Whether you are facing any medical exigency or want to go on any international trip, credit cards can rescue you out any time. But ensure not to take your credit card for granted, this will sweep you into a massive debt trap. And for you to come out of the trap may be extremely challenging and difficult.
Well, do not panic. Listed here are ways to help get rid of the debt trap. However, before proceeding, know how you may fall into a credit card debt trap.
What makes you fall into a debt trap?
First thing first – note that when you avail a credit card, you sign numerous terms and conditions laid by the issuer. One of the conditions is that you must pay all your card bills by the due date as listed on your card statement failing which, your issuer will send you a notice or warning for six months on a periodic basis. Even if after constant warnings, you fail to pay your dues, your card account will get deactivated and reported to the concerned credit bureau. This majorly would negatively impact your credit score. Hence, to avoid witnessing any such situations, you should initially be aware of the crucial reasons that might land you into a trap and ensure to stay away from it.
Over expenditure – It is one of the crucial things you must remain away from. While there might be various situations when you require spending an excessive amount, it is crucial to initially ensure whether you would be able to repay the amount when receiving the salary. Hence, you must just spend not over thirty percent of your credit card limit to keep your CUR (credit utilization ratio) within the acceptable limit.
Postal delays: Suppose you availed IndusInd credit card, however you forgot to opt for the online IndusInd credit card bank statement. In this case, your bank would send bills to your address via post. In these cases, there is an extremely high chance that your credit card bills might be delayed or misplaced in reaching you. This eventually would result in late payment of your credit card. Delayed IndusInd credit card payment will not just attract late payment penalty but also finance charges. These charges keep adding, which ultimately results in accumulation of huge outstanding credit card amounts. Thus, it is recommended to turn your online notifications on and keep constant track of your credit card statements.
Procrastination: There are a lot of individuals who tend to wait until the last moment to repay their card bills. While this makes zero difference if you pay it on or before time, it is always a good idea to make your bill repayments in advance. This assists you to avoid the risk of missing out on bill repayments and leaves zero chance of being liable to make payment of heavy finance charges and late payment fee.
Missed due date: Even while it is less probable to happen, there might be certain instances where you will be confused concerning your due date and ultimately miss out on the card bill repayments. Hence, it is advisable that as and when you get your monthly statement, ensure to take an in-depth look into the billing and payment due date. Also, ensure to set reminders for payment accordingly.
What happens when you fall into a debt trap?
As you know prevention is better than cure, this applies to credit cards too. Wondering how?
Reason is if you have knowledge about the crucial consequences of falling into the debt trap, you may do your best to avoid it. Hence, before proceeding to know how to come out of the debt trap, you must be aware of what can happen if you fall into a trap.
∙ Negative impact on score – Conducting late payment of credit card dues or having a missed payment results in lower credit score. This cancels out the massive benefit that credit cards offer. Your score can be ameliorated by effective usage of your card and timely bill repayment. This is necessary to have an excellent credit score to make sure that you are eligible for a higher loan and credit option in the future. Failing to repay your bill on time eventually impacts your financial health.
∙ Blocked credit card account – Not repaying your card dues for a maximum of six months shows you as a defaulter. In this case, you will be blacklisted from the bank, which, in turn, blocks your card account.
∙ Legal implication – Not repaying your card dues for an extremely long time shows you as a fraud. As an outcome, banks may take legal action, which may make it tough for you to take credit from any lender in the future.
∙ High rate of interest – On non-payment of card bills by over 60 days, credit card companies charge an interest rate as high as thirty percent of the card overdue. This high rate of interest is also applied on new buys that you would make using your card. In case you continue doing so, in no time, your interest on your credit card will be more than your actual bill.
∙ Interest on the outstanding balances – In contrast to what many of the credit card users think, paying just the minimum due amount out of your overall card dues on the due date does not levy interest rate. However, this is not true, while no late payment fee is charged on minimum due payment, finance charges are levied on the remaining outstanding card balance.
∙ Asset acquisition – As an outcome of non-payment of the pending dues, financial institutions have the right to utilize the funds available in savings or other bank accounts to clear off your outstanding balances. In the worst cases, financial institutions might also seize your assets/properties to meet the dues.
Credit card payment may have a massive effect financially, hence it should be taken seriously. Simplest way to get out of the debt trap is to avoid falling into it. If taken seriously, it is very simple to manage your credit card and mitigate all your expenditures without falling into the debt trap. All you must do is be extremely careful of the crucial dates and make all your due payments on time.