How to Get Out of Credit Card Debt? A Complete Guide

Updated on: 04 Jan 2024 // 5 min read // Credit Cards
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Do you remember those times when you were really keen on buying your favourite brand of jeans, but then you found yourself having run out of cash? The nearest ATM was a few blocks away, and the last thing you wished for is getting out of the queue to withdraw cash, and returning only to stand back in the long queue at the billing counter!

Well, here’s where your Credit Card comes to rescue and avoids all the inconvenience of managing cash in your wallet. The convenience associated with Credit Cards is indeed a boon today. There’s no question that Credit Cards can be of great help and make your life infinitely easier. Provided, you’re frugal with your spending and understand how Credit Cards work.

However, if you are not disciplined and find yourself going overboard by making unnecessary impulsive purchases and not paying your card balance off in full every month, Credit Cards debt can rear its ugly head and put you in a lot of financial trouble.

Credit Cards can get you into a financial mess, especially if you are an impulsive buyer. For, all of those unmindful swipes will only return to haunt you later. Hence, if there is a balance pending on your Credit Card, then clearing it off should be your top priority.

It also needs to be reiterated, that at the end of the day, whatever you swipe for has been bought on credit and needs to be paid for. So if you’re living beyond your means by spending more than you earn, you may end up racking up a whole lot of debt and bring a financial disaster. After all, even the Best Credit Cards in India have a deadline for making payments. Defaulting it will not only subject you to late payment fees and high-interest rates.

If you are not careful with your spendings and let your debts pile up, and once the interest starts kicking in, the chances are that you will end up spending more on interest than the actual price of your purchased items.

Importance of making Credit Card Payments on Time

For starters, you should be aware of the reasons why it’s imperative that you make Credit Card payments on time. Every time you delay card payment, you fall into the trap of being stuck with a lump sum which needs be cleared along with any additional purchases. What this entails is that your next Credit Card payment will not only include two minimum payments but also a late fee. Putting it off regularly has the potential to push you into a debt spiral which can prove to be extremely punishing.

At the same time, depending on the bank, there might be a credit limit on your card which restricts making purchases beyond a certain amount. The higher your credit utilization, or the closer you push your Credit Card balances to your credit limit, the more it will impact your credit score.

Your CIBIL TransUnion Risk Score is used to determine your creditworthiness and based on your score, banks will determine whether you’re eligible to avail loans or apply for additional Credit Cards. A poor credit score can make it harder for you to borrow money in the future and can be one of the main reasons for your loan or credit card application being rejected later on.

Further, it can also result in a hike of interest rates offered to you thus impacting your ability to raise funds in the future.

You should also know that if you pay only the minimum amount, you will still be subject to a heavy interest on the outstanding bill amount. Many individuals are under the wrong assumption that by simply paying the minimum amount payable, they would be able to escape mounting interest on their outstanding bill. That couldn’t be further away from the truth as the interest charged is expected to be around 24 percent -40 percent per annum depending on the bank. It could also put a stop on interest-free credit period available on your card.

Regularly defaulting on your Credit Card payments will not only cause your credit limits to drop but will also result in your interest rates rising over time. This is why it’s often advisable to clear off your Credit Card dues at the earliest or by the payment due date.

How to get out of Credit Card Debt?

You should try and make your Credit Card payments on time, preferably clearing the entire amount before the due date if you aim not to get stuck in the cycle of debt. However, if you already have Credit Card debt hanging over your head, all is not lost. If you’re tired of worrying about monthly repayments, accumulating late fees, and a steadily increasing balance on your statement each month; here are a few tips to ensure you don’t get stuck in a rut.

While it probably will take a lot of time and effort on your part, rest assured, you will be able to regain and wrest financial control again once you get through with it.

