Get out of credit card debt trap

Credit cards have become a way of life with many of us. Many of us use it without second thoughts for even the smallest of purchases. The lure lies either in the reward points that one can get from spending via credit cards, or the cash backs or discounts that various retailers and vendors offer on credit cards when purchasing goods and essentials. If one does not have the discipline of paying off the credit card dues on time every month, then it is easy for one to fall into a debt over a period of time. This happens if you pay only the minimum balance on the credit cards, one should note that the interest is due on the balance amount and over a period of time as the balance starts increasing, the rate of interest per month is also very high it can range between 2.5% to 3.5% or more.

If you are already in a credit card debt trap and have realized the same, but are unable to figure out what are the next steps, fear not. In this article we bring you some ideas that will help you to reduce the debt to a manageable extent or if you follow it with discipline can even help you to get out of the debt trap.

Transfer facility by other credit card companies: A lot of credit card companies in other to add more customers to their database provide a facility wherein you can transfer your outstanding of your existing credit card dues to their own company. This essentially wipes of your old credit card dues with the former credit card company. The new credit card company will provide you with deals that will be beneficial like a lower rate of interest to pay off the debt, or they may provide a few months without charging any interest, thus giving you the much needed respite to pay off the dues monthly and then at a lower interest rate. Do your research before availing the transfer facility, there may be hidden processing charges by the new vendor which may annul the advantage of the transfer.

Convert existing outstanding’ s into EMI’s: If you do not wish to avail of the transfer facility then you can approach your existing credit card vendor and request for converting your existing debt into EMI’s. This will give you the opportunity to convert the debt into equated monthly instalments as most of the lending institutions have an option of paying off your debt in 3,6,9,12,15,18,21,24 months. Thus you will be able to choose the number of months as the longer the duration the lower will be the EMI. The interest rates however will be on the higher side in the range of 12% to 18%. Use this option wisely and pay off your debts depending on the tenure that you opt for.

Liquidate fixed deposits or investments: If you have money with you that are invested in fixed deposits or other investment avenues, then it would be advisable to pre maturely withdraw these instruments and pay off the outstanding credit card debt. This is more beneficial than holding on to the debt and incurring the rising interest rate off the outstanding debts. This is by far the best option to take if you have monies with you that you have invested. Once the debt is paid off you can once again start investing your hard earned monies into investments or fixed deposits, at least this way you are not paying the high rate of interest to the lending institutions.

Borrow from near and dear ones: While one may not be comfortable exercising this option, there are times when it is prudent to do so. Approach your family members or your close friends and explain to them the situation, tell them that you are taking it as a loan from them and also ensure that you put them at easy by putting forth a plan to pay them back within a stipulated period of time. This will help to alleviate their doubts if any about you repaying their monies. If the amount that you are seeking is on the higher side, to sweeten the deal you can also pay them an interest component that is higher than the prevailing FD rates, this way you both win.

Opt for a personal loan: If none of the options above are suitable you can also opt for personal loan, though the rate of interest is on the higher side, you will have the advantage of choosing the tenure to lower your monthly outgo. While the interest rates on personal loans may at times be as high as 18% to 21%, you are still better off than paying 3% or more per month which works out to 36% or more per annum to the credit card company.

While choosing any of the above options to clear your outstanding and come out of the debt trap, it is advisable that you plan your finances accordingly so that you do not ever fall into a credit card trap again. Use credit cards wisely and with discipline and research you will find that you can indeed use them to your advantage.