7 Smart Tips for Managing Your Credit Card Debt If the Credit Score Is Low

Credit Card Debt If the Credit Score Is Low

In today’s era of digitization, with increased ease of access to credit, the usage of credit cards has been on the rise, and consequently, more and more consumers are falling into debt traps and hurting their credit score, which is usually in the form of 300-900 cibil score range. But remember, a credit card becoming a boon or a bane for you depends on how it is used and managed.

Credit card debt is one of the worst traps to fall into, as it is an unsecured form of debt with a high rate of interest charged. Credit card debts are a result of continuous accumulation of amount spent through the credit card, plus a heavy interest rate. Debt accumulates and increases due to high interest and penalties levied when the consumer does not pay back what he/she spent.

If they are used in an unscrupulous manner, for example-continuous spending through credit cards coupled with non-payment of the monthly dues, frequent withdrawal of cash through them, etc., then they can turn into a bane and lead to serious debt traps. On the other hand of this side, if credit cards are utilized properly by making timely payments and not overspending, these can prove to be a boon in times of financial difficulties and also, the reward points you accumulate may also prove beneficial in purchasing something you longed for. Also, if you are thinking of how to check my credit score,  there are many online financial portals offering this facility, besides the 4 credit bureaus’ websites themselves.

To manage your credit card debt, use them wisely, and keep your credit score on the higher side of the cibil score range; here are the various ways that can prove to be fruitful in reducing and gradually removing your debt and making you head towards strong financial health.

Know how much you owe-

The first important step to reduce your debt is to know how much you actually owe, including the interest component and charges, if any, and also make it a practice to monthly check my credit score. This will assist you get a fair idea of your financial health. Also, don’t just pay any random amount every month. If you have multiple credit cards, consolidate and calculate the total amount you owe. Then you can plan for the near future and decide the amount you can pay next month onwards, after reducing unnecessary expenses and spending only on the important and unavoidable things.

Seek professional help-

Another way to manage your credit card debt is to either talk to your bank to reduce your interest rates or convert your outstanding amount into EMIs or take the assist of a professional such as a credit health agency or financial advisors. With the advice of professionals, you can manage your finances better and plan in accordance with your set goal of removing your debt. Also, if you tend to forget to check your credit score every month, just put a reminder or alarm named as check my credit score, and that’s it! You are reminded of checking it every month.

Create and follow your budget-

A budget will inculcate financial discipline and help you to gradually reduce your expenses and efficiently utilize your hard-earned money. To do so, you firstly need to track your expenses and minimize them as much as possible. Be determined enough to stick to your budget every month unless there is an emergency or unavoidable expenditure. Make sure you aren’t spending more than you earn at any point in time. All these are gradual, solid steps to help your credit score reach the higher side of 750 and above in the cibil score range.

Pay off more than the minimum –

Most people keep satisfying themselves by just paying the bare minimum amount each month. This makes the lender happy as this minimum amount paid doesn’t really affect the actual outstanding amount, and the interest keeps building up, making it much harder to clear the total balance. Hence, it is always advisable which if you can’t pay the whole amount, at least pay more than the minimum monthly payment to ensure your credit score in the usual 300-900 cibil score range doesn’t get hurt.

For instance, if your bill is Rs.100,000, your minimum due amount could be around Rs.5000. If you just pay this minimum amount, you will be charged interest (at around 24-48% per annum) on the remaining Rs.95000. So, continuing the payment of the minimum amount every month will lead to this vicious cycle of payment never-ending. And when you suddenly think of the thought that let’s check my credit score, you will see a low credit score if you don’t even pay the minimum dues and/or make late payments.

Prioritize clearing off the highest interest debts

The debts which charge the highest interest rate should be cleared off first, as this will reduce the total interest you pay per month to a great extent. This will have a long term effect in reducing your total debt. When all your credit cards have roughly the same interest rates, then pay the minimum amounts and focus on the card with the lowest balance so that it gets finished quickly.

Consolidate debt and transfer balance-

This strategy helps in saving money and paying off your piled up debts soon. You are consolidating balances of all your credit cards into one credit card, which is still in its credit-free period. This gives you some space to breathe, think and strategize your future payments in this span. This trick benefits psychologically also, as you have to pay the due amount on only one card and not multiple ones like before.

Moreover, you can develop the practice of monthly checking credit score by putting a reminder or alarm in your mobile phone, and name it as check my credit score. Now you are all set toget reminded of checking your credit score every month, hence helping you keep a tab on your credit health.

Cut the debt causing habits-

Debt causing habits will affect your finances continuously and hurt your financial balance until your correct them. These habits majorly include impulsive shopping induced by offers and discounts. For this habit, I prefer using cash for shopping as this will make you think twice before you spend, thus avoiding debt and also reducing spending. No matter how lucrative this piece of plastic money may seem, always remember the high-interest rate it incurs and that ultimately you have to bear that expense.

To sum it up, it is always recommended to choose and use your credit card cautiously, and avoid the impulsive outflow of money through your credit card and make timely payments of your credit card statements. Credit card debt isn’t an easy one to get out of, so avoid getting trapped in it and creating a financial imbalance in your life. Managing your credit card debt properly will also fetch you a good credit score.