A credit card can be the best source of financial help when you need money. Do not borrow more than what you cannot afford to pay else you can fall into the credit card debt trap.
Credit card debt is a vicious cycle because the interest keeps on multiplying on your debt.
Here we provide you with steps on how to get out of credit card debt.
Know your total debt
The first step is to find out how much debt is payable. When you use multiple cards, the debt amount will be split on different cards.
Write a list of all existing credit card debts, loans on credit cards along with interest payable and ascertain the outstanding amount.
Remember ‘Awareness of the problem’ is the first step to find out a solution.
Plan to repay your debt
Accumulate your sources of income and calculate your Debt burden ratio. This simple process will let you know how much of your income goes to debt payment every month.
According to UAE Central Bank guidelines, Debt Burden Ratio should stay within 50%.
Banks are willing to negotiate with customers and help them to come out of financial hardship. Negotiate with the bank for debt restructuring arrangements.
Banks may revise your payment plans or sometimes even waive off your penalties for late payments.
Click here to find out how to calculate Debt Burden Ratio
Pay high-interest debt on priority to save on interest
Arrange all your debts in descending order of interest rate. Target to pay off a high-interest rate debt.
If you have multiple cards, pay minimum payments on all other cards and arrange all your money to pay off high-interest credit card debt.
As you continue to pay off debt like this you will save your money by avoiding paying high interest. The money that you saved can be used to pay off other debts quickly.
Pay a low-interest debt for psychological motivation
Pay off your small debt amounts first. Then pay minimum balances on larger debt amounts and keep rolling on your payments.
It gives psychological motivation that you have cleared smaller debts.
Small victories give satisfaction to eliminate larger debt amounts.
However, prioritize to pay off your high-interest rate debt this will help you to avoid high-interest rates.
Take a personal loan to clear your credit card debt
A personal loan may be a good option if you’re paying more for credit card debt. You can take a personal loan and pay off your high-interest credit card payable amount.
The advantage is you pay less interest rate on personal loans compared to credit cards.
A personal loan can be used to pay off credit card debt faster. You can also save money on interest.
However, you should have a good credit score and repayment capability to get a personal loan approved.
Use Debt Settlement
You can use the debt settlement option when you have many late and skipped payments. Debt Settlement companies negotiate with the credit card issuer for accepting a lesser debt amount. You have to gain the confidence of a ‘debt settlement company’ to help you.
You have to open a savings account and add your monthly payment. Once the account has enough balance debt settlement company believes you. It will then negotiate with the card issuer and the creditor will accept a smaller amount.
Save Money and Money will save you
Prepare a good budget, prioritize your monthly income for clearing credit card debts. Save money by practicing new habits like cooking at home instead of eating outside, move to cheaper accommodation to reduce rental payments, use public transport instead of your own vehicle.
Reduce your expenses on luxuries and spend your income on necessities.
A small cut down on your day to day spending can give you enough cash. This can help you to get rid of your debts quickly.
Click here to know Ways to Save Money
Find out ways to increase income
Once you have planned to reduce your expenses, you can ponder on ways to increase income from other sources. You may also lookout for a higher-paying job or ask your employer to increase your salary.
If you have an interest in business, you can start a small business or do freelance work but only if your employer permits. Find out ways in which you can increase your other income sources to reduce your credit card debt.
Conclusion
Coming out of debt is your task and it is equally important to stay out of the debt trap. Once your debt is at a manageable level or you have cleared your debt, your target should be to stay away from debt.
Say No to new Credit Cards. Manage your existing credit cards efficiently by spending wisely.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
