5 steps to get out of the credit card debt trap
5 steps to get out of the credit card debt trap
The story of a credit card user
Credit cards – what a fabulous invention!
I bought my favorite phone and I didn’t have to pay the entire amount upfront. My credit card had an offer, which allowed me to pay in 6 easy installments. The interest that was charged was to be refunded as a cash back.
The summer heat was becoming unbearable and I needed to buy a new Air Conditioner. The balance in my account did not look healthy to warrant the purchase.
But no worries. The credit card came to the rescue. I didn’t have to pay all at once. I paid in installments through my credit card.
And yes, the flight and hotel costs for my week long holiday in Sikkim. The Credit Card was at work again..
In fact, for the vacation expenses, there was a special offer. I would get 10% off if I paid all the amount upfront without taking installments. That sounded like a good deal. Go for it!
Happy go lucky!
Not really! You know what happened?
I got my credit card statement. The SMS arrived first.
Credit card bill of Rs. 1,12,000. Min payment of Rs. 5600. Due date March 31. Ignore if already paid.
The email with the details soon followed.
I am still trying to recover from the shock.
My in hand salary is just Rs. 65,000 a month. How do I make the payment?
I soon called up the bank looking for options. They had none. As the due date approached, I paid about Rs. 25,000 and the rest of the amount was carried forward to the next bill.
The next bill was a bigger shock. I had the rolled over amount plus some new purchases totaling Rs. 1,07,000. Add the interest charges and taxes and I was staring at a similar amount of Rs. 1,10,675.
This time I had some other expenses to take care of. Hence I had no choice but to pay the minimum payment due only.
Minimum payment due is what you must pay to avoid late payment charges and to categories yourself as a defaulting borrower. This could make it worse.
The next month was no different.
I felt I was losing my mind.
Should I ask help from friends? Probably no! They may not be able to.
Oh God! What hell have I got myself into?
This is a real story.
Abhishek is still reeling under the credit card debt paying a huge interest every time he fails to pay the amount in full and rolls over the credit.
For your knowledge, interest rate on unpaid amount on credit cards is charged at 36% per annum or 3% per month. Some banks can charge as much as 50% or more as interest rate too.
To put that in perspective, your bank FD pays you only 8% or less interest in a year.
To use an idiom – Abhishek is the fish the credit card companies were looking to catch.
Unfortunately, he has been caught!
How does Abhishek or any one get out of the debt trap.
A debt trap can be really horrible. It affects you not just financially, but also emotionally. It can impact your work, your career and your relationships.
One more bad news – it affects your credit rating and score too – and reduces your chances of getting loans in the future. You see banks share information with companies like CIBIL which then allow banks or lenders to know about the credit profile of an individual. A bad payment history works against you.
Frankly, you are better off outside this trap. Become debt free as soon as possible.
The question is how do you get out of this net, this debt trap?
Here are 5 steps that can you use to get out of credit card debt:
- Commit to the Goal – First, commit to yourself that you have to get out of this vicious credit card debt trap. Write your goal down on a piece of paper and put in the front of your wallet, so that you can see it every time you open it.
- List all your Loans– Now, make a list of all your cards, the outstanding credit amount for each of them that you have to repay and the total. This total amount is what you have to plan to repay.
- Seek Funds – Create a list of friends, family or any other sources that can lend you money to pay off your high interest loan and you can repay them at a much lower rate of interest.
- Negotiate terms – If you are talking to your bank or the credit card provider, tell them about your willingness to consolidate your outstanding payments on various loans. You will pay one amount towards all the loans. This may or may not work. No harm trying. Negotiate hard.
- Become debt free – Once you have settled on the amount that needs to be paid back, ensure that you pay back regularly in a disciplined way. You have to cut back on all expenses that you can and focus only on repaying the loan till completion.
A funding source that you can access now
Talking about funding sources, one of the sources which you can access for funds are Peer to Peer Lending platforms such as i2ifunding.com where you can access low interest loans – as low as 12% – that can be paid over a period of time.
With p2p lending, you can do consolidate your debt, that is, take one consolidated loan and repay your multiple loans. So, now you have to worry about paying off just 1 loan which comes to you at a lower rate of interest.
Look at it this way. A 12% interest rate* is just one third of what the credit cards charge. You pay less interest and more towards your actual loan. Thus you repay your loan faster.
That’s a truly great deal.
You can know more about p2p lending here.
Want to take a loan? Find the best loan for you here.
*The actual interest rate can vary based on your individual profile. The best way to find out is to sign up now on i2ifunding.com.