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How To Get Rid of Credit Card Debt? Research Team | Posted On Monday, November 18,2019, 05:13 PM

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How To Get Rid of Credit Card Debt?



Credit card debt is common in these troubled times. Many people borrow heavily with credit cards and struggle with repayments. Credit cards charge interest as high as 2-3% a month. This translates to 24-36% a year and paying back dues gets difficult.

People get credit cards for financial emergencies. They then spend recklessly using these credit cards and land in the debt trap. This not only disturbs your budget but eats into future income.

However, if you are already in the debt trap, there are many ways to get out. Let’s take a look at simple and innovative ways to get out of credit card debt.

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How To Get Rid of Credit Card Debt?​

Credit Card Balance Transfer

You can use the credit card balance transfer to shift the outstanding money from one credit card to another, which charges lower interest. You can also shift multiple credit card dues to a single credit card. Credit card balance transfer gives a credit-free period of 90 days. There’s time to repay the borrowed amounts without adding further interest.  

Credit Card Balance Transfer makes sure the amounts repaid go towards repaying the principal balance, rather than the interest, getting rid of credit card debt fast.

See Also: How to Increase Your Credit Card Limit?

Take a Personal Loan

Personal loan charges an interest rate of 14-22% a year which is lower than credit card rates. Credit cards charge an interest of 25% to 40% a year on the outstanding amounts. You must definitely explore the option of getting a personal loan to repay credit card dues.

Use the Snowball Method

There is another way of paying off credit card dues called the snowball method. You clear off the smaller dues first. Even clearing the balance from a single credit card improves your credit score and also the credit utilization ratio. A good credit utilization ratio is less than 30-40%. This shows that you are using less than 30-40% of the total credit available. So, get rid of credit card debt and improve your credit score.

Liquidate Investments and Pay-Off Debts

You know that a credit card charges 24-36% a year on the outstanding balance. What interest do you get from Fixed Deposits? FD rates range from 6.25-7.5% a year, PPF and NSC currently offer 7.9% for the October-December quarter. Post Office schemes offer similar returns.  A good equity mutual fund might give 11-12% a year. These returns are nothing compared to the credit card interest rates.

Now, PPF, NSC and post office schemes may have lock-in periods. But, FDs can easily be liquidated to pay back credit card dues. Do this only in exceptional cases as you need money for emergencies.

Go for Top-Up Loans

If you are not comfortable taking a personal loan, go for a top-up loan. You get a top-up loan with your existing home loan. Make sure to pay the home loan EMIs regularly for 2 years or more, so that you get top-up loan approval.

The bank would conduct due diligence on your property and then sanction the top-up loan. You can use this to pay off credit card dues. Banks charge interest rates close to home loan rates, but you don’t get any tax benefits.

See Also: How to Apply for Credit Cards Online?

Take Help From Family and Friends

You can always get a hand loan from family and friends and they may not charge interest. Take this only in cases of extreme emergencies. If the primary earner in the family dies or if there is a major financial calamity, take help from family and friends.

Get in Touch with Credit Card Provider

Contact the credit card provider and ask for an extended grace period. This holds off extra/punitive charges. There are cases where a credit card provider has waived off an outstanding amount of Rs 50,000 if the main/primary cardholder dies. So, talk to the credit card provider and apprise them of the situation. This helps in settling credit card dues.

See Also: Low Income? Here are Some Credit Card Tips For You!

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