Monday, March 2, 2009

HOW TO BEAT CREDIT CARD DEBT BLUES??


Credit card today has evolved into such a convenient product to use for each one of us that for some to imagine a life without credit card is far fetched dream. While there is no doubt that if used diligently its a great product offering some unique benefits,at the same time there is huge chunk of population out there struggling to manage their credit card dues. It has a huge impact on ones financial condition since it can quickly spiral out of ones control and assume a demonic proportion of sorts. So , its imperative that we know how to keep the credit card dues in control and beat the blues. Following are some of the tips which will help you do that:-

TIP1- Don't revolve i.e. Don't just pay minimum balance

There are lot of people who feel paying off the minimum balance due to the credit card every month is fine and wait for the time when they will have money to pay the rest.If you do so,credit card companies will love you because you are the ideal customer for them. They make money on you.Revolving money is a big mistake. Infact credit card companies wish that people only pay their minimum balance on time (so that they are not NPAs) and revolve rest of it so that they can make a killing as interest income on the balance amount. Ever wondered how much time it will take to pay off your total due on your card if you were to pay only your minimum balance which is generally 5 % of the total outstanding? It will take ages to do so. Reason is simple and that is the huge interest rate charged by the companies which can be as high as 40% pa. So, first thing to do is to try and clear off as much due as you can and as soon as possible.

TIP2. Go for good Balance Transfer Offers

There are lot of companies out there offering balance transfer schemes to the customers. Balance transfer is a scheme where you can transfer the balance on your credit card from one company to the other company at a lower rate or a promotional rate of 0% for a specified period. Why do they do it? To get new customers from competition.In India, lot of companies have 0% BT offer for 1 to 3 months. So lets say if you have Rs 1 lakh outstanding on a credit card and you are not able to repay the same quickly then you will have to pay about 35-40% interest on it pa. In such circumstances, sensible thing to do is to go for 0% BT offer for 3 months from other company and thus you will get 3 months extended free credit period where you will not be charged any interest. Cool saving for you.

TIP3-Stay away from converting purchases on card into EMIs

Just to ensure that you make large purchases on your card first and then revolve your money later, credit card companies offer you a scheme of converting your large purchases (say Rs 10000 and above) into installments at lower rate. While it sounds enticing to unsuspecting ears, truth is that unless and until its absolutely necessary don't do it. The reason is if you convert it into installments of 12 months , then you will be charged interest rate for 12 months even though the rate that is charged will be marginally less, where as if you were to pay off the due in 2-3 months by making lump sum payment, you save interest . Since the final money that you pay as interest is a function of both the interest rate charged and the tenure for which it is charged , you must try and keep both the variables to a minimum and not just one. In easy installment scheme, companies lower the rate charged but increase the tenure thereby still making good money.So do your maths before going in for these schemes.

TIP4-Always make payment on/before your due date

Another simple thing which can help us from paying unnecessary charges like late payment etc is our habit of making our payment on or before our due date. If we fail to do so , credit card companies will levy hefty charges on you ,thereby increasing your debt burden.

TIP5-Avoid impulse purchases on your card

As a matter of principle, one should never make impulse purchases on your credit card. Impulse purchases like that extra woolen shirt which you may need 6 moths later or extra pair of shoes which you don't need now will add to your credit burden .If you have to buy them do it with cash. The reason is simple, when you buy from cash you are less likely to make impulse purchases and hence it helps you in the long run.

TIP6-Never buy "luxury"from your card

Another important thumb rule is not to buy any luxurious items like LCD TV, laptop,music system etc on your card .This is a strict no no for financial prudence and should be avoided at all times.

TIP7-Don't have too many cards

I know quite a few people who love to flash multiple cards in their wallets. Having multiple card does not serve any purpose if you have 1 credit card of adequate limit and another of lower limit for Internet shopping etc.Beyond that it leads to confusion. Multiple cards might make your job of remembering the due dates for each of them a task and you will be more likely to miss out on payments on due dates ,thereby attracting late payment charges. So have only 2 cards at the most.

TIP8- Use debit cards wherever possible

Since most of the ATM cards these days are also debit cards, its a great idea to use debit cards wherever possible instead of credit cards because it will ensure that the money is debited directly from your bank account and hence no interest will be charged on it. Also no need to remember due date and make payment. No chance of attracting late fees. Also since its akin to cash purchase , chances of impulse purchases also are lesser here. So all in all a great way to beat credit card debt trap.


Credit card is a great product which is to be used diligently by each one of us.Use it when you need it and keep the above points in mind.You will love the magic and convenience of credit cards then.


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