17 January 2020
A warning on getting too friendly with credit cards would find itself in nearly all financial advice. And with good reason – considering the high interest rates and late payment penalties many cards can have. The dangers of running yourself into a credit rut, with considerably more debt than you have the capacity to repay in one go, are too easy to fall into. Unchecked spending with credit cards in-turn leads to a big hit to your credit scores if you’re unable to make the monthly payments on time.
Credit cards, used prudently, are an efficient way to elevate your credit score, and optimise your payments. It would be unwise to assume you would never need a credit card in this day and age; anything from a sudden hospitalization to paying bills, to a little splurge on gifts for yourself or others, a form of cashless payment is indispensable these days. Here are 5 strategies you can use to ensure your credit card repayments don’t get the better of your financial wellbeing:
1. Pay off previous dues before using your card again
This may seem obvious, but stave off on using your credit cards until you’ve repaid most of the existing dues on them. If you keep racking up credit card debt while still keeping up with current repayments, all you’ll be doing is increasing your minimum monthly payments, and making it challenging to meet them in consequent months. Try to hold off on expenditures using your card until you’ve paid off a decent amount, or ideally all of it. This will keep your minimum monthly payments lower, and make it easier for you to stay ahead of them.
2. Budget your spending to account for repayments
Once you have a significant amount of credit card dues, it’s wise to figure that into your monthly budget planning. If you don’t, you may find yourself spending money on frivolous expenses, and end up not being able to meet the minimum monthly payment on the card. This could lead to exorbitant fines for late payment and a hit to your credit score.
3. Pay off higher interest cards first
If you have multiple credit cards, it’s financially wiser to focus on paying off the one with the highest interest rate first. While the difference may seem small if you compare interest rates across your cards, mathematically speaking, you’ll still save more on paying interest if you repay high interest-rate debts first over lower-rate ones. Try to repay more than the minimum repayment amount on these cards each month to reduce them. Focus on your lower interest-rate credit cards post this.
4. Pay more than the minimum monthly repayments
As long as you budget your repayments into your monthly expenditures, and keep a close track of your credit card expenses, you should have little trouble meeting the minimum monthly repayments required to avoid penalties. However, doing the bare minimum means that your repayments stretch for an unnecessarily long period. This means you pay a huge chunk of money just for interest payments. Pay as much as you can above the minimum amount, so that you spend less on interest payments, and are able to pay off your dues faster.
5. Get a low interest debt-consolidation loan
If you have a lot of high-interest credit cards on your neck, it’s wise to opt for another debt-consolidation loan. This may seem counterintuitive at first; Why would you go into more debt to pay off existing debt? But, if you’re able to acquire a loan that has a significantly lower interest rate than your credit card payments, you actually end up spending significantly less overall. You can use the debt-consolidation loan to repay your credit card dues instantly, and the lower interest rates mean you spend less on interest payments. Quite a few online instant loan portals, for instance EarlySalary, provide low-interest rate loans, with lower requirements on CIBIL scores than banks and other standard financial institutions.
While credit card spends are inevitable, getting burdened with repayments doesn’t have to be intimidating and stressful. With some financial management and strategic budgeting efforts, you can be confident of staying on top of your repayments, and ensure you make the most of your credit cards.