For several credit card users, rising living expenses and easy availability of these credit instruments have increased dependence on debt to meet day-to-day expenses. Still, the persistent rolling over of balances, along with high interest rates, can rapidly spiral out of control.
Unmanageable debt complicates repayments and has a psychological impact on the credit card user. That is why, even before availing of a new credit card, experts suggest that aspiring borrowers plan their repayments, structure their spending plans, and introduce discipline in both their lives and spending.
Manish Shara, Co-founder and CEO, ZET, advises “Start by understanding your outstanding balances, prioritise payments that are attracting a higher interest rate, and pay at least the minimum amount due each month for all outstanding dues. Consider strategies like debt consolidation with companies that specialise in helping manage debt, or work with your bank to reach a settlement. Combined with disciplined spending, these approaches can reduce interest and help rebuild and strengthen your credit profile.”
Here are five simple steps to get rid of credit card debt:
1. Assess your total debt
Start by writing down all your credit card account balances on a sheet of paper. Check the applicable interest rate each pending credit card repayment attracts. Carefully identify where your money is draining the most, i.e., the repayment that is charging you the highest interest rates.
2. Prioritise high-interest cards
Focus on clearing out credit cards with the highest interest first. This is known as the ‘Avalanche method’, which helps you reduce the overall interest outgo over time. This way, one can ensure that the overall debt burden is reduced considerably.
3. Consider consolidation
You can also consider a personal loan or a balance transfer offer if you have multiple high-interest credit cards. Consolidating the overall debt at a lower interest rate simplifies repayments, reduces costs, and eliminates associated complications. Still, before proceeding, you should have a thorough discussion with a certified financial advisor.
4. Set a realistic repayment plan
To prevent the debt from snowballing, review your spending patterns and create a monthly budget that allocates a fixed amount of your salary or income towards debt repayment. Focus on avoiding adding new purchases until outstanding dues fall below 30% of your credit limit.
5. Negotiate or settle if needed
In case repayments seem overwhelming and beyond your current financial capacity, do not panic. Reach out to your lending institution. There are banks and financial institutions that provide borrowers with the opportunity of ‘structured settlements’ or ‘hardship plans’, especially if you are willing to make amends and diligently clear out the pending dues.
Disciplined and steady action, not quick fixes, remains the most lucrative route to financial freedom. It is nothing short of a test of character and will when an individual emerges from credit card debt by making payments and sincere efforts to make amends for earlier mistakes.
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Disclaimer: Mint has a partnership with fintech companies to offer credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article aims to educate readers and raise awareness about the essential needs for credit, including loans, credit cards, and credit scores. Mint does not promote or encourage taking credit, as it comes with risks such as high interest rates and hidden charges. We advise investors to discuss with certified experts before taking any credit.
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