Getting a credit card is extremely easy these days - too easy, when you consider the possible implications. If you are of legal age with a steady income and possess a marginally-secure credit history, you will find yourself being subjected to numerous calls from credit card salespeople on a daily basis. They require minimal documentation, generously waive off annual fees and offer extended payment periods. It almost sounds too good to be true!
That’s because, more often than not, it is too good to be true. If managed properly, credit cards can end up helping you streamline your payments and save you money when coupled with credit card offers and cashback schemes. However, the temptation of having a large credit facility at just a swipe of a card proves to be too great to resist.
How did I fall into credit card debt?
Despite spending heavily, you will find that the minimum payment required on your monthly credit card bill is unbelievably small (e.g. just a few hundred rupees for a ten thousand rupee credit card bill). This misleads people into just paying off the minimum payment and completely overlooking the bulk of the payment which is then subject to a very high interest.
Another way of falling into credit card debt is when you are faced with a sudden large purchase, you put it on your credit card and end up with no hope of possibly paying it off in one month.
These are just two ways of how most people end up easily falling into credit card debt - when the interest on your balance payment grows much larger than anticipated. Coupled with very high interest rates and compound interest, you will find that your credit card bill has snowballed completely out of control.
Getting out of credit card debt is nowhere near as easy as getting a credit card. But it is possible, and here are some ways you can approach getting out of credit card debt.
Break it Down
First and foremost, find out how much you owe. If you are juggling multiple credit cards and loans, as well as very high monthly expenses, you need to know how much it all comes down to, right to the last rupee. Tackle those unopened bills and track your expenses carefully. Find out how much you need to pay each month in order to be out of debt in six or twelve months. Then find out where you need to reduce your expenses in order to make this possible. Cancelling your Spotify or Netflix subscription for a few months might help you more than you think. You might even find out that you urgently need another source of income, and that’s a good place to start from as well.
Set up Automatic Deposits
The longer you avoid dealing with your credit card debt, the worse it becomes. You need to get out of debt as soon as possible to avoid paying interest on top of interest. The first thing you can do is authorize a standing order to pay an amount each month when you receive your salary. This amount needs to be much larger than your minimum payment and you must pay it off each month. This might require some drastic and harsh lifestyle changes for a few months but getting out of credit card debt is crucial and will be worth it in the long run.
Transfer your Credit Card balance
The prevalence of credit card debt has grown so much in Sri Lanka that there are special schemes created by banks and financial institutions to help individuals get out of credit card debt. One such scheme allows you to transfer your entire credit card debt to another bank and start afresh. What basically happens here is that your new bank will settle your outstanding debt and provide you with an easier payback scheme. The benefit of doing this is that your credit score will not be as affected as you would have been with a large overdue debt.
Take out a Loan
One of the main reasons people take out personal loans is to simply get out of credit card debt. Personal loans come with fixed payments plans and usually no compound interest, so it is a far better alternative to being in credit card debt. A 5-year personal loan to pay off your credit card debt might lessen the financial burden and help you tackle your mountain of credit card debt over a longer period.
Credit Card Debt Settlement
In some countries, debt settlement is a lucrative industry. When faced with credit card bills and debt you have no hope of paying off, you can go for a debt settlement approach, which is an agreement with your creditors to pay off a lesser amount that is agreed-upon by both parties. These agreements are usually mediated by debt settlement companies. However, this is a risky move as it will negatively affect your credit score and there is a low chance of success, especially when dealing with larger banks.
In conclusion, while credit cards can seem like a supplement to your income, it is still very much a line of credit that can suck you into a vicious debt trap. If you find yourself with credit card debt that is slowly but surely spiraling out of control, take steps immediately to address this. The absolute worst thing you could do in this kind of situation is do nothing.