TomorrowMakers ™

Financial Planning

How to come out of credit card debt

11 March 2016
With almost everything available today at the click of a button or a simple swipe of a card, it is very easy to mess up & get into credit card debt. However, with some careful planning and discipline, one can get out of it and live a life free from financial worries.
 

Rising consumerism, easier payment options and big discounts make people, especially the younger generation, prone to overspending and using credit cards for even small purchases. The worrisome fact is that due to lack of proper financial education, many individuals end up with serious credit card debt. Also, given the super high interest rates and late fees applicable on these cards, a small payment default can balloon into full blown debt in no time and leave behind a string of bad situations.

In this article, let us examine some steps that one can take to come out of this problem.

#1: Acknowledge it:

Acknowledging the mess is the most difficult part but if you’ve done this, half the battle is won. Take a couple of hours off from everything, take a printout of your latest credit card statement and check the total outstanding balance that needs to be paid off. There’s no point blaming yourself or consuming yourself with regret. What’s important it looking towards the future. Thus, fix a timeline by which you realistically aim to resolve the issue.

Related: Had a rough financial year? Here’s how to bounce back in 2016.

#2: Use liquid investments/assets and ask from friends & relatives:

Make an inventory of your investment portfolio, to see if you have any excess money lying in bank accounts, any fixed deposits, or for that matter, any unused household items or assets such as bike, car, furniture, gold jewellery etc.  Also, if it suits you, ask your close friends or relatives to give you an interest free loan. Use all the surplus funds to close the credit card debt.

#3: Convert your debt to EMI:

You can also request the bank to convert your debt into an EMI. This will help you take an advantage of lower rates of interest and will give you some breathing time to arrange funds for closure of debt. You need to be especially mindful of adjusting your monthly cash flows so that you’re able to service this EMI. Also, bank will charge a small processing fee for this conversion. If you are looking to reduce expenses, here are 10 hacks that cans save money in everyday life.

#4: Seek professional help:

In case the problem is acute and you’re not financially savvy enough, don’t hesitate to seek help of a credit counselling agency or a Certified Financial Planner (CFP) professional. These professionals can provide you personalised guidance and assistance to help you come out of this situation.

How to make sure this situation goes away forever:

  • If you’re young, don’t fall in to the trap of settling the dues by paying a lesser amount. Though the debt will be cleared off, bank will report the status of your account as “Settled” to the credit bureau. This can damage your credit score, thereby affecting chances of getting a loan in future.
  • Do not take a personal loan or transfer outstanding balance of your card to another card. This will only shift the problem, not solve it!
  • Keep a maximum of 1-2 cards only and close remaining ones. Preferably don’t use the cards or even if you do, keep a track of payment due date & pay the total amount due (and not the minimum).

Related: 6 ways to keep yourself updated about your own money

Conclusion

With almost everything available today at the click of a button or a simple swipe of a card, it is very easy to mess up & get into a credit card debt. However, with some careful planning and discipline, one can get out of it and live a life free from financial worries.

 
 
 

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