Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Step Out Of Credit Card Debt - Here's how... - Outside View by PersonalFN
  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Step Out Of Credit Card Debt - Here's how...
Jul 28, 2016

"Extreme convenience, unmatched benefits, and jaw dropping discounts await you with each credit card" goes the marketing line of the credit card services from a leading bank soliciting customers.

With the advent of plastic money, affordability isn't the question. You like it, swipe a card is their solution to the gap between the object of your desire and money in your savings bank account.

For the ones who prefer to work hard and party harder, saving for the future isn't top priority. So, when the middle of the month arrives, salary/saving bank accounts run out of cash and there's barely anything left to pay off the minimum balance due on their credit cards. This results in the debt spiralling, coupled with the monthly lifestyle expenses/purchases each month, the interest continues to mount and swells the total amount due on the credit card.

If you have taken the plunge of owning a credit card(s) and have got into a credit card debt, here's what you need to do to get out of it:

  • Adjust your lifestyle vis-à-vis income and outgoings: Most credit card debts pile because we fail to keep a check on our expenses. Most credit card purchases are impulsive and indulgent, especially at the time of a sale or festival discount. The best way to work towards a lifestyle change is to put a budget in place. For most, a budget sounds boring but sticking to it pays rich dividends in the long run. The key to a successful budget is to be as realistic as possible. Take a decision and cut down on unnecessary, out-of-reach wants/desires/aspirations and unwanted expenses as much as possible. Though it may be hard at first to make lifestyle changes, remember the road to financial freedom is worth every paise.
  • Know your expenses: Go through personal bank statements and find out the expenses you pay for through your credit card-regular committed expenses (telephone bills, electricity bills, gymnasium membership, insurance premiums and EMIs etc) and variable expenses (restaurant meals, entertainment and travel). This will act as a good foundation stone to lay down your budget.
  • Take stock of the situation: Until you know where you stand, it is even more challenging to work out a strategy to get out of debt. If you use multiple credit cards, make sure you write down all the credit card dues along with the interest rate you have to pay.
  • Prioritise your repayment: Once you have determined a method to budget your expenses and pay off your dues, you must start implementing the same. Do not delay or procrastinate these payments as the debt amount keeps increasing. It is also prudent to keep a track of your progress. You must revisit your finances in a disciplined manner to ensure that you have not deviated from the planned course of action.
  • Renegotiate the interest rates: Renegotiating the interest rate with your credit card company would help you save a lot. Even a few hundred saved could be directed towards a long term goal. At times, all it takes is a phone call to your Relationship Manager asking for honest help to get out of the debt.
  • Pay through cash: We are all emotional in a way. It is our "impulsive" desire to possess/buy that makes him pull out his credit card and swipe it. The best way to handle this urge is to use cash as much as you can. It seems difficult at the start but as you see cash leave your pocket, the emotional side takes over. It is a painful exercise to see hard cash leave one's pocket, isn't it? Dave Ramsey, a US based personal finance expert, suggests a "cash only" lifestyle and to get rid of all the credit card debts. He even goes on to add that responsible use of credit card simply doesn't exist.
  • Avoid taking a loan on your credit card: Most individuals take a credit card loan because it is faster and less cumbersome than other forms of loans. More often they ignore the interest rate that they pay on taking credit card loans. Credit card loans charge an interest between 36 to 40% vis-a-vis an unsecured personal loan (which charges 20-25%) - which is also expensive - and a secured loan (such as a home loan, top up loan or loan against your insurance policy). Evaluating all the available options is important before signing on the dotted line.

    A burgeoning credit card or any loan can impact your CIBIL score, and you may not get one when you are approaching a more important need or a financial goal such buying a dream home.
  • Take help of a financial planner: It is always advisable to seek opinion of a financial guardian who can show you the path to financial freedom and wealth creation and in the journey even help you recognise nuances. The action steps shared by a financial guardian can enlighten you and bring down on the debt vide a prudent strategy.

PersonalFN believes that owning a credit card is not a bad thing as long as you know the means to service your dues. As Dave Ramsey puts it, "Personal Finance is about 80% behavior and about 20% head knowledge". There's an old adage for financial discipline, "Live within your means" - follow it thoroughly.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Step Out Of Credit Card Debt - Here's how...". Click here!


More Views on News

What They Forgot to Tell You About Sensex at One Lakh (Smart Contrarian)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

Jun 10, 2017

Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

Venezuela's Own Crypto Currency: Smart or a Sham? (Outside View)

Feb 21, 2018

The South American nation of Venezuela just launched its own cryptocurrency. Is this the beginning of a revolution? Read on to find out more...

Safe Stock Ideas for You from Monday to Friday (The 5 Minute Wrapup)

Feb 21, 2018

The 5 Minute WrapUp will now come to you every weekday.

Narrow Banking: Public Sector Banks Should Not Be Lending to Corporates (Vivek Kaul's Diary)

Feb 21, 2018

Corporate bad loans constituted nearly 70% of the total bad loans of public sector banks in India, in 2016-2017.

More Views on News

Most Popular

Follow India's Super Investors to Make Big Money in the Market Crash(The 5 Minute Wrapup)

Feb 8, 2018

Has the sell-off in the markets left India's super investors unduly worried?

The Era of Easy Money is Coming to an End. What Happens Now?(Vivek Kaul's Diary)

Feb 9, 2018

The easy money policy of the Federal Reserve of the United States, which drove up stock markets all over the world, is ending, with the Federal Reserve looking to shrink its balance sheet.

The Markets Want Your Money. Don't Give It to Them.(Smart Contrarian)

Feb 9, 2018

MFs are having a gala time taking money from over-eager investors and funneling it into equities. Smart investors, though, know better than to do that.

The Big Gamble(The Honest Truth)

Feb 15, 2018

Once you accept the fact that elections are round the corner and that this budget is geared to reach a 40% target, everything makes sense.

Rising Dominance of Mutual Funds(Chart Of The Day)

Feb 8, 2018

Domestic money flow into Indian equities surpassed foreign fund flows in the recent years. But will it continue in volatile market?


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Feb 21, 2018 (Close)