With easy access to credit facilities, many employees have fallen into the vicious trap of consumer debt. Tell-tale signs are: using 3 or more credit cards, missing out on due dates resulting in late payment fees, taking out cash advance from one card to pay the other card(s), taking out all other available loans from government agencies, paying minimum amount due on the statement of account and charging the same amount to the card again to buy groceries and other necessities; and failing to save even just a small amount every payday.
It may seem too difficult, if not impossible, but with discipline, focus, and strong will, you can completely eliminate your credit card debts. Here are some tips to help you overcome your credit card woes:
1. Never miss a payment. If you cannot pay more to reduce interest charges, at least pay the minimum amount due. Missing out on payments raises immediate alarm on the creditor’s end. You will surely receive annoying letters and phone calls from the bank’s collections department. Besides, this will give your creditor the legal basis to enforce immediate payment of your outstanding balance. Moreover, missing a payment jeopardizes your good standing status and the privileges that go with it, including eligibility for balance transfer or loan consolidation.
2. Pay on time. When you miss due dates, you are generally slapped late payment fees (some privileged card holders may be exempt from this, depending on bank policies). Late fees imposes additional burden on you and adds up to your obligation.
3. Inquire on balance transfer offers from other credit card providers. Some banks offer .60% monthly interest computed against the amount transferred with amortization period of 24-36 months. Compare the total interest that you will pay versus the regular interest rate of the credit card. In most cases, you will find that the interest on balance transfer scheme is a mere 25% of the regular interest.
4. If you do decide in favour of a balance transfer, you need to assess your financial standing in the coming months or years. Can you commit to pay the monthly balance transfer amortization in full? If not, you need to choose a credit card provider that will give you the flexibility of revolving your monthly amortization, in the extreme case that you cannot pay in full. To get back on track, simply allocate for and pay the missed amortization in the coming months. You need to read the fine print, the T&Cs, of the balance transfer to make sure that it fits your capacity to pay to avoid worsening your credit card problem!
5. If a balance transfer to another bank is not an option, as when you only have one card, inquire with your creditor bank if they have facilities for balance conversion and the corresponding interest rate for such scheme. Bear in mind that when you pay only the minimum amount due on the card, 90-95% of your total payment goes to payment of interest, with little impact on your principal balance. With a balance conversion scheme, the total amount due will be considered as the principal. You will be obliged to pay a fixed monthly amortization over an agreed term (12/24/36 months) that will be applied by the bank to both your principal and the agreed interest amount.
6. Review the interest rate under the balance conversion scheme and compare with balance transfer rates of other banks. In most cases, the balance transfer rate is considerably lower than balance conversion rate. You may then decide if it’s worth getting another card to settle your current credit card debt.
7. Consolidate your multiple loans and credit card balances by either obtaining a low-interest loan or transferring all of your loans to one credit card, if possible. This will simplify your payment scheme, and eliminate extra charges that goes with missed due dates. Be realistic and practical. If you can pay your entire debt in six months, then do so, but if debt settlement in such short period will mean too much sacrifice for you and your family, then lighten things up and stretch the payment period to a more acceptable time frame.
8. If a balance transfer, balance conversion or loan consolidation is not possible, then sit down and assess your card balances. See which has the lowest balance that could be settled immediately, then prioritize payment for this while paying the minimum amount due for the other cards. Once the priority card is settled, allocate the amount you used to pay for this card to the settlement of the next credit card, and so on.
9. Find extra work or start a small business to help you pay for your loans faster. Explore both online and offline sources of income. Find sources of passive income, if any.
10. Cut back on your expenses without sacrificing quality of life.
11. Discipline yourself to save even just a small portion of your income while paying off your credit cards and loans. This will ensure that you will have cash in case of emergency and will not fall into the debt trap again.
12. Enlist the support of each family member to ensure success.
13. Lastly, make a resolve to stop using your credit card. Discipline yourself to purchase only what you can pay with cash on your wallet.
When you have finally cleared your balances and have stashed away a healthy fund for emergency, cut those credit cards in half, or at least allow yourself only one card. With what you have gone through to clear the debt bar, I’m sure that you will by then know how to handle your credit wisely. Enjoy a debt-free life!