How to Get Out of Credit Card Debt?

It is Possible to Get out of Credit Card Debt through the use of Correct Strategies for Debt Repayment. The first step towards this involves figuring out what causes your debt to grow and selecting a payment option that will help you save on interest while settling your debts faster. Be it one credit card or several debts to settle, there may be some factors such as high interest rates, low payment plans, penalties for delays and continuous spending that make it difficult for one to settle his/her debt. Fortunately, there are various practical measures including formulating repayment strategies, adopting the snowball or avalanche approach, and exploring the option of Debt Consolidation or a Credit Card Loan among others that can ease the debt repayment process. This article highlights the reasons behind growing credit card debt, calculating interest, and efficient approaches of settling your debt faster.

Key Takeaways

• Interest charges should be known to avoid excess Credit Card Debt.
• It is better to pay more than the minimum due amount to repay Debt faster.
• Go for Debt Consolidation if you have many credit cards repayments to make in one EMI.
• Take a Credit Card Loan intelligently for a better repayment plan.
• Make repayment plans systematically to become debt free.

Why Is Your Credit Card Debt Rising, Even Though You Have Paid Regularly?

Most people get confused when they notice that their Credit Card Debt continues to rise, even though they have made timely payments. It is mainly because credit cards account balance is influenced by interest, fees, payment behaviours, and spending trends. Having knowledge about these factors would help you devise your Debt Payment plan.

How Is Interest Charged on Credit Cards?

Interest is charged by credit card companies on any outstanding amount after the interest-free period has expired. The usual interest rate per month for a credit card in India is between 2.5% and 4%, which corresponds to an annual percentage rate (APR) of 30% to 48% and sometimes even more.

The interest will be computed on the remaining amount each day and will be credited at the end of the month to your account. In case your statement amount is not paid in full, purchases made on your card will also attract interest, thereby increasing your Credit Card Debt.

For instance, if you have an outstanding amount of ₹50,000 with an interest rate of 3.5% per month, then you would have to pay around ₹1,750 as interest in a single month.

What if You Make Payments Only for the Minimum Due?

Minimum payment ensures that you do not appear in the list of defaulters; however, it does not get rid of your debt. The minimum payment of usually 5% of the outstanding amount is mostly made of interest and a small part of the principal amount.

Consequences:

• Most of your outstanding balance is unpaid.
• Interest accrues on the unpaid balance.
• Payment period extends.
• Amount paid increases.

This is one of the most common reasons why Credit Card Debt keeps increasing even when you make payments. Making higher payments than the minimum payment will reduce interest payments and help in Debt Repayment.

How do the late payment charges and GST add up to your outstanding balance?

If you do not make the payment by the deadline, your debt becomes bigger at a much faster rate than you expected.

The bank might charge:

• Late payment charges based on your outstanding balance.
• Interest on the outstanding balance.
• GST on the applicable charges.

This increases the total amount of your outstanding balance, resulting in your interest being calculated on a larger amount.

Why Does the Possession of Multiple Credit Cards Cause Debt?

Multiple Credit Cards may create problems for an individual when trying to remember when payments are due and what the balances are and the interest rate.

These problems include:

• Paying off one card using money from another source of borrowing.
• Failure to meet payment deadlines.
• Maintaining balances on multiple credit cards at once.
• Losing track of how much one owes.

Since the interest rate is built up separately for each card, this causes an escalation of the Credit Card Debt.

What Are the Best Ways to Pay Off Credit Card Debt Quickly? 

Dealing with Credit Card Debt becomes significantly easier if you follow a proper Debt Repayment plan. Rather than making minimum payments each month, try some methods that will allow you to settle the remaining debt as quickly as possible and pay less interest overall. Below are some of the best methods of repaying credit card debt.

1. Make a Practical Repayment Plan

Begin by taking a look at your monthly income and expenses to see how much you can set aside for your credit card repayments each month. Reduce your spending on things that are not important to you, such as eating out or subscribing to things that you do not need.

2. Pick One Between the Avalanche Strategy and the Snowball Approach

The two Debt Repayment methods which are very popular include:

• Avalanche Strategy: Minimum payment should be made to all credit cards. However, any additional funds should be used to pay off the credit card which carries the highest rate of interest until it is completely paid off. The process should be repeated for other balances.
• Snowball Approach: Credit card carrying the lowest balance must be paid off first while making minimum payments to other credit cards. After paying off one debt, the same payment amount should be directed towards the next debt.

Decide which method suits you best based on your objectives and motivation level.

3. Avoid Making Purchases Using Credit Card until you Clear Your Debt

Do not incur further debts on the already present debt. Keep on making use of cash, UPI, and a debit card instead of using the credit card for making any purchase until you clear your Credit Card Debt. This will help you keep your debt low.

4. Always Make Extra Payments Whenever you Can

Making extra payments towards the end of each month even if small can save you from making huge interest payments. You should always try to make payments that exceed the monthly minimum amount to be paid on the debt.

5. Utilise Bonuses or Additional Income for Rapid Repayment

Bonuses, tax refunds, income from freelancing, or any additional income can have a huge impact. In lieu of using this income for other purposes, pay off your debt in lump sums using this extra income. This will allow you to rapidly decrease your principal amount and reduce interest expenses.

6. Automate Your Payments

Automate your payments to ensure that you make the minimum payments each month. It will prevent you from paying any late fees, additional interest expenses, and any adverse effect on your credit score. Make sure that you set up automatic payments for an increased amount, if possible.

Tips on How to Pay off Your Credit Card Debt Quickly

When considering how to pay off your credit card debts quickly, it is important to maintain discipline and consistency when paying back money owed. Some of the tips to consider include having a realistic budget, choosing a mode of repaying the debt that fits your preference, not using the credit card until it is paid up, increasing your monthly repayment amounts when you can, making use of any windfalls to repay in large amounts and automating your payments to prevent any penalties.

Can Debt Consolidation or a Credit Card Loan Help You Become Debt-Free? 

In case you have to make payments on various Credit Card Debt obligations, dealing with the different payment deadlines and interest rate may be challenging. Not making the payment on time can result in more costs and damage to your credit rating. These are two tools that can help you out with this, Debt Consolidation and Credit Card Loan.

What is Debt Consolidation and how does it work?

Debt Consolidation refers to the consolidation of your various debts into a single loan. In essence, rather than paying various bills for credit card loans separately, you consolidate all your balances through one loan and make EMI payments on it.

Advantages of Debt Consolidation

• Allows consolidation of various credit card balances into a single payment.
• Has the potential to cut down the cost of interest that you pay since the new loan has a lower interest rate.

For example, if you have outstanding balances on three different credit cards, a debt consolidation loan can pay off all three. You then repay just one lender instead of keeping track of multiple bills.