29 AUGUST, 2022

Using your credit card wisely can help you manage your finances smartly.

If you use it recklessly, you can surely get into a debt trap. The more debt you accumulate today, the more financial burden you will have tomorrow. With carelessness, even if you have the best credit card in India, you may end up with a pile of high-interest rate debts and significantly high dues.

Moreover, debt negatively affects your CIBIL score as banks determine the credit utilisation ratio and your dues on the date to approve your credit card application.

If you have credit card bills hanging over your head, you can find multiple ways to tackle them. There are plenty of ways to pay off credit card debt fast. Most importantly, you need to consider interest rates on bills, fees and penalties, your capacity to repay and many other aspects before settling the bills and know what mistake must avoid for your next billing cycle.

Here are 6 common but important aspects to consider to clear credit card dues on time.

1. Convert payment to EMIs

Most credit cards come with the facility of converting credit card outstanding amounts into EMIs. Many banks offer this facility for free and help credit card users to make convenient purchases. But before opting for this option, you should look at the processing fee on the outstanding amount.

2. Find a payment strategy

You must have a concrete repayment strategy to tackle your credit card debt. Consider the following methods to achieve your goal faster:

Pay more than the minimum: Banks give you a choice to pay the minimum amount mentioned on the credit card bill. You can pay the minimum due if you cannot pay the entire credit bill. However, banks charge interest daily, so the longer it takes to pay the bill, the more interest is charged.

Pay off high-interest debt first: It is something which many credit card users forget to consider and indulge in the wrong tactic. When you have accumulated debts on more than one credit card, most individuals consider paying the one with a close due date first. Users should prefer to clear debts on the card with a higher interest rate first, as it may result in a higher amount of interest on unpaid dues and add further to their outstanding bill. So, pay off the cards with a higher interest rate first to reduce your total interest.

Pay off the smallest balance first: In this debt-repayment strategy, the users focus on paying the cards with the lowest balance first. When you keep focusing on larger payments, you continue to add to the accounts requiring minimum payments. It can be interest charges and late fees. Therefore, list your accounts from lowest to highest and pay small bills first. You will be likely to see progress quickly in your debt repayment. It will keep you motivated to continue working toward becoming debt-free.

3. Consolidate debts with a personal loan

Personal loans are a good alternative to paying a large debt with interest. If you have multiple credit cards with dues, you can consider a personal loan and consolidate all debts spread over your credit cards. Depending on your credit score, you can get a personal loan from banks at an affordable interest rate, and the loan amount may cover the entire dues on your cards. The personal loan interest rates are comparatively lower than the interest on the balance on credit cards.

4. Know your billing cycle and take advantage of grace period

Credit card users should know their credit card billing cycle to take advantage of it. Banks provide a credit-free period. It includes 30 days of the statement cycle and 15 days grace period to pay the bill dues. You should know that this period starts on the first day of the billing cycle and from the purchasing date. You should make your next purchase on your credit after considering this period to enjoy a maximum interest-free period and repay the bill on time.

For example, if your bill due date is August 4 and the statement generated on July 18. If you purchase using the card on July 19, the purchase will be included in the next statement, not the current one. So, you can enjoy an interest-free period till September 4.

5. Limit the number of credit cards

In the competitive financial market, consumers can get several offers for new cards. Many times, these offers seem tempting. Resultant, you may apply for those cards and splurge on non-essentials. Credit cards are indeed excellent financial support for consumers. But you may be trapped in debts with multiple cards if you miss deadlines. Therefore, save yourself from buy-now-pay-later lures and keep paying your dues on existing cards on time.

6. Consider an automatic bill payment facility

Many people may miss a credit card payment date in today's busy life. It is a costly miss as credit card dues carry high-interest rates and late payment fees. You can opt for an automatic credit card bill payment facility with your bank to avoid such unnecessary costs. There will be no manual intervention or permission required. The bill will be paid automatically whether you are travelling or facing any issue accessing your bank account. The credit card bill amount will get deducted from your linked savings or current account. You need not worry about deadlines. Just make sure there are enough funds to make bill payments. Otherwise, you will have to bear a bounce charge levied by the bank.

Thus, getting yourself out of credit card debt may seem daunting, but it is achievable. Follow the basic rules religiously for credit card bill payment, and do not let your bill pile up to haunt you again. Also, do not leave your credit card statement unopened in your email. Check whether the transactions you made on your credit card are recorded accurately or not. Following these things can help you manage your credit card efficiently.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.