ATM :: Judicious use of credit card ensures financial freedom

RAJIV RAJ Founder & Director, | Aug 13, 2015, 10.27 AM | Source:
Never ever delay payment of your credit card bill, always pay your credit card bill in full before the due date


If you are 20 something with a plush job, it’s likely that your employers are willing to offer you lucrative incentives to stay on! That’s good news, but the bad news is that you are a soft target for credit card issuers, and if you do not take care at the outset, you may end up in chains, not physical ones but the chains of debt!

When you have had a taste of success early on in your life and are making good money, it is quite natural to want to reward yourself. So you jump at the offer of a credit card issuer and fall for glib talk about how sweet a deal you are being offered “just for you”. With words such as low interest rates, easy installments and money back on purchases are thrown at you and you are soon convinced that there is nothing better that you can get and you lap it up!

Once the swanky new piece of plastic arrives, you find yourself buying the expensive gadget for yourself that you have been craving, taking out your loved ones to a fancy dinner or just saving the card number on your favourite e-shopping site and simply indulging yourself. All the while you tell yourself, “its not that much I have spent and I will pay it back pronto!”

All is well till your credit card statement arrives and you realise that you have gone way beyond your means and you can in no way repay the entire outstanding on your credit card. The next thing you know you are only paying off your minimum amount due and are in the vicious cycle of debt. As a result of your high credit card debt, your CIBIL score goes down drastically and till such time you clear all your outstanding dues you are now a prisoner of your own financial habits. As scary as this sounds, it is also likely to get out of a situation like this, or better still, not fall into a trap like this in the first place. Allow us to tell you how!

Acknowledge the problem
Most people who find themselves in a debt trap because of their credit card, tend to behave like ostriches, ducking their heads in the sand! You know this as well as we do, that avoiding the problem, will not make it go away. The best thing to do is to grab the bull by its horns! This means you have to sit down with pen and paper, you credit card statements and calculate the outstanding amount that needs to be paid. That is really half the job done!

Consider resolution options
Once you have a figure in hand, your job is to see what are the best means you can deploy to pay off the debt you have accumulated. Talk to your bank or card issuer to see if your repayment terms can be made a little easier. Most likely, your bank will give you a patient hearing and will be willing to work out a solution that is win-win for both you and itself. After all, banks hate letting go off their customers and losing them to competition.

Ways to resolve the debt
If that does not work out, consider liquidating some of your assets pay back your dues. If you can do such a thing well and good, but if you cannot, consider taking a loan from close friends or relatives. If that too is next to impossible, you may even consider taking a personal loan to take care of your financial woes. While it is true, that you are resorting to more credit to take care of your original debt, but you are still going to be paying a lower rate of interest than on your credit card, the annual percentage rate (APR) on a credit card is as high as 36-40% while you will be paying 14-16% rate of interest on a personal loan.

There are other means too like opting for a balance transfer, or shifting over your debt to a new card that is offering you a lower rate of interest on a balance transfer. If you decide on a balance transfer, make sure that the deal that you are being offered fits into your scheme of things and is not just another rampant product. Things to watch out for are the repayment terms, the rate of interest and the processing fee. If you think you are satisfied on all counts, go ahead and make that balance transfer.

Cut corners
If your financial habits have gotten you into trouble in the first place, you need to change them. First things first, stop using your credit card altogether for a while and carry cash or your debit card around. Limit the parties that involve spending money, or keep away from the e-commerce websites that have been splurging on. Remove your credit card details from such sites so that you don’t succumb to temptation. Inculcating good financial habits will free up more money than you think, that you can then redirect towards the repayment of your debt. Once you have repaid all your dues, make sure you pull out your CIBIL report and CIBIL score to check that everything is in order. Hold on for a month or so before you do this, for it takes some time for a lender to send records to CIBIL and CIBIL making alterations in its database. As a prudent financial practice, also make sure that you purchase your CIBIL score and report at least once annually to check if there are any discrepancies.

Tread with caution
If you have not gotten yourself into a debt trap yet, and are still reading this, let this serve as a note of caution to you. If you just took a credit card and have just about started spending on it, make sure you remain within your means and pay your outstanding dues in full each month. Maintaining good credit habits will ensure that you have a high CIBIL score. A good CIBIL score in turn will ensure that you have easy access to credit when you are in need of it. Most of all, you will enjoy financial freedom and live a debt free life without having to worry about debt that is at your throat.

Good financial habits such as remaining within your means as far as your credit card debt is concerned, goes a long way in ensuring your financial freedom in your youth and an independent life in your golden years.

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