10 smart financial moves post payment of your credit card dues

December 08, 2016 2:05 PM

Paying off your credit card dues can be an immense relief, especially when it has involved a long walk on the path of financial discipline.

credit-card-l-reuCredit cards, no doubt, bring a degree of financial freedom, but they also require controlled usage. (Source: Reuters)

Sanjeev Sinha

Paying off your credit card dues can be an immense relief, especially when it has involved a long walk on the path of financial discipline. But if you think your job is done once you have paid your dues, hang on – there’s much more to do. Your financial responsibilities, in fact, become even more significant at this point. Here are ten things you should consider doing to keep your finances healthy in the long run:

1: Give your card usage a break

Credit cards, no doubt, bring a degree of financial freedom, but they also require controlled usage. Uncontrolled usage and any unnecessary expenditure could set you up for another card debt, which is never easy to pay off due to the high interest rates on cards. “When you’ve just crawled out of debt, it would be wise to resist the habits that would send you right back. This does not mean, however, cancelling your credit cards as that may impact your credit utilization ratio and dent your credit score as a result. A better option is to lower your credit card usage. Take a break from it; try and use only cash or debit cards for all your payments,” says Adhil Shetty, CEO, BankBazaar.com.

2: Use a budgeting tool to analyze your finances

Now that you have paid off your credit card dues, it is a good time to make use of a budgeting tool to analyze your finances. Many individuals use a budgeting tool only when they are already in debt, leaving them little or no chance to plan their finances. With extra cash in hand that you will be saving as you do not have to repay your card debt any more, a financial plan using a budget tool can open many new avenues, leading to a stronger financial future.

3: Focus on other high interest debt

Check if you have any other high interest debt pending. If so, use your spare funds to start repaying them. “If you have any personal loan, automobile loan, student loan, or a home loan active, you can consider using the money at hand to settle them one by one, starting with the ones with the highest interest rates. Finishing credit card debt is good but going completely debt-free, especially if you manage to close a high-interest debt, can be a wonderful feeling altogether,” says Shetty.

4: Check your emergency fund

Have you set aside enough money for a rainy day? If not, use your spare funds and start building an emergency fund. Having a contingency fund is a commonly ignored aspect of money management. “Having such a fund would help you tide over emergencies such as job loss, hospitalization, accidents, repairs, etc. Also, you would be spared the need to take a loan or max out your credit card in order to meet these emergencies. It would be best if your emergency fund is locked in a liquid asset such as a fixed deposit or a high interest savings account,” says Shetty.

5: Check if you have a comprehensive retirement plan

Indians have a very poor retirement planning history. If you are among the majority with minimal or no retirement plan, use the funds to opt for one immediately. The sooner you start planning and investing for retirement, the better it is for your sunset years.

6: Take a look at your credit score

Your credit score is updated after a successful repayment of any debt. So, closing your credit card debt is bound to reflect positively on your credit score. Make an effort to check your credit score and use the higher score to your advantage in the future. Various studies have shown that over 90% of new credit is sanctioned to people with scores of 750 and above.

7: Consider refinancing your home loan

One of the many perks of a higher credit score is that you can now renegotiate with your bank for a better home loan deal. Since a home loan is a long-term loan, getting even a slightly lower rate of interest can mean asignificantlylower financial burden from the loan repayment.

8: Fine-tune your card repayment plan

You may have successfully come out of credit card bad debt, but it can all go wrong quickly if you fall back into the same debt. Use your debt-free time to plan how you are going to use your credit cards in the future. Shortlist the grey areas that lead you to a credit card debt in the first place and have a definite repayment plan in place for all your credit cards.

9. Limit the number of credit cards

It is generally seen that some people try to have as many credit cards as possible. They do this because they think that this will make them financially secure, particularly in case of emergency. “But having too many credit cards is not good for your financial health, especially when you are a habitual spender and don’t plan your finances well. For instance, if you don’t pay your bills on time, then this might land you in a vicious debt trap. Therefore, you should try to keep only as many cards which you can manage well,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.

10: Invest rather than splurge

Use the extra sum of money that you are saving for successful regeneration of wealth. With rising inflation, if you are not investing your money smartly, you are effectively losing money. “Shortlist the correct investment options as per your financial plan and invest your extra money for a better financial future. Paying off your credit card dues can be a tough long road to walk. After successfully reaching your destination, maintain the same financial commitment and opt for other financial moves that can build on the good work done,” says Shetty.

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