#FinancialBytes: Ways to get out of credit card debt trap
15 Mar 2019
Credit cards have become an essential part of our lives today and are one of the widely-used payment methods for cashless transactions.
However, it is essential to use credit cards wisely; spending carelessly might push cardholders into a debt trap. If not handled well, credit cards can become a huge burden.
Here are a few ways to get out of credit card debt trap.
Avoid defaulting on credit card bill payments
To come out of the credit card debt trap, one must first avoid defaulting on credit card bill payments and pay before the due date.
One must not use credit cards for cash withdrawals as it attracts high-interest rates and fees.
They should avoid revolving debt or transferring outstanding balance to other cards as it only postpones the problem instead of solving it.
Do not maintain too many credit cards
Credit cards are useful but having too many of them can be risky. Having more cards also means more expenditure and higher debt.
Maintaining too many cards could be a hassle and if not managed well, it affects the cardholder's credit score.
One could fall deeper into debt when they have multiple credit cards and miss out on the monthly payment for these cards.
#3: Limit your credit card limit utilization
An effective solution to come out of the credit card debt trap is to limit or gradually decrease their credit card limit utilization to 30-50%. High usage of credit limit results in a high credit utilization ratio, which is also bad for the credit score.
Pay more than the minimum due amount every month
One must avoid paying only the minimum due amount every month. Paying the minimum due amount does not really decrease cardholders' debt or outstanding credit balance. Banks would continue to charge high interest on the entire outstanding amount.
So, instead of paying the minimum, one must clear as much of the outstanding amount as possible to get out of the credit card debt trap.
#5: Cut down on unnecessary expenditure
Some cardholders, especially those with bad spending habits, get into financial trouble with credit cards. They tend to spend more using credit cards than they usually would while paying with cash. Cutting down on unnecessary expenditure, which results in lower EMI, is another effective solution.