Credit cards are an fantastic economic instrument for accessing immediate credit and for saving income via money backs, discounts, reward points, no price EMI presents, and so forth. However, in order to make the most of our credit cards, we must to be in a position to recognize indicators which show that we are falling into a debt trap.
Here are 3 such errors that can land you in a credit card debt trap:
Mistake 1 – Not repaying the complete credit card bill
Card issuers levy steep finance charges anyplace involving 24% and 49% p.a. on the unpaid credit card dues. In addition to this, they can also withdraw the interest-totally free period on fresh credit card transactions till the outstanding dues are repaid in complete. All fresh card transactions start off to accrue finance charges suitable from their transaction date. Thus, non-repayment of the complete credit card dues for consecutive months, along with frequent transactions throughout this period, can outcome in steep boost in credit card debt.
One of the ideal techniques to handle your credit card debt is to convert the unserviceable bill element into EMIs. The interest price charged on such EMI conversions are way reduced than finance charges levied on the unpaid dues. Moreover, the tenure of such EMI conversions can variety anyplace involving 3 months and 60 months, based on the card issuer. These enable credit card customers to repay their dues at reduced interest price as per their repayment capacity. Moreover, the interest-totally free period on fresh credit card transactions also remains applicable as soon as you convert the unpaid dues into EMIs.
Mistake 2 – Only repaying the minimum quantity due (MAD)
Many credit card holders wrongly think that repaying just the minimum quantity due quantity described in their card statement would save them from attracting finance charges. However, repayment of the minimum quantity due would only save you from incurring late payment charges of up to Rs 1,300 per month and any adverse effect on their credit score. Credit card customers would continue to incur finance charges on the unpaid card bill quantity.
Mistake 3 – Using credit card for producing ATM money withdrawals
Card issuers levy finance charges on ATM money withdrawals via credit cards. Cardholders would continue to incur finance charges till they repay the withdrawn quantity. Additionally, card issuers also levy money withdrawal charges of up to 3.5% of the withdrawn quantity. Hence, steer clear of ATM money withdrawals via your credit card to the extent doable. In case, such withdrawals develop into unavoidable, attempt to repay the complete quantity as early as doable.
How to pull your self out of the debt trap:
For these unable to repay their dues on time, opting for the EMI conversion facility must be the very first alternative to escape the credit card debt trap. However, you can also discover option financing solutions in case the price of interest levied on EMI conversion alternative is on the greater finish.
# Credit card balance transfer
Many card issuers extend the alternative of balance transfer to the current card holders of other credit card issuers. This makes it possible for you to transfer the unpaid balance to an additional credit card issuer, at reasonably reduced or no interest for a predetermined period, ordinarily up to 3 months. This particular period is popularly identified as promotional interest period. Credit card issuers start off charging usual finance charges on the unpaid portion of the transferred quantity as soon as the promotional interest period is more than. Hence, the balance transfer alternative would suit card holders getting the capacity to repay unpaid credit card dues inside the specified promotional interest period.
Some credit card issuers also enable the transferred balance to be converted into EMIs. This alternative would especially suit these lacking the capacity to repay the complete balance inside the promotional interest period.
# Check out option credit solutions
Credit card holders can also avail individual loan, leading-up home loan and gold loan to pull themselves out of the debt trap. The interest price charged by the lenders on such loan solutions are frequently reduced than the prices charged on credit card EMI conversions. A lowered interest price can improve your possibility of acquiring rid of a debt trap.
(The author is Senior Director, Paisabazaar.com)