How to get out of Credit Card debt trap

Credit card debt trap has emerged as a new disease in these times of credit based economies. Moreover,it has attacks the lives of skilled and proficient individuals and renders them useless. It is an ongoing trend in the country in which individuals are finding themselves in a mountain of debt. Just like an alcoholic who remembers nothing from the night before, the individuals too are clueless as to how they landed themselves in the situation. It may be a shopping spree or an expensive party or a combination of both, spread over time that has landed them in this problem.

Getting into a credit card debt is also more toxic due to the nature of the debt. The credit card and its debt come with varied rates of interest and fees or penalties. Additionally, all its outstanding balances accrue another rate of interest as they accumulate over time.

They use the concept of a revolving balance and that further adds teeth to the debt. It has been a well-established fact that the credit card is the costliest loan in an individual’s life. And it is essentially a loan, as you haven’t earned the money that you are about to spend. This makes overcoming a credit card debt trap seem as an obstacle of insurmountable odds. But all is not lost and there are ways out of it. There still remain a few ways to get one’s life back on track. Below are the ways that can help an individual crawl out of a credit card debt. 

The first step in solving a problem is to acknowledge the problem. Look at the monthly statement and understand that the damage is already done. Let your thoughts linger around the damage it has done. The damage to your CIBIL score being the worst of the damages.

Now show some self-restraint and refrain from paying with that card until the debt is paid in full. Then head on over to the bank to have a word with the officials. To repay this debt, you can choose a credit card balance transfer, a fresh loan to repay the debt, conversion of the dues to EMIs or liquidation of assets.

Credit Card balance transfer: 

In this option the individual requests for a fresh card to be issued, or transfers the balance to an existing card. This card will come at a reduced or even a 0% interest rate. But this will only be for a short period of time, usually 2 to 6 months. After the time is elapsed the balance, whatever is remaining will attract standard rates of interest.

Opting for a loan:

Applying for a loan to repay a credit card debt does seem absurd.But just hear me out, even a personal loan with it highest rate of interest will charge you around 12 to 25% per annum. This is still significantly less to the 36-45% interest you would be charged under your credit card. There are other loans like gold loans or loan against collaterals that come with an even lower interest rate.

Conversion of dues to EMIs:

This exists as an option, but is not among the favored ones. Here you can convert the balance into EMIs spread over a period of 3 to 12 months. This also will have a lower rate of interest than your original credit card debt. The interest rate will be kept around 12% to 20%. But there will be other charges like additional processing fees usually about 1%-3% of the amount and service tax.

Liquidation of Assets:

This is an absolute last resort. It must not be touched unless all the above options have been tried. This option makes the individuals liquidate the assets to pay off the debt. To be weighed here is the opportunity cost of your assets. This becomes all the more critical with assets that are market driven, such as equities. These assets have the off chance of returning very high yields in a matter of hours especially when the market is on a bullish run.