The primary objective of a credit card is to allow you to spend more than what you have. With the advent of credit evaluation over the last decade, there has been an increase in credit card issuances over the country. Credit card companies are now focused more on the spending analysis rather than the earning potential of individuals. Due to the increase in the reach of merchants, credit cards nowadays allow you to pay for everything from groceries to buying a phone. Credit cards are a solution for liquidity constraints, but only if used wisely and smartly. However, if you spend money to avoid the payments and allow the bills to pile up, it may not be possible for you to pay even the minimum amount.
It is a common problem that the credit card bill squeezes the liquidity during the starting days of the month. To manage the expenses, you again go for credit card shopping. Hence, the cycle continues. This is what happens with just one credit. The problem multiplies with the increase in the number of credit cards; it may dent your credit profile. However, if you follow these five simple tips, you will be in a position to get out of the credit cycle with ease.
Take note of all debts & prioritize the payments
See where your debts are standing at present. Taking cognizance of the complete information is the first step to becoming financially independent. Never run behind more and more credit card offers if you already have a few credit cards. Evaluate your need of expense as compared to the income you would generate. Now, categorize the payment of the credit card first, which falls due first in line.
You should not prioritize your payment on the highest amount due but a higher interest rate. After this, you can make payment for a credit card with the least amount of balance pending. Also, the card with the lowest bill may have the highest balance. Thus, prioritizing is essential.
Convert outstanding bills to EMIs
It is an easy source to convert the outstanding bills into EMIs. The banker will charge the processing fees on such conversion. The rate of interest depends on the tenure chosen. The chosen EMI becomes the bill amount for every billing cycle. However, your credit limit will be reduced by the outstanding amount converted into EMI. The credit limit restates once you pay the EMIs.
Take a loan to pay off credit card debts
It is a matter of interest rate. Loan, such as credit line loan, usually has a lower rate of interest as compared to credit cards. Credit line allows you to withdraw funds as and when the need arises. These funds can be used to clear credit card dues at lower interest rates. Hence, instead of paying the card bills through installment, you can pay the same in one shot.
Another option to clear card debt is to get a personal loan if you have a good credit score. It will help you become debt-free by paying lower interest. Further, EMI on personal loans is lower than EMI on credit card installments subject to tenure.
Reduce the credit card utilization to 30%
The credit utilization ratio refers to the ratio between the credit card bill and the overall credit limit. Using the credit card to the last penny implies your credit hungriness and may compel the rating agencies to reduce your credit score. Thus, credit card utilization up to 30% is a decent range of spending. It will help boost credit scores quickly. Stop buying anything which is unrequired at present. However, it does not mean that you should never use a credit card. If you spend within the ratio, it is appreciable.
Be proactive for payments
Keep the credit card bill satisfied on the due dates. If the card issuer has provided you with 20 days of credit period after the due date, ensure to make payment immediately if you have funds. Don’t wait for 20 days to complete. Credit line options, such as credit line loans, are better ways to clear dues timely. Thus, the bill will not get carried forward in the next billing cycle. Ensure you make payments of utilities & rentals through credit card. Since these expenses ought to be cleared monthly, it will indulge the habit within you to respect the due dates.
If you plan to purchase something expensive, check whether or not you will have a consistent stream of inflows to match the EMI amounts.
Avail of offers and discounts
Here is a bonus point! Ensure using your credit card if there are offers and discounts applicable. After utilizing the offers, pay for the said amount quickly. Don’t wait for the card bill. This way, you can use the credit card, get benefits from the offer and enjoy a no-bill credit card.
Conclusion:
You would remain financially independent if your spending plan is within the limits of your earnings plan. Also, if you have a spending plan, ensure you also make a payment plan. Don’t get fooled by the credit limit offered by the issuer. If you can pay the dues within time, you can make purchases, else avoid it.
