Credit Card Debt
Although your credit card is provided with a credit limit, you may come across circumstances when you have to swipe the magnetic strip for a financial need and overshoot from what you can repay.
Following reasons will lead you to accumulate credit card debt:
- Exceeding your credit card limit
- Failure to make the credit card bill payments on time
- Paying only minimum balance and carrying the balance forward
- Using the credit card for a cash advance
All these affect your credit bureau score the most. In case of personal loans, your credit bureau report is the only factor that can get you the loan approved at digital lending platforms. With no collateral towards personal loan, ensuring your credit bureau report remains as high as possible is crucial to getting the personal loan approved.
How to avoid/manage Credit Card Debt
- Try to pay your credit card bill at least 3 days before the payment due date.
- Put a reminder on your phone about the payment due date.
- Use a debit card for smaller expenses. Spend only up till 40% of your credit limit. This will ensure a good credit utilization ratio on your credit card.
- You can opt for a balance transfer of your primary credit card outstanding balance onto a new credit card; and can also receive benefits such as interest free period on the secondary card for initial few months.
- Limit your spending to basic needs to reduce burden on your credit limit.
- Keep track of your monthly expenses so that you know where you are over-spending.
- Once you pay off the debt, remember to maintain a good repayment capability. Ensure you pay your future dues on time.
- Don’t opt for a personal loan to clear your credit card debt. One burden of debt is enough; you wouldn’t want debt to rise further.
- Once the credit card debt is cleared, apply for a credit bureau report and check if your credit score has improved.
- Investing your money in digital lending is a good method to counter credit card debt.
So there you have it! If you are prompt with your payments and have planned your finances, you can overcome Credit Card debt successfully. Stay debt free and independent of any unwanted financial burden.