So you went on a holiday, or someone told you about this awesome sale that was on, or you decided to gift mother that jewelry set you caught her looking at – and it’s not quite salary-day yet. You kept swiping that card that your card company promised you would be a tension-free, hassle-free, and – well – “free” shopping experience.
All sorts of promises, in fact. “Best Cashback Offer!”, “Minimum Balance!” Phrases that make you feel empowered, almost as much as the card itself does. Know about Credit card payment. And then reality hit. The 3.5% per month that pretty much added itself up to 40% a year. Phrases get replaced by numbers, and that means the headache has become yours.
Debt. There’s no euphemism for it. You’ve racked up a bill on your card more than you can afford. It is unusual, in fact – it’s anything but. 1,90,000 crore was spent using credit cards in India in the year 2015. You’re not alone, you’re not in as much trouble as you think – and there’s always a way out. here’s a bunch of measures you can follow, but remember prevention is better than cure. Credit cards are a bad habit when not thought through.
Take charge of the situation. Say you have to pay back Rs. 1,00,000. 5000 a month sounds good, but you’ll keep paying that for 41 months. Paying the minimum balance is also just a temporary fix – banks charge interest on what you pay as well as the outstanding amount – you don’t want that. Finish it off in 5-6 payments, the faster the better – even if you have to adopt a more frugal lifestyle for a while. And that is if your biggest concern at this point is your CIBIL credit score. It takes a hit each time you haven’t cleared the bill on time. But let’s talk about a more difficult scenario.
If you absolutely need to, don’t hesitate to break your investments. That FD you have going on or the cash in your savings are lower in your priority ladder to the debt you’re in right now. Most don’t go for this as an option out of sheer ignorance.
Which brings us to Option#3 – Get Help. Parents, friends, relatives. Always better if one has to bite down that bit of pride and ask for a loan to pay off the debt (Hey, you can always pay them back with interest.. even at 10% a year that’s significantly lower than what you’d be paying the banks). Plus, even if you are unable to pay back immediately, they would all be a little more understanding and sympathetic.
Or if that’s not an option, take out a personal loan to do so. At 14%-15% a year, that’s again lower than the 40% credit cards will cost you. You could even opt for security-backed loans – such as a top-up on your home loan or a gold loan. If you’ve been punctual with the home-loan, you can get this top-up loan for as low as 12%. That gold you have can prove more useful in this situation than in a locker – they get you loans at a low range of 13-15%. Remember how you just read about breaking your FD? You can always take a loan against it at a percent higher than what you’re getting on it. Say your FD earns you a rate of interest of 10% – you can take a loan against it at 11%. It’s always advisable to use what you have already.
Emergency? Convert the credit card loan to EMI’s. Most major banks have the option, and you can pretty much sort it out on your computer. The interest rates vary, but are again lower to what you’d be paying otherwise. But here’s the flip-side, you absolutely positively cannot miss a payment cycle – the bank will torpedo your interest rates to its original position and you’ll be right back on square one.
If all these options are not for you, Abandon ship! Onto another, of course. Transfer your credit card balance to another – a new credit card will take care of the debt on your older one, and with a credit-free period for up to 90 days (Depends on the bank, of course) – there’s enough wriggle-room for you to sort out the money. Most banks are only too willing to issue new credit cards, although best keep the new card in that jewelry locker you’ve just emptied. You need to live on cash for a while. Because you know what’s worse than debt – More Debt. and nobody wants to get into another debt to settle an old debt.
Worst case scenario
it’s still not as bad as you think, as long as you inform the concerned. Head to the bank, explain the situation. (Remember, the situation you are in is pretty common) Convince them you want to pay them back, and can pay them back, and they’d be willing to offer you’re a lower rate of interest and/or flexible payment options. Now results may vary based on the bank’s policies and your history as a customer, so keep this as the absolute last resort.
Financial health is always repairable as long as you maintain a certain discipline. So is your CIBIL report. Whatever means you take to pay back the debt, make sure it reflects on your report. And next time there’s that awesome sale (let’s face it – there is Always an “awesome sale”), let’s forget to carry the credit card, and use the debit card for a while, shall we? There’s a lot of wisdom in counting your chickens after they hatch, as they say. As amazing as credit cards are, they come with certain terms and conditions. If used judiciously, they can be your best friend but if misuses, they can turn on you just as quickly. So make sure you use your credit card only in necessary situations and make the most of all the perks offered by plastic money, without falling into a debt trap.
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