Credit card debt, here are 5 ways how to come out of it.
Few days back I was discussing with my friend about investment ideas. But he said that he did not have enough money for the same.
I asked the question why he has no money when we are working on the same designation?
He said that he had pay debt on credit card
In spite of all effort, he was still trapped in it and all savings went into paying off credit card bill.
Maybe, many of you who are reading this blog are also trapped in credit card debt or at the brim of it.
At that point of time, I gave him a suggestion on how to get out of bad debt.
After a few months I again asked him about his bad debt.
He said that he applied your formula due to which he could be able to handle this bad debt to a large extent.
Do you want to know that secret formula?
Actually, it’s no secret formula but just a risk management.
Just think of bad debt as a hazard which can harm us in a short term as well as long term way.
It could paralyze our future investment planning.
So, our task is to bring unacceptable risk of credit card debt into an acceptable risk zone, where its impact is very minimal.
In general, the credit card debt fetches 36% to 40% interest annually and compounded monthly.
Secondly, if the outstanding amount is not paid off entirely then every expense made after the due date would also fetch the same rate of interest compounded monthly.
Suppose you have your credit card billing cycle from the 8th of every month, and you have to pay outstanding dues on the 28th day.
As banks give 50 interest free days for your spend, which starts from your billing cycle date.
So now if you have not paid an outstanding amount on the 28th day then every expense made after the 8th of month would also carry the same interest rate as applicable on the outstanding amount.
From here the trap of bad debt starts and if a person didn’t make conscious efforts to come out of this then there no chance to come out of it and finally the person would become scapegoat of banks.
So here are 5 ways to come out of credit card bad debt.
Take Money from your nearby friend and pay off bad debt
Make your budget sheet and start to allocate more money to pay off bad debt.
Take a loan or gold loan with a lower interest rate and pay off bad debt.
Make a commitment not to overspend until all bad debt is paid off.
Make discipline in your life to control instant gratification.
Take Interest free Money from your nearby friend and pay off bad debt:
If you are trapped in bad debt and want to find out the easiest way to come out of it, then you could ask your friend for interest free money.
As you have got this interest free but still make a commitment to return back on time so that a good trust level could build up.
Mostly people lack here and don’t fulfil their commitment on time, and this is one of the main reasons for not getting interest free money.
You can also pay off money taken from friend in instalments.
This is the easiest way without impacting your finances.
Make your budget sheet and start to allocate more money to pay off bad debt.
This is the second way to get out of credit card bad debt. If you are either salaried or a businessperson, you may start to allocate more money each month.
By doing this you easily get out of debt. Secondly when you make your budget sheet monthly then you will sit in the driver seat of your finances and easily plan to pay all credit card outstanding debt.
Now you can make good decisions in the light of all collected facts & figures.
Take a personal or gold loan with lower interest rate and pay off bad debt.
The interest rate of 12% is always better than 36%.
You could opt for this method when you are not in the position to pay off credit card debt instantly.
So, a loan with a lower interest rate is a better decision rather than staying in credit card debt.
But here some precautions should be taken.
Firstly, calculate the overall impact of credit card loan and personal loan. Calculate the interest part as well taxes applicable if any.
Secondly, the interest part of a personal loan to pay off debt must not exceed the total interest part of outstanding credit card debt.
Else there is no significance to apply this method.
This is the bottom line of this method.
Make a commitment not to overspend until all bad debt is paid off
If you are really serious about getting out of credit card debt, then you have to make a commitment with yourself to stop every kind of overspending.
There is a difference between promise and commitment.
When you say something with a deadline to others then it is called a promise.
When you say something with a deadline to yourself then it is called a commitment.
A promise could be broken but not a commitment. With the adversity of time, a promise becomes weaker, but commitment becomes stronger.
Replace the habit of overspending with something else which decelerates it. Like keep away your credit card or put some hurdle into accessing it.
Make a list of grocery items on paper before going to shop so that you buy only those things which you really need at home.
Make a discipline in your life to control instant gratification
This is one of the major reasons which is responsible for putting us in a bad debt trap.
The antidote of instant gratification is discipline.
If we have discipline in our life, then we can control everything. Discipline can control every bad aspect of credit card outstanding bills.
Disciplined person will never get in such bad debt because he knows his means of income.
Whether could be able to pay off that spending from credit card or not which later converts into bad debt.
Discipline to control instant gratification comes from our monthly budgeting check sheet.
If we have a budgeting sheet in place then we can avoid such bad debt to a large extent and if by chance some spike comes, then we are also able to handle it.
Conclusion
The credit card is a good thing if you are using it responsibly because it gives us many benefits.
The problem only arises when we do not pay off outstanding amounts timely.
But with the above-mentioned ideas we can control such situations so that it could not become financial cancer.
As when we are trapped in bad debt, and it accumulates with time then its first attack happens on our brain.
It paralyses our thinking process, and we are not able to think clearly, and the result could be anything, even suicide.
So, use credit cards responsibly.