Credit cards can be a great tool for managing finances and making purchases while availing benefits like cashback or rewards. However, the temptation of “buy now, pay later” can quickly lead to a cycle of debt that is hard to break. Hence, selecting the right credit card and using it responsibly is important to manage your finances. Prior to card application, it is important to compare various options via platforms like Paisabazaar to make a well-informed decision. Additionally, practicing responsible spending, making timely payments, opting for balance transfer, and considering a personal loan can all save you from credit card debt. Here are some of the tips that you should implement to avoid debt.
Create a Budget and Practice Responsible Spending
The first step in managing your finances is creating a realistic budget. By creating a budget, you can track monthly income and expenses which gives a clear picture of your current financial situation. Allocate a specific amount to each spending category, and make sure your total expenses don’t exceed your income. Additionally, you should be responsible with your spending by making conscious choices about your purchases to avoid falling into debt. Prioritize needs over wants, and avoid impulsive buying.
Pay Your Bills on Time and in Full
One of the primary reasons people fall into credit card debt is late payments. When you miss a payment, credit card issuers levy high-interest rates and late fees, which can quickly accumulate. Besides this, paying only the minimum amount due every month is also not advisable. This is because paying the minimum due each month means revolving the remaining outstanding balance to the next cycle. This leads to interest charges on the remaining balance, which can quickly escalate if you continue to pay only the minimum amount due for several consecutive months. Paying the entire balance each month is the best way to avoid credit card debt. To do so, you have to be disciplined and only spend as much as you can afford to pay off in a single month.
Opt for Balance Transfer
If you’re currently dealing with high-interest credit card debt, consider using a balance transfer to a card with a lower interest rate. By opting for a balance transfer, you can save money on interest, but it’s important to be aware of all the related fees and charges. Many card issuers offer an interest-free period of a few months, which can provide a temporary break from high interest rates. Keep in mind all the charges associated with the transfer and requirements to qualify. Furthermore, it’s important to keep in mind that a balance transfer can provide temporary relief as you are required to pay off the transferred balance within the given period.
Consider Applying for a Personal loan
Another option to manage multiple credit card debts is to consolidate them by taking a personal loan. In most cases, banks offer personal loans to settle the credit card balances. Personal loans often have lower interest rates as compared to the finance charges on credit cards. You can apply for a personal with a lower interest rate and pay off the loan amount in EMIs as per your convenience and repayment capacity. Comparing personal loan options from different lenders will help you find the best loan with a lower interest rate and a repayment plan that suits your budget. This will help you lower your overall bill and give you plenty of time to pay off the balance.
Avoid cash withdrawal from credit cards
Credit card cash withdrawals are not eligible for the interest-free period. When you withdraw cash from an ATM using your credit card, the entire withdrawn amount starts incurring interest charges from the first day. Moreover, new purchases also become ineligible for the interest-free period until you repay the cash advance amount in full. Most cardholders are not aware of this and tend to use their credit cards as debit cards to withdraw money. However, this can lead to hefty penalties and must be avoided.
As seen above, one of the most common reasons why cardholders get stuck in a credit card debt spiral is the interest that accumulates on unpaid balances. Credit card typically comes with a fixed interest rate, which is applied when you make late payments, default on your credit card bills, or take out a cash advance. This APR can go as high as 45% p.a., which can quickly lead to credit card debt. Therefore, it is important to be aware of all the related fees & charges and avoid these situations to steer clear of debt.