Credit cards are a great financial tool for obtaining fast credit and saving money through cashback, discounts, reward points, no-interest EMI deals, and so on. However, to make the most of our credit cards, we must be able to recognize warning signals that we are entering a debt trap.
Here are three examples of errors that might lead to credit card debt:
1.Failure to repay the whole credit card debt
Failure to repay the whole credit card bill Card issuers impose hefty financing charges ranging from 24 % to % p.a. on the delinquent credit card balance Furthermore, they might revoke the interest-free period on new credit card transactions until the existing balance is settled in full. Finance costs begin to accrue on all-new card transactions as soon as they are processed.
Finance costs begin to accrue on all-new card transactions as soon as they are processed. Thus, failure to pay off the whole credit card balance for several months in a row, along with numerous transactions during that time, can result in significant growth in credit card debt.
2. Repaying only the bare minimum (MAD)
Many credit card customers mistakenly assume that paying only the minimum amount due on their card statement will save them from receiving financing charges. However, just paying the minimum amount due would avoid you from incurring late payment costs of up to Rs 1,300 per month and any bad influence on their credit score. Users using credit cards would continue to face financing charges.
3. Using a credit card to take cash from an ATM
Cardholders would continue to face financing costs until the withdrawn amount was repaid. Also, card issuers incur cash withdrawal fees of up to 3.5 % of the withdrawn amount. As a result, avoid ATM cash withdrawals with your credit card as much as possible.
How to Get Out of Debt:
For those who are unable to return their debts on time, the EMI conversion facility should be the first alternative to get out of the credit card debt trap. However, if the interest rate charged on the EMI conversion option is on the high side, you might look into alternate financing alternatives.
# Balance transfer on credit cards
Many credit card companies provide the possibility of debt transfer to current cardholders of other credit card companies. This allows you to transfer the outstanding amount to another credit card company at a lower or no interest rate for a set time, generally up to three months. This time is sometimes referred to as the promotional interest period.
Some credit card companies also allow you to convert your transferred amount into EMIs.
#Examine your other credit alternatives
Credit card customers can also get a personal loan, a second house loan, or a gold loan to help them get out of debt. Lenders usually offer lower interest rates on such loan alternatives than they do on credit card EMI conversions.