5 steps to get out of the credit card debt trap

By: People Lend0 comments

Credit cards changed the way we shop. Traditionally, people would save money to be able to buy a television or refrigerator or any other costly appliance. Some electronic dealers would offer an EMI facility to their regular patrons. However, with credit cards, the entire landscape changed. Today, with most purchases done online, credit cards have become the primary tool for shopping. From t-shirts to suits, pens to mobile phones, everything can be bought using a credit card. And, if you repay the amount before your next billing date, you are not charged any interest either. Also, there are discounts and cashbacks. Then why are we calling it a debt trap?

As long as you are repaying the amount used on the card, it is a good tool to have. The problem starts when you either fail to pay your bills on time or shop on instincts without being judicious about it. The interest, charges and penalties just keep adding up and people find it difficult to get to a debt-free spot. What’s worse is that it hurts your credit score making it difficult to procure any other loans too.

If you find this situation familiar or if you know someone who is stuck in the credit card debt trap, then these 5 steps can help you get out of it:

1. How does P2P Lending work?

  1. Balance Transfer:
  2. If you have a large outstanding balance, then you can consider using the balance transfer facility offered by most credit card issuing banks. In this facility, you can transfer the outstanding balance from one credit card to another. There are different windows offered by banks during which you can clear the outstanding amount at a relatively lower interest rate. However, this option should only be availed when you are sure of clearing the outstanding in the window offered. Else, you will merely be postponing the problem instead of solving it.

  3. Use the EMI facility
  4. You can use the EMI facility offered by credit card issuing banks and convert your outstanding balance into monthly instalments. Most banks offer this facility at reasonable rates. However, you need to ensure that you don’t miss any instalment once you convert your outstanding balance into EMIs. Also, ensure that you get this done through the bank and get a written confirmation of the outstanding credit card balance being converted into instalments. And, take a letter of closure once you have cleared all the EMIs.

  5. Stop using the credit card
  6. This is no-brainer but still needs mention since many people find it difficult to stop using their card even if the outstanding amount is beyond their repayment capability. The best way to do this is by not keeping your card with you at all times. Every single purchase you make is a loan that needs to be repaid. Keep this in mind and stop using your card till you don’t clear the outstanding dues.>

  7. Redeem investments, if any
  8. If you have investments like fixed deposits, mutual funds or stocks, then you might want to talk to a financial advisor and consider redeeming them to clear your debt. You can restructure your savings and investment plan once you are debt-free. There is no point holding on to your investments when the payable interest is rising on your debts and hurting your credit scores.

  9. Look for cheaper loan options
  10. Lastly you can look for personal loans to clear off your credit card debt. The idea is to procure a loan at a rate of interest lower than the interest you are paying on the credit card. While banks might be reluctant to offer you loans due to outstanding on your card account, you can look for alternative platforms to avail a personal / debt consolidation loan.

    One such platform that leverages technological platforms and offers easy and quick loans is a Peer to Peer Lending platform. You can register as a borrower on these platforms and apply for loans. Retail Investors will review your application and offer loans within a pre-determined interest rate based on your risk class. People Lend, a trusted name in P2P Lending has a proprietary software which assess your risk class by taking into consideration your CIBIL score, location of residence, trends in expenditure, etc. You can repay the loan in equated monthly instalments (EMIs).

    Here is a quick look at the borrower process:

    Following the steps mentioned above can certainly help you get out of the credit card debt trap and bring your finances back in control.

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