Credit card debt: Credit cards are beneficial if used smartly. It serves as a solution to many problems. With the advent of a wide range of cards offered by major banks, one can pay for anything and everything with their credit card, even groceries.
The major problem faced by people is not being able to pay off the credit card bill in full as it keeps on adding up to the previous months, resulting in a large debt.
Consequences of being a credit card defaulter can be severe, like high interest charges, blocked credit card and blacklisting from future credits. In some cases, legal action may also be taken against the borrower. It’s important to stay on top of your credit card payments to avoid such issues.
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Here are some ways which can help one may consider to clear the credit card debt quickly and efficiently
Experts say that individuals should prioritise their debts based on interest rate, that is they should pay the debt with the highest interest rate first.
According to CA Manish P Hingar, Founder, Fintoo, this can be done by listing your debts and prioritising high-interest debt:
-Order debts from the highest interest rate to the lowest.
-After this, pay as much as one can afford each month towards the debt with the highest interest rate, while still making the minimum payments on other debts.
-Once the debt is paid off with the highest interest rate, move on to the debt with the next highest interest rate and repeat the process until all debts are paid in full.
2. Convert bills to EMI
One effective way to get rid of the debt faster is dividing it as an EMI and paying it every month.
Manish suggests by converting credit card bills into easy monthly installments, one can avoid paying high interest for late payments.
However, he advised individuals to be aware of the fact that banks charge a monthly interest of 2-3 per cent for this convenience and there may be a processing fee of 1-2 per cent of the outstanding amount. Paying through EMIs can help manage one’s credit card debt more efficiently.
3. Snowballing Method
The “snowball method,” simply put, means paying off the smallest of all loans as quickly as possible. Once that debt is paid, one can take the money they were putting toward that payment and roll it onto the next-smallest debt owed.
According to Manish, one can use the Snowball method to pay their card bills where they can start by paying off the card with the lowest balance. Once that debt is fully repaid, take the money that was used to pay it and apply it towards the next smallest balance. This approach helps in making quick progress and builds momentum in paying off debts.
4. Balance Transfer
Managing credit card debt requires a combination of tactics. Paying more than the minimum balance and opting for auto-debit payments can help reduce interest charges. Consider balance transfer to temporarily relieve debt or consolidating multiple card balances for a lower rate. Additionally, limiting credit card usage and regularly tracking bills are important steps in effectively managing credit card debt.
Balance transfer means transferring the outstanding amount to another card. Here, the aim is to transfer the amount to a card with a low interest rate.
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