In today’s fast-paced world, credit cards have emerged as an indispensable component of our financial lives, offering unparalleled convenience and the potential to build credit profiles. However, misuse and mismanagement of credit cards have become a concerning global trend, leading to financial distress for many individuals.
Recently, alarming figures have underscored the gravity of this issue. The total credit card outstanding in India in the current financial year has increased significantly, at 29.6 per cent, compared to last year, according to Reserve Bank of India (RBI) data. Additionally, TransUnion reported a staggering $930.6 billion in total US credit card debt in 2022, marking an 18.5% increase from 2021. To avert such potential crises, it is imperative for people to adopt proven methods and maintain a disciplined approach towards credit card usage and debt management.
In this article, we will discuss some methods to help individuals take control of their credit card debt responsibly.
Creating and sustaining a sensible budget
One of the primary reasons behind credit card debt escalation is reckless and impulsive spending. The initial move towards responsible financial control involves setting up a well-thought-out budget. Start by evaluating your income and necessary expenditures, such as housing, utilities, groceries, and transportation.
Dedicate a reasonable portion of your income to discretionary expenses while setting aside some funds for emergencies and paying off debts. By following this diligently, you will steer clear of impulsive buying and ensure the ability to manage your monthly credit card balance without difficulty.
Also Read: How can co-branded credit cards help you save costs?
Prioritizing high-interest debts for maximum impact
When dealing with several credit cards carrying different interest rates, prioritize paying off the card with the highest interest rate. This technique (referred to as the avalanche method) is designed to reduce the overall interest paid over time and accelerate the debt repayment process.
While you focus on eliminating the high-interest debts, be sure to keep up with the minimum payments on your other cards to avoid penalties and preserve a positive credit history. Once the highest-interest card is fully paid, apply the same approach to the next card with the highest interest rate, generating a positive momentum towards becoming debt-free.
Limit the number of credit cards
Managing multiple credit cards can present difficulties in maintaining effective debt management. Each card carries its unique billing cycle, minimum payment, and due date, which can lead to oversight of payments and the accrual of late fees. To address this issue, it is advisable to streamline your credit card portfolio to a manageable level.
Conduct a thorough evaluation of your credit card requirements and retain only those that provide essential benefits and align with your financial objectives. This proactive approach enables you to exert better control over your credit card usage and facilitates a more straightforward debt management process.
Pay more than the minimum due
Paying only the minimum amount due on your credit card might appear convenient in the short term, but it can lead to a dangerous cycle of accumulating long-term debt due to high-interest rates. To steer clear of this pitfall, it’s crucial to go beyond the minimum requirement and strive to pay more each month. By doing so, you not only lower the overall interest charges but also accelerate the debt repayment process, bringing you closer to financial freedom.
Also Read: How to manage your credit card expenses and lower your Credit Utilisation Ratio
Take professional guidance if necessary
If you find yourself grappling with credit card debt despite your utmost efforts, don’t hesitate to reach out for professional assistance. Experts can provide valuable insights and personalized strategies tailored to your specific circumstances. They can also help you create a realistic budget, develop a debt management plan, and explore debt consolidation options, enabling you to confidently regain control of your finances.
Conclusion
Navigating credit card debt requires careful planning and responsible habits to prevent it from spiraling into a crisis. Implementing these five proven methods will help you safeguard against escalating credit card debt and ensure a financially stable and debt-free future. By adopting responsible credit card practices, you can take charge of your finances and build a secure foundation for long-term financial success.
This article has been written by Rishabh Goel, Co-Founder & CEO Credgenics. Views expressed are personal