#FinancialBytes: How to clear credit-card debt and avoid 'debt trap'?
Credit cards have become one of the widely-used cashless payment methods because of the convenience they offer. Credit cards are a powerful financial tool that offers a ton of benefits if used responsibly. However, if not handled well, credit cards can also push cardholders into a debt trap. Here are some ways to pay off credit card debt and avoid the debt trap.
Transfer the dues from one credit card to another
Those having high credit card debt can transfer their dues from one card to another through the balance transfer facility. Some banks or credit card companies might charge very high interest rates or fees/penalties compared to others. Going for balance transfer facility is a good option for customers in such cases. However, this feature may not be offered by all banks or card issuers.
Try to get the outstanding balance converted into EMIs
Credit card holders who have a very high outstanding balance and are unable to repay can try to get the dues converted into EMIs. They can approach the concerned bank and request for converting their outstanding amount into EMIs. However, the bank may charge a monthly interest, processing fee, and other charges for providing the EMI facility.
Always try to pay more than the minimum amount due
Cardholders should also avoid paying only the minimum due amount every month. Paying just the minimum due amount doesn't really decrease their debt or outstanding credit balance. Banks would continue to charge high interest on the entire outstanding amount. So, instead of paying the minimum due, one must clear as much of the outstanding amount as possible to manage their credit card debt effectively.
Avoid too many credit cards, decrease credit limit utilization
Credit cards are useful but having too many of these can be risky as it means more expenditure and higher debt. One could fall deeper into debt when they have multiple credit cards and miss out on the monthly payment. Individuals should also limit/decrease their credit limit utilization as high usage results in high credit utilization ratio, which is also bad for credit score.
#5: Avoid defaulting on credit card bill payments
To avoid unnecessary additional charges and manage debt properly, cardholders must avoid defaulting on credit card bill payments and pay before the due date. Also, one must not use credit cards for cash withdrawals as it attracts high interest rates and fees.
