Credit cards can be very useful if you use them carefully, but they can also be very expensive. The annual interest on credit cards can be in the range of 24-48 per cent if you do not pay your dues on time. In fact, paying the minimum balance is a very bad idea, as your debt accumulates and can eventually land you in a debt trap.
So, you must plan the repayment of your credit card spends before you use them for a shopping spree, especially during the festive season. In fact, it is judicious to first plan the repayment and then indulge in spending.
“With credit card spending surging by 27 per cent annually to Rs 18.68 trillion in FY 2024, as per the central bank, it's clear that credit is becoming an integral part of consumer spending and Indian household finances. As we enter the festive season, typically a time of higher expenses, it's more important than ever to manage credit card debt wisely,” says Amit Prakash Singh, co-founder & Chief Business Officer, Urban Money, a digital platform for secured loans and mortgages.
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What You Should Do
Credit cards need to be used judiciously. “Only that amount that can be paid back at the end of the credit cycle can be availed when purchasing goods using credit cards. This ensures that one will not go overboard beyond one's capacity to spend and also avail the convenience and benefits of the credit card, says Suresh Sadagopan, founder and principal of Ladder7 Financial Advisories, a financial planning firm.
In fact, a planned approach can help you manage credit card debt better. Let us see how.
“As a first step, make a budget and stick to it. Take stock of how much money you have by calculating the amount left in your account after deduction for equated monthly installments (EMIs) and other utility bills. Since a lot of shopping happens via credit cards, plan your credit card expenditure too based on how much credit card debt you can manage in the future,” says Adhil Shetty, CEO, BankBazaar, a fintech company.
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Once you have zeroed in on an amount that you can spare for your expenses, stick to that budget. If you have maxed out your cards this time, it would make sense to consolidate your debt and repay it at the earliest. To do this, you can opt for a balance transfer card or transfer your outstanding balances to the credit card that offers the lowest rate of interest and the longest interest-free period. You can also convert your dues to an EMI on call.
“However, both these options are still expensive compared to a secured personal loan. If you can secure a personal loan at a lower rate of interest and an affordable EMI, this could be your best option to pay off your debts,” says Shetty.
