How to repay credit card debt without financial stress

Here are some ways you can keep financial stress at bay and repay credit card debt with minimal long-term implications on your credit record.

Whenever you spend money using your credit card, you should be ready with a repayment plan that can help you repay the bill on time in full every time.

The benefits of using a credit card in day-to-day life can be many, but only provided it’s used with extreme financial discipline. Every flexibility and convenience is tied to timely repayment of the credit card bills, and in its absence, the credit card ends up as a millstone around your neck.

Late payment or default in credit bill payment can negatively impact the credit score of the cardholder. Every delay in repayment before the due date comes with high interest on the late payment. Non-payment of a minimum due amount may also invite a hefty penalty by the card issuer. So, despite serious financial constraints, it is imperative that credit card users don’t miss the credit card bill payment. So how do you manage bill payment in a crunch situation when finances are tight?

Here are some ways you can keep financial stress at bay and repay credit card debt with minimal long-term implications on your credit record.

Negotiate with the lender

Sometimes there may be situations when you may have taken all possible precautions and yet find yourself in a bind with no way to repay the credit card debt. In such a situation you don’t need to lose hope. Assess your financial situation. If you feel that you will be able to reinstate the card payments after a few weeks or a month, convey the message to the issuer. Issuers may give you a chance to convert your debt into an easy EMI or refrain to take any adverse action against you considering your position.

Use a low-interest loan

Credit cards may turn out to be very expensive as they come with a very high APR of as much as 40% per annum. While credit card EMIs allow you to pay back in instalments, they also have a high interest rate. Repaying a debt with such high interest rate can make your financial situation worst. To avoid such a situation, if you feel that you won’t be able to repay the credit card bill within the due date, you should explore other low-cost options to arrange the money and repay the credit card due.

If you have security to mortgage with the bank, you may apply for a loan against securities such as a loan against FD, mutual funds, or shares to get a quick loan to repay the card bill. Loan against an FD can be especially beneficial as the interest rate would be at par with home loan rates or even lower. Moreover, as the lender already has the collateral and your KYC, the processing would be fast. You may consider a personal loan to repay the card bill.

A personal loan can be applied online, and the processing time is also quick. However, it would be a more expensive option compared to a secured loan, though much less expensive compared to what the credit card company will charge you. Bear in mind to check aspects such as the rate of interest on the loan, charges associated with it, repayment flexibility, etc., while taking a loan to clear credit card dues.

Liquidate an existing investment

As a last step, you may consider liquidating one of your investments to repay the credit card debt before the last due date. Try to liquidate such an investment whose return is lower than the interest levied by the credit card company and the tax obligation on the ROI is low and always use it first to repay the debt that costs you a higher interest rate. You may liquidate a low-interest FD, partially redeem a debt fund or book partial profit from an equity fund that has given you a good return in the long-term and has less chance to offer a greater return. The returns you will earn on investments like FDs will be much much smaller than the penal interest you will have to pay on outstanding credit card bills. The added loss in credit score will take months to improve, and the adverse credit report take remain for years. You can always reinvest in such an instrument after a few months when you have sufficient funds available in your hand.

Whenever you spend money using your credit card, you should be ready with a repayment plan that can help you repay the bill on time in full every time. Avoid spending money through your credit card if you are unsure about the timely payment of the bill. A credit card is value for money only as long as you treat it as a deferred debit card and have enough funds in your bank account to repay the bill before the due date.

(The author is CEO, BankBazaar.com)

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