You could have racked up high credit card debt during the pandemic. Well, you are not alone. There are many others too, who could have done so, due to layoffs, job losses, increased hospital and medical costs, among others.
Since credit card debt carries heavy charges and penalties, you might feel a heavy burden on your shoulders. It is a fact that unpaid dues, as well as new credit card transactions, would continue to incur hefty charges of around 40% until the time you repay the entire unpaid amount, as well as fees and penalties.
Additionally, credit card debt could also affect your credit score, which in turn will affect your eligibility for a loan in the future.
Therefore, it is best to avoid a situation where your credit card debt spirals out of control. However, in case you are faced with such a crisis, here are four ways to solve this problem:
Living with one credit card: When you’re deeply in debt, try to live with just one credit card. You could, at most, keep two credit cards on you. Keeping multiple cards will only add to your worries. “In situations where you are deeply in debt on your credit cards, consolidating your credit cards is key. You should immediately cut off the extra number of cards. Try to live with just the card. Try to stop using other cards by paying the dues and letting your bank know you don’t need them anymore would make your life easier,” says Hemant Beniwal, Certified Financial Planner and Principal at Ark Primary Advisors, a financial planning firm. You need to be disciplined in using your credit cards, resist the temptation to spend on unnecessary things, and save money to pay off your dues as soon as possible.
Transfer Outstanding Balance in EMIs: Many credit card companies offer the option of converting your pending dues into equivalent monthly installments (EMI). This way, you can repay the full amount in smaller pieces over a longer duration as per your convenience. The interest rate on EMI in this case would be much lower than the finance charges on your unpaid dues. The interest rate varies depending on the term you choose to repay outstanding amounts through EMI. Try to choose the shortest term to reduce your interest expense.
Opt for a personal loan with a lower interest rate: You can also opt for a personal loan to pay off your credit card charges. This is generally useful for people burdened with high debt. In most cases, credit card providers charge an interest rate of around 40% per year, while you can get a personal loan from an interest rate of around 11%, and which can be repaid in a maximum of five years. Taking out a personal loan for debt consolidation will help you manage your finances more efficiently. You would pay off your credit card debt in easy EMIs.
Balance transfer to another credit card provider: This is yet another smart way to avoid paying high interest. You can transfer your balance to a credit card issued by another provider or another bank that charges a lower interest rate. An important point to note about transferring credit card balance to another bank card is that you can only transfer this amount to your new credit card within its credit limit. The best way to use credit card balance transfer is to pay all your dues during the free or nominal interest rate period. But while deciding on another credit card, you should pay close attention to its features which should serve your purpose. Otherwise, there is always a risk of falling into another debt trap.