Credit cards carry higher interest compared to any other form of debt. The easy access to credit card debt has spiraled into a new debt problem for many.
Most of us never seem to get over the credit card debt despite making consistent payments to clear the outstanding balance. Managing the debt and paying it off without causing too much damage to our credit history or the future of our personal finances is important. But for those of us who have already committed this hara-kiri , here are few tips to reduce the debt and interest accumulation on our credit cards:-
There are few alternative payment structures unlike the regular monthly payments that can help us reduced our credit card debt or say credit card balances. By availing these alternative routes we can reduce the interest charge on our credit card balances. The following options allow us to manage our credit card debt by reducing the interest that we need to pay:-
a) Personal loan to pay off credit card balance
b) Balance transfer
c) Convert to EMI
Personal loan usually carries lower APR than a credit card. Taking a personal loan to close a credit card debt can reduce a considerable amount that we pay for charges. A personal loan APR is usually between 10-24 percent whereas the credit cards APR’s are higher and range between 30-45 percent.
Balance transfer is a facility offered by a card companies that use this option to attract existing credit card users of other banks. As per the option chosen we can transfer the balance for either fixed term or lifetime. The balance thus transferred will be charged at lower rate. The fixed term rates are lower than lifetime options. However if we miss our payment within the fixed duration then we will be charged at regular interest rate plus the late payment fees.
Converting credit card balances to EMI is an option offered by few banks and credit card companies. The balance is converted to EMI’s and the interest on the EMI is lower than regular credit card APR. Few banks offer zero percent interest rate charge on EMI payments. However if we miss an EMI then regular interest rate is levied. If our own bank is providing this facility then this option can be more useful as we don’t need to go through documentation for balance transfer with another bank.
Paying higher interest balances first
Paying card balances which have high interest rates can be beneficial in the long run specifically if those balances are high. High balances with high interest rates may take longer to pay than lower balances; however it is always good to close balances which attract high interest rates. If a balance is low but is charged at higher interest rate then also it is financially prudent to attack the credit card debt with highest interest rate to be closed first.
Avoid paying only minimum due on balances
Paying only minimum due for credit card balances is a debt trap. The APR determines the amount we end up paying in charges if we decide not to pay full balance. When we pay only minimum due we end up mounting this debt as we agree to pay only a percentage of total balance which is usually 5% of total outstanding balance.
Conclusion: Reducing our exposure to high interest debts and credit cards will prove to be savior in the long run. If we look at our statement closely we end up paying a lot of charges not just in terms of interest but also other amounts like annual fees, late payment charges, over-the-limit-fees. Using credit cards wisely and paying off the complete balance can help us save lot of money.
Written By Arthayantra