1. Figure out how much you owe and set up a repayment plan:

The first step is to figure out how much you owe on your Credit Card. If you have Multiple Credit Cards, write down the number of the total debt on a piece of paper so that you’re at least fully aware of the total amount you need to pay off. Then, you should accordingly look to prioritise them in terms of urgency and clear off dues on the Credit Card that needs to be paid off first. For instance, you should seek to pay off the Credit Card with the highest interest rate or one with the smallest debt first. Setting goals is always a good start and can help in getting your debt paid off promptly.

2. Put away your plastic:

Let’s make it simple for you. Unless you stop spending and using your Credit Cards, it’s going to be incredibly tough for you to pay off your existing debts because the rupee amount will just keep on accumulating with every additional purchase. Instead, stow your cards away and put it in a place where you won’t be tempted to use them. Make sure to refrain from carrying your Credit Cards around as the last thing you want is an additional debt to add to your existing debt woes.

3. Keep up with your Credit Card Repayments:

Every month, try to make at least the minimum monthly repayment, so that you don’t have to pay late payment fees at least. Sit down and work out your monthly budget and set aside money you need to pay off for essentials. Once you’ve done that, you should ideally try to bring down your debt by paying off as much as you can, as and when you can.

Additionally, in case you’ve been putting away some money-saving up for a holiday or a new car, you would be better off clearing your existing debts instead as the interest rate on your Credit Card balance could wipe out your savings within no time. It is also best to make multiple Credit Card payments as and when you can in a month to ensure that the outstanding amount does not go out of control.

4. Take out a Personal Loan:

Although this might sound counter-productive, taking out a low-interest Personal Loan from the bank and immediately paying off your Credit Card debt makes a lot of sense. Here’s an example to illustrate the same:

Let’s assume your Credit Card dues are to the tune of Rs. 1,00,000. By paying only the minimum due of 5 percent on the outstanding amount, you will end up paying a whopping interest amounting to Rs. 36,000 at 36 percent per annum. However, by converting the outstanding amount into a Personal Loan, the outstanding amount of Rs. 1,00,000 can instead be paid out at 14 percent interest. Here, the EMI applicable to be paid would work out to 14,000 p.a. instead. The difference in the interest amount is stark. That said, this option should be a last resort and should be opted for only if you’re left with no other alternatives.

5. Get Debt Help if you Need it:

If you are having a bunch of problems managing your Credit Card debts or you find yourself all at sea, you might be in need of extra assistance. You can get help by getting in touch with a financial counsellor or advisor –who can not only offer free financial advice but can also help you sort out your debts while providing you tips on how to get your credit score up. Remember, you don’t have to embark on this journey alone.

Tips to Manage your Credit Card Bills and Making Credit Card Payments on Time

Always make it a point to pay the full bill amount on your Credit Card by the due date as mentioned in the Credit Card statement. One way to ensure this is by setting up an auto-debit facility with the bank to ensure that the Credit Card payment is made by the due date. You can also look at setting up an alarm or a reminder to ensure that you get a notification before your due date approaches.

While Credit Cards can be very handy and convenient, you should never go overboard and spend more than you can afford to pay off in a month. Practising financial prudence and sticking to your budget is the key to avoiding any nasty surprises at the end of the month. While at it, keep an eye out on your balance and track your billing due date.

Another option is to make sure that you choose a good Credit Card. If you have any existing cards with high-interest rates or steep annual fees, lookout for a better deal. Some of the best Credit cards in India such as SBI Credit Cards can help you in earning sizeable cashback and rewards points. Further, ensure that you compare the interest rates for different cards as it will help you choose the cheapest Credit Card that will serve you better.

The Bottom Line

One of the primary reasons for getting a Credit Card is to enjoy the convenience, security, speed, and hassle-free payment it has to offer. Make sure to be responsible and not abuse the instrument or your Credit Card will truly start feeling like a burden. Once you have mastered the art of using card smartly, you won’t wind up owing money again. Change starts with you, so keep reminding yourself how good it feels to be debt-free.

Also Read: Should You Apply for Personal Loan to Repay Credit Card Debt?

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