We all want to get rid of Credit Card debt as soon as possible, don’t we? Here are 6 ways to clear your Credit Card debt that you should definitely avoid.
How great would it be if you could shop for free? Wouldn’t it be awesome if someone paid all your bills without you having to pay them back? Sure, it could happen someday, when pigs fly and we have pothole-free roads.
Credit Cards are our best chance of making that ideal situation a reality since it takes care of our current expenses while letting us worry about repayment at a later date. A Credit Card can be an amazing plastic mate allowing the user to shop now and pay later. But, your friendship with your plastic mate could turn sour as soon as the Credit Card bill arrives.
No one likes Credit Card debt. But the truth is credit and Credit Card debt are two sides of the same coin. If you use your Credit Card wisely, your debt will be minimum or manageable. If you recklessly swipe your card, debt will obviously pile up.
Additional Reading: Help With Credit Card Debt!
Unfortunately, a large section of Credit cardholders is being crushed under a mountain of debt all thanks to bad Credit Card habits. In fact, in an effort to clear their debt, borrowers tend to resort to risky methods of clearing Credit Card debt, which we absolutely disapprove of.
So, here are six of the worst ways to clear your Credit Card debt, which you should avoid like the plague:
Paying minimum balance
The option of paying just the minimum amount due of the outstanding card balance every month sounds like a boon for Credit Card holders. But, it is one of the worst ways to pay off one’s Credit Card debt thanks to the interest that keeps on adding to the outstanding balance in every cycle.
With high-interest rates on Credit Card debt, paying just the minimum balance will not only lead to paying huge amounts of interest in the longer run, but it is also the slowest way to clear outstanding debt.
Additional Reading: Paying Just The Minimum Due? Here’s How It Could Harm You!
Exhausting emergency funds
Call them gatecrashers or party spoilers, financial emergencies can strike anyone at the most unexpected times. While it is wise to save for a rainy day, clearing off Credit Card debt by exhausting your emergency funds is a very risky proposition.
First off all, Credit Card debt is not a financial emergency, it is a financial burden. Things like natural calamities, job loss, and sudden medical requirements etc. fall under emergencies.
Secondly, if you utilise a bulk of your savings to pay off Credit Card debt, your family and you will leave yourselves vulnerable to unexpected financial emergencies.
Additional Reading: How To Put Together An Emergency Fund
Selling off house/property
A house, land or other forms of property are assets and they always have great value in real estate. House rates and property values rise exponentially with time.
Selling them to repay Credit Card debts is an ill-advised move as it robs you of the opportunity to extract the true value of the property over time. You might clear your debt, but you will end up incurring a substantial loss by giving away the property at a lower rate.
Breaking Retirement Plans
Planning for the future and investing in retirement plans is essential for one and all. But, the burden of Credit Card debts leading to the premature scrapping of retirement plans is not something unheard of.
Using your retirement funds to clear Credit Card debts can be very expensive as financial institutions charge up to 10% in penalty charges for prematurely breaking a retirement savings scheme. You also lose out on tax benefits once your retirement scheme is dissolved.
Additional Reading: Tips To A Financially Peaceful Retirement
Missing a payment of Home Loan EMI
Sometimes, borrowers who are overly dependent on Credit Cards for day to day needs, resort to skipping Home Loan EMIs in order to pay off their Credit Card debt. Since Credit Card companies immediately report non-payment of dues even for one cycle, your Credit Score gets severely affected and it could also lead to foreclosure of credit.
As the closure of credit is unacceptable to those who are overly dependent on Credit Cards, they are willing to risk the foreclosure of a Home Loan as it is a long drawn process and there are chances to make amends. Thus, to clear off the Credit Card debt you are actually putting your house in danger.
Secured Loans against property
Secured loans against a car or a house are easily sanctioned by the banks and these loans are used by borrowers to pay their Credit Card debt. While this might sound like a good idea, it is actually a very risky move as you are putting your assets on the line to clear the burden of debt.
If you fail to repay the secured loan then the bank has every right to take over your house or car against which you took a loan.
Additional Reading: Personal Loan VS Loan Against Property
Now that you are aware of the risks and shortcomings of these modes of Credit Card debt repayment, we advise you to opt for a Credit Card Balance Transfer or a debt consolidation loan to wipe out Credit Card debt. Remember, be a wise and disciplined Credit Card user, always!
Additional reading: Credit Card Handbook: All Questions Answered