credit card collection rules, credit card kya hota hai | Credit card loan : Are you in the trap of credit card debt? Know how to get out Caught in the trap of credit card debt? Know how to get out
Ways to get out of credit card debt (photo – istock)
- Credit card is the easiest way to meet the urgent need of money.
- It is necessary to be very careful in its use.
- If you are stuck in credit card debt, here’s how to get out of it.
Credit cards are great financial tools that allow you the freedom to shop from anywhere, anytime while also rewarding you with great offers, if used wisely. Good credit card habits require disciplined repayment of the outstanding balance so as to avoid the fast-growing debt. By spending beyond your repayment capacity and not paying the dues on time, you may fall into the debt trap, which will be very bad for your financial health. Also, if you are in a debt trap, you have to be very careful with your credit card usage and avoid falling into the debt trap even more. This article highlights some of the mistakes you should avoid when using a credit card. let’s watch.
spend even when in debt
If you are already stuck in credit card debt, avoid using them any further until your due amount is paid. High interest charges are levied on unpaid credit card balances which can be as high as 40% per annum. So, to enjoy the full benefits of having a credit card, make timely repayments. You can also consider converting the outstanding amount into EMI for easier repayment. The repayment period of EMI is different for each issuer. This allows you to choose the EMI tenure as per your repayment capacity. But, remember that EMIs also need to be paid in due time.
not paying in full
The unpaid credit card amount grows very quickly due to monthly interest charges. Not paying your credit card balance in full is a very serious mistake. You should not ignore the payment reminders you will receive in respect of the loan taken. Remember that your credit report is prepared based on your credit behavior and rapidly rising debt can hurt your credit score. A default on a loan or credit card can result in a significant drop in your credit score. Therefore, you should make the credit card payment early so that you can minimize the adverse effects on your finances and your credit score.
Pay only the minimum amount due
It is a very common belief that just paying the Minimum Amount Due (MAD/Min.) due can save you from the interest charges. The MAD is usually 5% of the total outstanding balance at the end of any billing cycle. Paying the MAD only helps you avoid late payment fees and also keeps your card active. After the end of the interest-free period, interest will continue to be charged on your outstanding balance. The more you delay in paying the outstanding amount, the more the amount will increase as interest is charged on it.
Withdraw money via credit card
Another mistake that can make your credit card debt worse is using it to withdraw money. When you use a credit card to withdraw cash, issuers charge an advance withdrawal fee from the first day of withdrawal until the date of repayment. Withdrawal charges – range between 2.5% to 3.5% of the amount withdrawn. Therefore, avoid withdrawing cash from a credit card, especially when you are already in card debt.
Closing your credit card or settling arrears with the issuer
You should not close your credit card without settling the outstanding balance. Closing a credit card means that you are closing a credit account. This affects you in two ways. First- your available credit decreases, which means you will need to use a higher percentage of the available limit, which negatively impacts your credit score. Second, the age of the credit card you have closed will also reduce the total age of all your credit lines, and this will also have a negative impact on your credit score. Third, making a settlement without paying the dues with the lender will prove to be the worst thing for your credit score. This will make it difficult for you to get a new loan or credit card. To get a good credit score, it is best that you close your credit line only after paying the entire outstanding amount.
how to get out of credit card debt
- Pay your dues in lump sum every month. If this is not possible, then work out a repayment plan through which you can pay more than the minimum due amount every month.
- Consider a balance transfer to another card, where you can pay off the balance at a lower rate or without any charges for a specific period, commonly known as the promotional interest period. This promotional interest period can prove to be useful if you know that you can make payments during this period. After this period has elapsed, interest will be charged on the outstanding amount by the issuer. You can check with the new issuer about the EMI option after the balance transfer.
- You can also consider taking a personal loan to clear your dues to get out of the debt trap. But, while doing so, you should opt for a personal loan with an interest rate lower than your credit card interest charges and only on repayment terms that prove to be suitable for you. Personal loan interest rates can range from 8.9% p.a. to 24% p.a. at present.
When you’re in credit card debt, check your credit report monthly to see how rising debt has affected your credit score. If your score has dropped, you must take action to improve it.
(The author of this article is Adil Shetty, CEO, BankBazaar.com)
(Disclaimer: This information is being given on the basis of expert reports. Markets are subject to risks, so take your own advice before investing.) (This article is written for informational purposes only. It is for investment purposes only.) should not be construed as financial or other advice)
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