Deep In Credit Card Debt? Read This
Almost all banks have raised their lending rates by 50 basis points which means a 0.5 percentage increase. If you have credit card loan to pay off, this would mean that you would need to pay an additional .5% in interest to your bank. Usually the interest rate were about 2.5% a month which has now jumped up to 3% (varies depending on bank.)
If you think that this is a marginal increase and the extra .5% is not going to affect you, you are sadly mistaken. Just to put things into perspective, a 0.5 percentage increase on an existing 2.5 percent loans means that the interest which you pay on your loan will increase by 20% straight off.
If this has not shaken you enough, there is more. If you are one of those who make the minimum payment necessary to be in good standing with the credit lender, you have more music to face. You will be charged and extra .5% as interest on the interest you did not pay off last month. Below in a simple example…
If your card loan is about Rs. 10,000 then you would need to pay back Rs. 10,300 the next month as principle + interest. However if you pay the minimum, which could be as low as Rs. 200 you will need to pay additional interest on the interest which was not paid by you. So the next month, you will be again paying interest in the principle amount which is Rs. 10,000 and then you will have to pay interest on Rs. 100 because you only paid off Rs. 200 where as your interest was Rs. 300.
Studies have show that if pay just the minimum amount due every month, you could be in debt for 10 years or more as the interest rate keeps compounding every month.
There are a few simple steps which you can take to reduce this debt and even come out of it completely in a short amount of time.
1. Don’t spend more than you can afford (common sense)
2. Pay off 100% in the next billing cycle, that way you do not pay any interest.
3. If you can’t pay off completely, try to pay 20-30 more than the minimum amount due.
4. If you have other credit cards, you can usually transfer you debt to your other credit card buying you a month or so in interest free installment.
5. If you are eligible for a personal loan you should take that as the interest rate is lower than a credit card loan. You will save on the interest and since a personal loan have a set period it will force you to pay off everything within the time frame.
6. DO NOT withdraw cash from you credit card… the interest is charged from day 1 (there is no interest free period on cash withdrawals) and is usually much higher than what you would pay on a credit card loan.
7. Last but not least, do not miss a credit card payment date, if you are the kind of person who usually does, then set an alarm on your phone every month or tie up with you bank to make a monthly direct deposit.
I am sure there are many other tips apart from the ones above… you can use the comment box below to throw in some.