It’s not easy to come face to face with Credit Card debt that has accumulated for years. However, here are 4 steps that will help you handle this situation well.
Does your Credit Card’s outstanding amount look like a numerical Godzilla? That can be a scary sight. How do you confront something that has grown into such an intimidating beast? Well, keep calm – these smart moves will help you put this beast to sleep.
When you have a huge amount of debt staring into your soul, the first thing to do is to acknowledge the reality of the situation. Once you do that, follow these 4 steps:
Step 1 – Determine The Exact Amount
This step is important as it will pretty much dictate the following steps. Note down your total outstanding amount; not your minimum due. Once you’ve done that, you’ll be able to chart out a plan to clear your bill. Another plus of knowing how much you owe is that it will instantly make you wary of making new expenses. Once you do that, also make a note of the other payment you’re regularly making; you’ll need to know how much you can afford to repay.
Step 2 – Break It Down
Now that you have the numbers in front of you, figure out a timeline under which you’ll be able to clear your Credit Card dues without eating into your EMI repayments and other commitments; you don’t want to clear one source of debt by adversely affecting other payments. Now, how do you breakdown your Credit Card debt? It’s simple. For instance, let’s say your total dues come up to Rs. 1 lakh. Let’s also assume you earn about Rs. 80,000 a month and are already paying Home Loan EMIs of Rs. 10,000 per month. Let’s also assume that your monthly cost of living comes up to about Rs. 30,000.
In the above case, your situation would look like this
| Income | Monthly Expenses |
| Rs. 80,000 | Home Loan – Rs. 10,000 |
| Living Costs – Rs. 30,000 | |
| Balance: | Rs. 40,000 |
Now, you have Credit Card dues of Rs. 1 lakh that need to be dealt with. Ensure your plan doesn’t overburden you, but at the same time, don’t rely on just minimum payments. Choose a realistic time period. In this case, perhaps 10 months could work with monthly payments of Rs. 10,000. Find what works for you.
Additional Reading: 6 Worst Ways To Pay Off Your Credit Card Debt
Step 3 – Prioritise The Card That Has The Biggest Outstanding Amount
If you have more than one card, try and prioritise the one that’s charging your a higher interest rate due to a bigger outstanding balance. It’s always better to have evenly distributed Credit Card debt if you have multiple cards. Also, going forward, make sure you don’t burden a single card with debt; use both or all your card judiciously; that will help your Credit Score too.
Coming back to the point, let’s say you have dues worth Rs. 70,000 on Card A and bills mounting to Rs. 30,000 on Card B; you can dedicate your first 7 seven months exclusively towards clearing dues on Card A.
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Step 4: Exercise Restraint But Don’t Go Inactive
It is obvious to say that Credit Card use must be highly restricted when you’re in so much debt. However, choose to go with minimal usage rather than no usage at all, because activity on your Credit Card helps your credit history. What’s more? Keeping your oldest Credit Card active will give your portfolio a healthy credit line. The takeaway here is that you can use your Credit Card during these months, but only for minor expenses. Don’t take up more debt; that’ll just defeat the purpose.
Once you’ve considered these 4 steps, your path towards slaying the beast that is Credit Card debt is clear. Once your plan is in full force, don’t hesitate to improvise and pay extra amounts whenever you can; the sooner your debt is cleared, the better it is for you.
Additional Reading: Handling Debt 101: Way To Become Debt-free
Oh, and one more thing; don’t start hating on Credit Cards just because you’ve been struggling to get out of your debt trap. Remember, it is the user who creates debt traps, not the Credit Card. What you can do instead is look at your Credit Card from a fresh & more knowledgeable standpoint and treat it with due respect. Proper use of Credit Cards not only gives you benefits, rewards and a whole bunch of freebies and discounts, it also helps fortify your credit history.
Burdening your existing Credit Card? Get a new Credit Card now: