No matter whether you are facing any medical exigency or want to go on an international trip, credit cards can help you. However, ensure to responsibly use your card and avoid taking it for granted. Taking your card for granted, may definitely land you in a debt trap and coming out of this may prove to be a massive challenge for you. Well, avoid panicking. Read here to understand all about the debt trap and how to avoid it.
What Makes The Users Fall Into A Debt Trap?
Firstly, it is crucial to remember that when you opt for a credit card, you ensure to sign up for the terms and conditions laid out in the joining documents by the issuer. One such important condition or term is that you must pay all your card dues on time as mentioned on your card statement, failing which your bank may send you notices or warnings on a periodic basis. Note that by missing out on your credit card outstanding, you not just pay hefty charges and penalties in the form of finance charges and late payment fees but also your credit score falls massively, making you ineligible for future credit options. Note that, credit score range between 300 and 900 wherein 750 and above is looked upon as a good score and preferable by lenders for lending you in the future. You must ensure to maintain a score of 750 and above. To maintain this score, you must ensure to conduct credit score check on a periodic basis. In the case of any error or mistake on your credit report, ensure to instantly report the same to the concerned credit bureau and lender for instant rectification. Timely rectification can enhance your score instantly, keeping your eligibility for future loans intact.
Even after frequent warnings, if you fail to clear your outstanding credit card dues, your account may get deactivated as well as reported to the concerned credit bureau. It will massively impact your credit profile and score. Hence, to avoid facing such a scenario, you must ensure to be aware of specific reasons that might land you in a debt trap.
Over Expenditure
It is one of the crucial things that you must stay away from. Though there might be various situations where you require spending an excessive amount, it is crucial to ensure that you would be able to make the repayment when you get your monthly income. Hence, you must just spend not over 30 per cent of your credit card limit to remain on the safe side and timely repay your funds in full and on time.
Postal Delay
In case you have not opted for the online receipt of your credit card bills, then your issuer would send your card outstanding bills to your home address by post. Here in such cases, there are extremely high chances that your credit card bills might get misplaced or even delayed. This would ultimately result in late credit card due payment. Hence, it is advised to keep your online notifications on. This would enable you to continuously receive an update over email about your credit card due and the due date for making the repayment.
Procrastination
There are many of you who tend to wait until the very last moment to make the payment of your credit card dues. While this makes zero difference if you pay the same before the due date, it’s always a prudent idea to pay your credit card dues in advance. Doing so allows you to remain away from the very risk of missing out on bill payments and leaves zero chance of becoming liable to make hefty finance charge payments on your missed credit card dues.
Also Check: CIBIL Score Range
Missed Due Date
Even though this is less likely, there might be certain instances where you would be confused about your due date, and ultimately miss out on making the credit card bill payment. Hence, it is recommended that whenever you get your monthly credit card statement, you must ensure to take a deeper look to understand if all the transactions mentioned are correct and check its payment due date. Accordingly, you must set a reminder.
What Happens If You Get Into A Credit Card Debt Trap?
You must have heard this proverb, “prevention is better than cure”. The proverb fits well in the case of you witnessing the credit card debt trap.
Are You Wondering Why?
The reason is if you are aware of the severe consequence of witnessing a debt trap, you would ensure to give your 100 per cent to not witness it. Hence, before moving on to the discussion about how you get rid of the debt trap, ensure to know what would happen if you got into it.
Lower Credit Score
Delaying your credit card payment or missing it results in a reduced credit score, which cancels out the major advantage that a card may have to offer you. Your score can be ameliorated by effective credit card usage and timely bill repayments. It is important to have a strong credit score to ensure that you qualify for a higher loan amount whenever you apply for it in the future.
Credit Card Accounts May Be Blocked
Not making payment of your credit card dues for up to six months may make you a defaulter. You may be blacklisted by the financial institution as an outcome your account may be blocked for any further usage.
Legal Implications
Not making payments for your credit card dues for a long time may mean fraud. As an outcome, financial institutions may take legal action against you, which may further get tough for you to get credit from any other lender to repay this due in the future.
Hefty Finance Charges
On non-repayment of credit card dues for over 60 days, credit card institutions levy finance charges as high as 52 per cent of the card overdue. These high finance charges are even applied on new buys that you would make using the credit card. If you continue with this, in nearly no time, the credit card finance charges would be more than the actual card due.
How Can You Get Rid of the Debt Trap?
To come out of this, you must follow the listed –
Credit Card Balance Transfer
If you have a lot of unpaid balances on your credit card, you can go with the decision of transferring your balance from a single card to another. This will assist if the other card has a lower or zero rate of interest on the unpaid amount for the pre-determined time period (up to three months, in many cases). Credit card issuers provide this option and levy interest constituents just after the predefined interest-free tenure is over. Thus, this option is suitable for you as a card user who can clear your bills within a predefined time-period as the other card issuer provided. Alternatively, if you are one of those who cannot repay the bills in a specified period, few issuers permit you to convert your transferred credit card balance into EMIs.
Look for Alternative Loan Options
If your credit card debt becomes very much for you to make the repayment in a specific time period, you can opt for a credit option from a few other sources to make payment of your credit card dues. You might borrow a personal loan from a bank, opt for a gold loan or top-up home loan to pull yourself out of this trap. Also, you may seek for availing a personal loan. Opting for most of such credit options would be helpful as the rate of interest on the borrowed amount from such sources are relatively lesser. Moreover, by opting for any of such credit options, you would get additional time to clear off the dues.